4 Tips on How to Invest in Gold

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For thousands of years, there has been one investment which has both fascinated and rewarded people: gold. Loved for its beauty, valued for its rarity, appreciated for its portability and treasured for its durability, gold has for millennia been a byword for a smart investment which holds its value come what may. In today’s turbulent times, as throughout all of history, smart investors are looking to gold as a way to lock in their value and hold it against unpredictable economic and political headwinds. But there are different ways to invest in gold, and some work better than others. We have spoken to experts in the financial markets and got a lot of useful information on how best to invest in this precious metal. Here, we share our best four tips on how to invest in gold.

Buy and Hold

Gold is the original buy and hold investment. Many investment classes are suitable to trade. For example, people will move in and out of turbulent stocks, hoping to profit by buying them at a low and then selling them as the market tops. That is a hard enough skill to have when it comes to stocks. But for gold, not only can it be difficult to time the market, it can also defeat the purpose of gold investment. Gold is ideal as an investment class because it holds a substantial amount of its value over the long term, and in the event of dramatic and unpredicted external shocks which can send the prices of other asset classes into meltdown. So while you could try to time purchases and sales of gold, you shouldn’t do that if you are serious about investing in it. Rather, it is better to buy it and to hold it. That is not only because it is hard to predict the gold market as with other asset classes, but also because if you sell you will get paper currency, which in the event of an external shock can become much less valuable or even worthless overnight. You will have traded security for insecurity.

Buy the Metal not the Mystique

You can buy gold in all sorts of decorative forms, but the purest mode of investment is to focus on the metal itself. As gold is beautiful and valued in many cultures, it has been used across history to craft exquisite jewellery and other items. You may see buying these as an investment both in the metal and in the possible value appreciation of fine art. However, when buying jewellery you are typically paying  a premium for the craftsmanship of the piece, as well as paying for the value of the metal itself. In that sense, you are exposing yourself to two variable on your investment return. That is an unnecessary risk. In the sort of economically fragile market where gold as a store of value most shows its worth, discretionary items such as jewellery will be traded in a buyer’s market not a seller’s market, so that part of your investment may well be able to be realised only at a loss. If you want to invest in gold, it is best to stick to the fundamentals by investing in a pure form of gold, such as bullion.

Invest as Directly as Possible

You can invest in gold through some collective investment schemes – but make sure you are paying for gold, not fees for unnecessary advisers. For decades, retail investors have been familiar with the idea of a mutual fund. By pooling your resources with other investors, you have access to a slice of a range of stock investments which you may not be able to afford if investing on your own. Similar funds have become available for gold. However, in investing in such a fund, you need to be careful to understand whether its price reflects the underlying gold asset price, or is also a reflection of buyer demand for the fund itself. Some funds will trade at a significant premium over the value of their underlying gold holdings. One way to avoid this is by investing directly in gold. Although this is harder to do if your funds are limited, some jewellers and gold dealers will sell relatively small quantities of gold directly.

Go for Quality

Everything that glitters isn’t gold – and everything that is gold doesn’t glitter the same. You will  be familiar from jewellery with the different grades of gold, such as nine carat and eighteen carat, for example. When investing in gold on a limited budget, it can be tempting to buy into the cheaper grades. But just as investing in penny stocks is inherently riskier than buying into the more costly blue chips, so it is with gold. If you are going to invest in gold, it is best to invest in the highest quality of gold you can afford. Gold has been a renowned investment for centuries because it is seen perhaps uniquely as a long-term store of value. Today more than ever people want to  tap into this opportunity, but it can be confusing to know how best to invest in the precious metal. We’ve spelt out four tips above on how best to invest in gold. If you pass by a jeweller today, why not stop in and ask the owner for their advice on gold?