Since the dawn of time….Gold has been a symbol of wealth, beauty, success and... gangster
bling the world over. And among investors these days it’s also
been a very hot topic. In 2019, the price of gold rose by more than 30% - and some analysts,
plus some who think a recession is coming, think it has further to run yet.
But for all that talk... how do you actually invest in gold? Well, in this video we’re
going to explore why gold matters, the many ways you can invest, and some of the risks involved.
Gold is one of the oldest forms of currencies, with coins dating as far back as 800bc.
And up until pretty recently it was still used as the global standard for trade. That
all became a bit shaky around WW1, but it wasn’t until 1970 that the gold standard officially
ended. Now we have the fiat or paper standard which is issued by the central banks and most
commonly carried around in your pocket as cash. But when these currencies start to fail us..
You know, because of hyperinflation, underinflation, recessions or stock market crashes… it’s
historically been gold that we fall back on - which is why the price of gold tends to
go up when economies start to perform poorly or when grandma starts getting nervous again
about the state of the world.
In the last couple of years, we’ve been moving through a period of global economic
uncertainty, thanks to the US-China trade war, unrest in the middle east and changing
power dynamics around the world. Because of this, the central banks have us sitting at
record low interest rates. This is why gold has reappeared as a hot commodity.
And if interest rates continue dropping - even into negative rate territory -- well, gold
could become a lot more important.
So how do you invest in it? There are two main ways that you can put your money into
gold. You can buy physical gold, or you can invest in gold via the stock market.
Physical gold is where you actually own the gold, as in, you can hold it, or wear it, or store it
in a safe. The benefit of this is that you own something tangible,
which can make it less risky than investing in something like stocks - where if it all
goes to hell, you’re left with nothing more than a piece of paper in your hand. If the
price of gold goes down…in the least you can make a nice pair of earrings out of it.
The most common forms of physical gold people usually invest in are gold bars, aka bullion,
gold coins - and of course jewellery. If you’re a serious investor though - you’ll
get the best price for gold in its bar form. Meanwhile, coins and jewellery are given as
gifts or for special occasions like a wedding or Chinese new year.
Finally, you have what’s called unallocated gold investing, where it’s still physical,
but not in your hands. Instead, you’re investing in a dealer’s pool of gold - so really,
it’s more like a contract. You’ll never get to handle any of the gold and it can be
a little riskier too. How do you buy it? You can literally walk
into a bullion dealer and walk away with gold in your hand. Or you can buy it online and
have the gold delivered to you or stored in a vault until it comes time to sell - and
there are costs there too. There’s even a few apps out there now that
let you trade gold on your phone. Just remember: No matter how you’re buying physical
gold - make sure it’s an authorised dealer - because yeah, fool’s gold is still a thing.
The other way to invest in gold is over the stock market - and there’s a few ways to
do this. 1. You can buy gold stocks. That’s where you invest in a company that has gold
exposure - like a mining company. It’s not always easy to pick the right company,
but as a general rule of thumb, companies with strong gold exposure will see stock prices
go up when gold prices go up. If stock picking isn’t for you - you can
invest in a Gold themed exchange traded fund, which is a listed fund that is made up of
multiple gold companies or which tracks the price of gold.
If you want to learn more about ETFs, I actually just did a video on that so check it out in the link below
If you’re feeling especially brave, you can invest in gold through the futures market.
Futures traders look to profit from price movements – so they can still profit whether
prices are rising or falling. However, because futures contracts can be highly risky and
complex derivative products, this is better suited to advanced traders.
Remember, with the stock market you’re not actually owning physical gold so you’re
exposed to all the usual risks that the stock market carries, such as market volatility,
company bankruptcy and the possibility of losing your investment entirely.
Why might you invest in gold?
To make money from it - when gold prices go up, so does your wealth.
To protect your wealth - whether you believe a recession is coming or not, gold has historically
been a safe bet for your money.
No. three, it's liquid - it’s easy to convert into cash
And fourth, on the sentimental side, it can be a terrific gift that is also an investment.
What are some of the downsides?
Low risk, low-reward - as is often the case, this means your returns over a long time frame
might be lower than with other kinds of investments - like stocks.
Ongoing costs: If you’re buying physical gold, there are fees to consider, such as
dealer fees, storage, and insurance costs. No income: Unlike owning property which generates
rent, or shares which can pay dividends, physical gold won’t earn any income until you sell it.
Price volatility. If you’re investing in
gold via the stock market, it comes with the same risks you normally get in stock market
investing. That is, you risk losing your money altogether. Just because you're investing
in a gold stock - doesn’t mean it's a safe investment. So do your homework.
So whether you think a recession is just around the corner, or you want to diversify your
stock portfolio, gold could be a great asset to consider investing in.
But as with any investment, it’s not for everyone.
So what do you think? Do you think gold is a good investment?
And what’s your flavour of choice? Let us know in the comments below.
There’s a lot more to it than what I’ve gone through, so if you want to find out more
about gold investing or how to invest in shares or ETFs, you can visit Finder.com.au and the links
are in the description below.
Thanks for watching, I'll see you next time!