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Gold has been around for ages, and it still holds value in every nation on Earth. However, is it a good personal investment to buy gold? If so, how can it be purchased? Finally, are there other ways to invest in gold? Let’s take a look at the value of gold as an investment.
Gold has steadily increased in value throughout the centuries. An investment in gold can be highly risky and speculative, but historically, it has given a steady return.
Gold has increased in value since 2001 against the US Dollar. That means that a purchase of gold in 2001 would yield seven times the initial investment when sold in 2021. However, there have been many price fluctuations.
The original paper currencies of the United States were paper banknotes that could be exchanged for fixed amounts of gold at the banks that issued them.
However, the US moved away from the gold standard and became a fiat currency (USD) over time. Many other nations followed suit. A fiat currency has a value guaranteed by the government as legal tender instead of a fixed amount of gold value.
Because of this financial policy change, the value of gold in US Dollars has since undergone extreme price fluctuations, also known as high volatility. While a gold investment has historically been shown to yield good returns over time, the price is not nearly as stable as it used to be.
There are several ways to invest in gold. The most obvious method is to buy physical gold, but there are many other options available.
The easiest way to invest in gold is to buy gold bars or gold bullion. Bars can be prohibitively expensive, but bullion, or gold coins, can easily be purchased online or at local coin shops.
These are based on the price per ounce of gold, otherwise known as the spot price. This is the main price for measuring gold, and the most common gold coins weigh exactly one ounce.
The coins are specially minted depending on the nation that sources the gold itself, so it will cost a bit more than the exact spot price of gold.
A less direct way to trade physical gold is to trade derivatives based on the value of gold. Instead of buying gold itself, you can buy a gold futures contract that represents physical ownership of a fixed amount of gold.
These contracts can be bought and sold instantly through electronic systems. However, due to the volatility of gold prices, this can be very risky and difficult to trade correctly. This is the standard method for trading market commodities in general.
The stock market, or the equity market, allows anyone to buy a piece of a public company. These pieces are called shares, and many of the companies on the stock market are related to the gold industry.
Gold stocks can provide great exposure to the value of gold, but purchasing one stock at a time can be a risky approach. It’s important to spread your investments across several assets to reduce risks. This is a process called diversification.
An equity fund is a great option if you’d like to invest in gold stocks without picking your own individual companies. These funds are specifically focused on purchasing a careful portfolio of various gold stocks, and you can own a piece of the fund by purchasing shares.
In equity markets, funds offer a convenient way to invest in a professionally managed portfolio of stocks in the general stock market or a specific industry.
Gold equity funds are offered in the form of exchange-traded funds, mutual funds, and closed-end funds. For exposure to the general stock market, index funds offer a convenient way to put your money in the overall value of public equity.
» MORE: See our favorite investment advisors for index funds
Physical gold can easily be purchased at retail bullion stores and online bullion dealers. These companies offer a wide variety of gold bullion and bars from nations across the world. They also offer collectible coins and bullion in other precious metals, such as silver.
Anyone can purchase public shares in stocks and funds through an online retail broker. By registering an investment account with a retail broker, an investor can purchase individual stocks, commodity futures, and shares in equity funds.
This is the most convenient method of investing in gold, as an investor can buy and sell shares and derivatives instantly through an online interface. However, it does not have the same physical qualities as buying bullion or bars.
» MORE: Find the best broker accounts to trade gold stocks
When comparing physical gold to equity markets, equity markets are historically more profitable by a wide margin. However, physical gold can still be valuable as a long-term store of value.
If you invest in physical gold, it’s mostly useful as a secondary long-term investment compared to investing in stocks and funds.
However, gold and other precious metals should not be completely discounted as valuable investments. After all, central banks worldwide invest in gold bars and trade them to diversify their reserves and manage their national currencies.
