Buy Gold Stock
There are many ways to invest in gold. Learn about the differences between physical gold, stocks and futures and the best times to invest in gold.
Historically, gold has always been a valuable precious metal. There are several reasons gold became associated with wealth. Gold is a malleable metal, meaning it can be reshaped into jewelry or coins. Gold has a natural luster, which gives it an exquisite, valuable appearance. Compared to other precious metals, gold was harder to acquire, since it involved digging it up from the ground. This rarity made it even more of a treasure.
For years, gold coins were commonly used as currency. Even when society shifted to paper money, gold played a role in the economy. Up until the late 20th century, each printed bill represented a piece of gold, with the total number of bills equaling the total amount of gold in a country. Even when the world shifted to fiat currency, gold remained a valuable metal, making it a prime choice for investing.
Gold Investment Options
There are a few differences with investing in gold compared to typical stocks. One of the major differences is how your purchase your investment. For more traditional investments, you can invest directly in a gold mining company. This is similar to a stock investment. If the company does well, you make money back on your investment.
Another option is investing in gold futures. Gold futures are a contract from a company, stating the company will either buy or sell a set amount of gold by a specific date. With this option, you are not purchasing gold directly, but instead purchasing the contract. Trading gold futures is considered the riskiest option, as you do not know what the price of gold will be once the contract is applicable. It is possible the contract ends up less than what you paid for.
The majority of investors physically purchase gold. Usually, investors buy either coins or bullion bar. Bullion bars are popular because the bar itself is stamped with the purity level, which also notes the amount of gold in the bar. The value of either coins or bullion is entirely based on how much gold it contains. The rarity or condition of the gold itself is not a factor.
Buying physical gold over investing in a gold stocks or futures has several advantages. It is also much easier to sell gold versus selling a stock or contract. Your stock in the company also fluctuates based on market position, while the price of bullions and coins is entirely based on the current gold rate. Another advantage with physical coins and bullion is it is much easier to gift the gold to another individual. This is especially common among seniors, who leave gold to family members in their will.
If you decide to purchase gold coin or bullion, it is important to have a secure location. Investors commonly keep their gold with a broker or bank for the most security, though you must pay a small fee for these services.
Recent Gold Value
There are always risks with investing. Gold is often considered a high risk, high reward investment. The price of gold fluctuates much more than other investments. It is common for gold prices to increase during emergencies. Gold is considered a valuable commodity during economic emergencies because it has such a high inherent value. No matter where you are in the world, your gold is worth money.
2020 saw a drastic increase in the value of gold and other precious metals. This is based on two primary factors. The first is Covid-19. During the pandemic, many individuals lost faith in the government. There was also a great deal of uncertainty regarding how long the pandemic would last. Many individuals wanted to turn their currency into something more valuable, storing their gold assets in a safe haven in case the value of the dollar tanked.
The second reason gold value soared in 2020 was the stock market. In 2020, there were several record setting crashes. These started in march, again because of Covid-19, but the market continued to hit low points throughout the year. This crash caused an even greater panic, prompting investors to purchase precious metals.
Other Demands for Gold
Gold prices do not only rise because of emergencies. One of the greatest demands for gold comes from the jewelry industry. As of writing, nearly 50% of all gold demand is jewelry related. Gold is also an excellent conductor of electricity, so certain industries commonly use gold components. This includes heat shields, dentistry tools and many types of tech gadgets. Innovations in any of these fields often cause a spike in the value of gold. Typically, this is not as much as a financial emergency, but it is worth tracking if you are trying to find the most opportune time to cash in your gold investments.
Another potential factor which changes the cost of gold is availability. A common misconception involves the rarity of gold. Many believe it is the rarest metal, but it is fairly common. The biggest issue is how difficult it is to mine for gold. As of writing, the World Gold Council believes there is close to 190,000 metric tons of gold currently in use, with an estimated 54,000 metric tons waiting to be harvested.
Discovering new sources of gold is relatively rare. However, in recent years, gold harvesters have discovered some small quantities in undersea thermal vents. Currently, there is no easy way to extract this gold. The costs of extraction are much higher than any projected payout. If new harvesting methods are developed to reduce the harvesting cost, the market may be flooded with additional gold.
Choosing When to Invest in Gold
If you are interested in gold investments, you must select the right time to buy. The majority of gold investors recommend buying gold in small increments, when the overall value of gold is on a decline. As an investment, buying gold during an emergency is the worst opportunity, since the cost of gold is so high during these periods. Gold normally drops in value when the market is stable, which is a good time to add gold to your portfolio.