Gold investing guide for beginners
New investors are investing in gold because it can offer diversification opportunities and long-term returns. So what is how to invest in gold for beginners?
Despite the endless investment opportunities available to you today, these investments can be very volatile. And since gold has a great ability to preserve value and protect your money from the erosion of its purchasing value, investing in gold for beginners can be a great addition to their investment portfolios to balance risks. Investing in gold is a hedge against risks, and it can lead to high returns, especially when it comes to long-term investment.
What does gold investing mean for beginners?
Like many other assets you might choose to invest, gold is not an asset so much as a commodity. However, many people tend to place their trust in gold more easily compared to other assets, because gold is one of the oldest commodities in the world.
You can invest in gold for beginners in many different ways. Gold investment options vary between physical, virtual and adjacent gold investments. Make sure you know the differences between these types of investments (and their potential risks and returns) before you proceed to buy gold in any way.
The value of gold can change rapidly and continuously over time. These fluctuations in price make gold-based investments a poor choice for people who worry about day-to-day performance. So you should only invest in gold if you can handle a bumpy ride that promises risky moments, but promises a huge potential reward at the end of the road.
Why invest in gold?
Gold can seem like a volatile investment, but don’t let that discourage you. Historically proven, the value of gold constantly rises and when other investments go down, investing in gold can see some gains. Your investment in gold can save you during periods when your investments in traditional stocks may falter.
Gold investments give you the opportunity to choose how much hands-on you want to have and then adjust your risk level accordingly. If you like physical assets, you can buy gold bars or gold jewelry directly. If you prefer to diversify your portfolio, look into gold funds or mining stocks.
investing in gold for beginners
Some people prefer to invest heavily in gold to achieve the highest possible level of profit in their distant future, while others may want to buy gold as a short-term investment and then sell quickly.
There are many ways you can invest in gold. Let’s get acquainted with some of the most important ones.
Buy gold shares
The best way to prepare yourself to buy a gold stock is to study the different types of gold investments available to you. If the ultimate goal is to invest in gold, you can either:
Buy physical gold bars in the form of bars or coins.
Or buy gold mutual funds or exchange-traded funds (ETFs).
Or trade gold options or futures.
Gold certificates backed by a government mint.
Or get pure gold jewelry as an investment.
You can also find ways to invest in stocks that revolve around the gold industry, such as gold mining, refining and production stocks.
If you choose to buy gold stocks, remember that gold can be a volatile market as well. Most investors set aside some funds to invest in both gold and traditional stocks for hedging. By investing in only one type of stock, you can make yourself vulnerable to large market fluctuations.
Buying gold stocks is also easy. For example, if you use Robinhood, they have a range of nearly 100 different gold stocks to choose from. Simply open your Robinhood app, type in the symbol of the stock you want to buy, click Buy (with the number of shares you want), and you’re done. The hardest part of this is choosing the right gold stock.
You should make investing in gold part of your portfolio without trying to put all of your money into gold stocks. Gold serves to protect you from inflation, but it usually does not provide a quick return on investment.
You’ll want to get into gold stocks as soon as possible to ensure that your investment matures over decades to help provide a safety net for your retirement. Gold prices can be volatile, but decades of consistently rising gold values prove that you, too, can make consistent gains over the long term. Many financial experts say that gold is the perfect way to diversify your portfolio in order to achieve some stability.
Buy gold bars
Are you wondering how and where you can buy gold bars? Your best option is to buy through a reputable gold dealer or gold seller associated with a government mint to ensure you are getting real gold bars. Gold bars are available in ounces (or fractions of an ounce) or grams (or several grams).
Buy physical gold bars if you want raw gold that you can hold in your hand. Buying bars gives you direct exposure to gold, but you need to store it somewhere safe in case of an emergency. Remember that gold bullion is a long-term investment.
You can buy gold bars locally or online. Also, make sure that you are buying pure gold bars (at least 99.5% pure gold). You can look at sites like JM Bullion or APMEX. You’ll also need to make sure it’s minted by a popular gold miner like Valcambi or the Royal Canadian Mint.
Select the currency you want to exchange for gold bars. Almost any major currency, even cryptocurrencies, can be paid for in gold. Try to monitor exchange rates to ensure that your gold seller is not taking undue advantage from you.
By dealing with a reputable dealer, you may not need a third party to value gold. However, if you buy gold from an unknown source, check the 99.99% purity seal mark and get an appraisal to be sure because you don’t want to end up with fake gold bars.
Protect your investment by asking the seller about the buy-back policy. The buy-back policy prevents the merchant from charging you a second premium if you sell gold to them. Ask your gold seller to include a buy-back clause in your purchase paperwork.
Buy gold coins
You will come across two basic types of gold coins: sovereign coins and coins. Sovereign currencies with a face value are usually backed by the government apparatus, but their value as raw gold may be higher than their face value.
On the other hand, coins are usually more valuable as collectors’ items. Avoid coins unless you want to be a collector. Collecting rare coins is not an investment to liquidate easily because your coins will not be easy to sell.
For those who want to invest in sovereign gold coins, the best place to find genuine coins is a government-approved dealer, who should have several different options of sovereign gold coins. The most popular gold coins available include:
American Gold Eagle and Buffalo: Gold Eagle (1 ounce, .9167 purity, 22 Carat) and American Gold Buffalo (1 troy ounce, .9999 purity) are supported by the United States government. Each coin has a face value of $50. With half, quarter and ten ounce denominations available.
Canadian Maple Leaf: The Canadian Maple Leaf (1 ounce, .9999 purity) is supported by the Commonwealth of Canada, which has a face value of C$50. Half, quarter, ten and twenty ounce denominations are available.
Austrian Philharmonic: Supports the Austrian Philharmonic Republic of Austria (one ounce, 9999 purity). This coin has a face value of 100 euros. You can also purchase the half, quarter, tenth, and twenty-fifth ounce denominations
Australian Kangaroo: The Australian government subsidizes the Australian Kangaroo (1 ounce, .9999 purity), which has a face value of A$100. You can also buy half, quarter and ten ounce denominations.
South African Krugerrand: The South African government supports the Krugrand (1 ounce, .9167 purity, 22 karat), which has no face value but is the oldest modern alloy in circulation. They are available in half, quarter and ten ounce denominations.
You can buy coins locally or online. If you are shopping online, WholesaleCoinsDirect is a reputable site that you can take advantage of.
Gold mutual funds and exchange-traded funds
Gold exchange-traded funds (ETFs) are commodity funds. Gold ETFs were first launched in Australia in 2003, followed by the first ETF in the US in 2004. These funds trade like stocks and represent gold-backed assets, although those who invest do not actually own any gold. Instead, they invest in smaller amounts of assets related to the gold industry, which creates more diversification in their investment portfolios.
Investors who do not have a large investment portfolio often choose gold ETFs, since it is a smaller investment than gold bars or gold coins. Investing in gold via a beginner ETF also helps you avoid the need to stockpile the physical commodity.
To buy a gold ETF, simply type in the symbol of the fund you want to invest in and buy it like a common stock. For example, if you are using Robinhood and want to buy SPDR Gold Shares (GLD), just search for “GLD” and you will be taken to the SPDR Gold Shares information page.
Choosing a gold ETF, with its many different assets, reduces the risk you may be exposed to when investing in a particular company’s stock. Gold ETFs expose you to a variety of holdings across a broad spectrum. You can buy more shares over time to increase the size of your investment.
The main reason to invest in gold ETFs is the low minimum commitment. You can buy gold without having a large amount to invest, and a wide exposure will be able to reduce the risk. If you are looking for a way to easily enter the gold market, then gold ETFs may be an excellent choice.
Investing in a gold mutual fund is another smart way to protect yourself from inflation and provide a hedge against economic shocks. If you already have an existing portfolio, you can diversify between 10% and 20% into gold savings funds to take advantage of ETF shares that are directly dependent on the physical price of gold. You can also invest in other gold related funds such as gold mining stocks to further diversify your gold investment holdings.
Investing in gold futures and options for gold
If you’re worried about risking too much capital, consider investing in gold futures or options in a gold ETF. Options are what they sound like: an option to buy or sell gold at a specified price during a specific time window. You do not have to make any purchases or sales, and you do not have to pay for individual units; Alternatively, you may pay a premium for the option.
Options can be a low-risk way to play in the gold market (although there are significant risks if you don’t know what you’re doing). You can take advantage of your option if you believe that the selling price of gold will move up or down. The maximum risk is the premium you paid for your options contract.
I intentionally oversimplify the process of buying options since it is not the focus, but I understand that buying options is more suitable for advanced investors.
Gold futures contracts allow you to lock in your gains or mitigate your loss at any time. If you are buying gold futures contracts based on actual gold, you will not receive them until the contract expires and this eliminates your storage needs in the meantime. You can choose to convert your investments into other vehicles and avoid having to store physical gold as well.
The E*TRADE platform offers futures contracts at a reasonable price. For example, gold futures contracts can only be traded during certain months of the year and during certain times of the day.
You can take a short or long position on your futures contracts, depending on your investment strategy. If you plan to sell the commodity, this is called a short position. If you buy gold expecting the price to rise, and you agree to take delivery of the gold, then you target the long position.
Choose futures contracts if you want to ensure more flexibility, financial safety and leverage than you can get from trading physical commodities.
Investing in gold jewelry for beginners
You should not purchase gold jewelry as an investment until after doing your research in the industry. If you go to a jeweler and buy a necklace, bracelet or ring, you will almost certainly overpay for the actual value of the gold. As retail jewelers add a huge premium to gold jewelry, it can take decades before gold prices catch up.
Instead, look for gold jewelry from private sellers, preferably not at auction. Gold jewelry in auctions is usually pre-appraised and priced at gold value or higher. You should have better luck with small private sellers or lucky finds at garage sales or junk or illegal markets.
The value of gold jewelry depends on the purity of the gold. Pieces marked as 99.99% purity, 24 karat, or 24 karat high purity must be of equal value to raw gold bullion. The lower the karat number, the less pure the gold.
Investing in gold by buying gold jewelry can be very labor intensive. You may be able to find some valuable pieces if the owner doesn’t know their real value or thinks they are imitation jewelry.
Buy gold certificates
Gold ownership certificate on paper. In the United States, gold certificates were originally backed by gold. They were worth their amount in American currency until the abandonment of the gold standard in the early 1930s.
You can still buy gold certificates from a bank that has actual gold. If you do, the bank will technically owe you the gold, but you won’t own it. Instead, you will have “unallocated” gold, where the certificate represents the value of the gold but does not represent specific gold bars
Unallocated gold does not require a high premium, so you can buy it and forget it. However, since you do not own the physical gold, the bank can give away that gold without consulting you and then reimburse you.
If the bank goes bankrupt and goes into liquidation, you could lose your unallocated gold. The bank will no longer own the gold, which means you may lose your entire investment. It is up to you to decide whether this proposal is risky.
Alternatively, you can purchase custom gold certificates. This means that you will own the actual gold, and the bank will be required to provide you with the serial number of each gold bar. However, the bank can also charge you exorbitant fees for storing gold in its vault.
The gold allocated to you and not to the bank cannot be confiscated or liquidated. If the bank goes bankrupt, you can get your gold by proving your ownership with your gold certificate. You may be able to store physical gold at a lower cost than paying a bank to hold designated gold tied to a gold certificate.
Is this type of investment profitable?
Investing in gold is considered a smart move by many financial analysts and can give you a safety net in the event of a major global event. Gold can hold its value and can even increase its value during downturns in the stock market in general. Buying gold as part of a diversified portfolio can help you hedge against economic instability.
It is better for you to buy gold as a long-term investment because it retains its value and increases over time. Short-term investing is more volatile, and you can find your returns fluctuate dramatically as well. Investing in gold, in general, is not a solid plan but it can boost your financial position in the long run.
When is investing in gold not profitable?
When investing in gold, consider the risks involved in certain types of gold investments:
Investing in gold bars or coins means that you will need to store them.
Unallocated gold certificates can vanish in the event of a bank’s liquidation.
Buying gold jewelry as an investment can take a long time and a lot of trying and making mistakes.
Investing in gold can be a bad choice if you lack the time or patience to see your investment mature. You may want to hold off investing in gold if you need quick returns or lack the capital to make a large investment.
If you feel in either of these scenarios, gold may not be the best investment option for you.
Where does the demand for gold come from?
Investing in gold is a safe investment, which means that it should hold its value if fiat currencies become worthless. About 40% of gold demand depends on investment and this includes gold coins, gold bars and gold medals. The other 50% comes from the demand for pure gold, which comes from the jewelry industry maintaining demand for other precious metals and stones.
The remaining 10% of gold demand comes from various industries. Dental work can also require gold, although this demand is slowly fading as technology advances but it is there. Gold is a good conductor of electricity as well, so some electronic devices also use gold in the manufacturing process.
How is the price of gold determined?
Gold, like any other commodity, is affected by supply and demand levels. When more people buy gold, the price goes up and when investors sell gold, the price goes down. Most commodities rise and fall in waves as more products enter the market, but gold can go up and down in exactly the opposite direction.
The reason gold may behave differently than other commodities is that the precious metal exudes confidence. When other commodities start to break down, people run out to buy gold because they think it will remain high in value. This demand drives up prices, which automatically creates the desired effect and boosts confidence in gold.
To what extent does gold retain its value during downturns?
In recessions, commodities can drop sharply causing stock markets to crash and investors to panic. People turn to investing in gold as a safe investment because historically gold held its value when everything else started to decline. This “gold rush” boosts and strengthens the price of gold, encouraging more people to invest in gold or gold stocks.
Almost every US recession has seen gold hold its value and even climb to new heights. This is why people are putting their trust in gold instead of fiat currencies all over the world. Most countries continue to measure coins against gold as the ultimate standard.
Summary of gold investing for beginners
Investing in gold for beginners can be a great opportunity for them to diversify their portfolio and get some downturn hedge. Long-term returns are likely to accrue to novice or even expert gold investors, regardless of whether they choose to place their money in physical gold, gold stocks, or futures contracts. However, like any other investment, gold should not be the only thing in your portfolio. Diversifying your investments in both traditional commodities and gold is key to maintaining steady gains over time.
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