Gold

Preserving and building your assets should be a part of anyone’s game plan to secure a more stable future. After all, the last thing you want to happen is to let time pass you by with no financial security to fall back on.

While some people decide to put their money in the bank, there are those who opt for something more profitable over time. By investing in gold, you can grow your wealth through the weakness of fiat currencies and eventually pass your investments to your children and grandchildren.

In fact, a huge number of investors have been purchasing gold in massive quantities, and they have no regrets doing so. With the increasing price of gold, you can expect to get outstanding returns on your investment over the long term. Hence, it is one of the wisest things you can do when aiming for wealth preservation and asset building for your retirement.

Reasons for Investing in Gold

The following are among the reasons why it makes sense to invest in gold:

1. Paper Currencies Fail

Throughout history we have witness currencies rise and fall. Sadly, the currency failure in Greece resulted in a significant economic turmoil which has impacting other European nations. This goes to say that we can never be too sure how long the dollar can remain as a strong currency since paper currencies are bound to fail at one point or another.

If you think about it, why else would China remain interested in purchasing gold? Well, one reason is that they want to prepare in case the US dollar is devalued. Additionally, there is an increasing supply of money as paper currencies are continuously being printed, yet this causes the inflation of money. With the increasing rate of inflation and influx in money supply, currencies are bound to fail.

2. Central Banks are Buying Gold

The economy of the country is largely dependent on the people who control the world’s money supplies. This indicates that the GNP or GDP no longer serve as economic indicators.

With the constant manipulation of the money supply, it is not surprising that economic depression and global recessions occurs. Thus, the rest of the world suffers the implication of a single department manipulating the money supply.

With an attempt to secure financial security, central banks worldwide have been investing into gold because they understand the on-going economic crisis. As this issue persists, and once it ends, the losing country’s economy is at stake.

3. The Value of Gold Increases

Based on the World Gold Council’s report about 153,000 tons of physical gold was mined throughout human history. Presently, there is a shortage in gold reserves, and it is expected that it will only be about 10 to 15 years from now until the very last gold mine can be processed.

Considering the limit in the supply of gold, the price of this precious metal is bound to rise. With this in mind, we would not be surprised if the prices of gold will continue to increase, and this is good news since skyrocketing demands result in massive returns on your investment.

Moreover, economists have stated that there is a correlation that exists between the price of gold and oil. Since oil prices never seem to cease, the same holds true with the cost of gold. Now, this is great news for those who have invested in this precious metal.

4. Billionaires are Buying Gold

Most billionaires are focused on growing their wealth, and it’s no surprise that they are choosing gold as one of their investments. These brilliant investors aim to protect themselves against the future and prepare themselves for retirement.

What sets them apart is their expert understanding of diversification by a adding a mix of financial instruments such as stocks and bonds. They understand that by adding gold to their portfolio, they can have some kind of insurance or protection in case their other investment vehicles fail.

Benefits of Owning Gold

Considering these reasons why people are investing in gold, you may want to look into some of the benefits that you can expect from this precious metal.

1. Preserve Wealth

At present, the US dollar may be among the most valuable reserve currencies in the world. However, its value is not immune from falling, as evident in what happened from 1998 to 2008.

On the other hand, gold’s value massively increased during those years, and it went as high as $1,000 per ounce in the early parts of 2008. From 2008 to 2012 gold continued to soar, with the value going to a whopping $1,900 an ounce. In tough times gold has proven to secure and preserve wealth in case paper currencies fail.

2. Liquidity

In India gold is regarded as an important metal for producing jewelry, while in China gold bars serve as a traditional means of saving. In fact, gold is as good as cash because of its high liquidity. Thus, when you need some funds, you can always rely on gold as it serves as your ticket to freedom from financial difficulties.

3. Diversification

It helps to diversify your portfolio as a means of lowering the volatility of your assets in case difficulties arise. It’s impossible to expect all financial instruments to remain constant in terms of value or return on your investment. By combining gold with bonds and stocks in your portfolio, you can minimize the risks and volatility at the same time.

4. Protection

It has been proven throughout time that gold has performed rather well as a hedge against increasing inflation rates. The price of gold has constantly increased along with the cost of living.

Ever since the Second World War, inflation in the US has been at its peak, while the average real return based on the Dow Jones Industrial Average was at -12.33%, while it is 130.4% for gold. Obviously, you are well-protected with gold even when inflation hits the economy.

Conclusion

After learning more about why invest in gold, it is only essential that you consider this instrument as a part of your investment portfolio. While the price of gold may be volatile, it’s in the short term and the value remains notable in the long term. It is the only investment that can protect you once major currencies fail, plus it is a significant tool as a means of hedging against inflation.

If you are learning how to buy gold, it is important that you know the basics on getting the best returns on your investment. For instance, dollar cost averaging can help you determine potential risks and minimize these as you go along over time. This strategy means you need to place a specific amount of money towards your gold investment on a regular basis and this must be made regardless of price.

There are several money managers that put about 3 to 10 percent in gold. However, bullish managers lean towards a higher rate that goes as much as 20 percent. You have to realize one important thing, though – there is always uncertainty with gold investment, so you need to be aware of how to protect yourself from risks involved with it.

Types of Physical Gold

There are different types of gold that you can buy including the following:

• Gold coins (1/10 oz, 1/4 oz, 1 oz)
• Gold Bars (1 gm, 2.5 gm, 5 gm, 10 gm, 100 gm, 1 oz, 10 oz, 1 kg)
• Pre-1933 US gold coins
• Certified gold coins (graded by NGC or PCGS)

When it comes to gold coins, the most popular ones are the American Eagle, American Buffalo and the Canadian Maple Leaf. These gold coins can either be stored in your home, a safety deposit box in a bank, as well as storage services offered by certain companies.

Some investors find an interest in purchasing numismatic or semi-numismatic coins. These are also referred to as rare coins, and they come with very high premiums that make it difficult to recoup their value.

If you are interested in purchasing collectible coins, then you are better off buying these from renowned rare coin dealers. Professional and high-level auctioneers are your best bet since they have knowledgeable staff who can grade coins in an accurate and objective manner.

IRA Eligible Gold

In the past, only gold and silver American Eagle coins were approved to be included in a precious metals IRA. However, this all changed with the Taxpayer Relief Act of 1997 due to the amendments added on IRA regulations.

For instance, several types of bullion are now accepted when investing in a Gold IRA, as long as these comply with the minimum purity standards. Gold bars and coins must meet the 99.5 percent minimum fineness, with the exception of the bullion and proof gold American Eagles. Hence, investors have numerous options to choose from in terms of investing in their IRA accounts.

Generally, gold is a relatively safe investment that you can count on for profits during times when your other investment options are not exactly doing well in the market. With this in mind, it helps to have your IRA account funded well, so you can explore other profitable opportunities such as gold.

When purchasing physical gold in an IRA, it is essential that you coordinate with a trustee, or professional who will handle your self-directed retirement account. The trustee will buy gold based on your directions and also serve in storing your bullion and coins for your IRA. The trustee will also give you an idea about the types of physical gold that are in accordance with tax rules.

If you decide to take some money out of your IRA account, there are penalties and income taxes to pay, based on the amount you withdraw, which can be 10 plus percent for account holders who are under 59 1/2 years old. It is also possible for you to have the IRA custodian to withhold the taxes, as this spares you from having to pay a massive tax bill upon filing income taxes. This money is then sent to the IRS, which qualify as taxes withheld.

Getting the Best Price

There is a small premium that is included in gold bullion bar prices, and this is usually over the spot price. This way, it can cover all manufacturing costs of the gold bar. Larger bars come with smaller premium in percentage, so it is only practical to purchase large sizes of gold bars to make sure you only pay a lower premium.

If you decide to buy a gold bullion or gold coin, it is important that you steer clear of high premiums. Ideally, you should buy at or very near the spot price and no more than a 10% premium over spot. The higher the premium, the higher it has to rise before you make a profit.

Typically, coins are produced by the national mint and are sold at a 4% markup where the retailer’s margin is between 1% and 3%.

It’s easy to calculate the premium of a gold product, by subtracting the spot price from the price you paid, divide that number by the spot price and multiply it by 100.

If you purchased an ounce of gold from a dealer for $1225.90, with a spot price of $1200, the bar has a 2.1% premium. This means that the gold price has to rise over 2.1% for you to make a profit.

The best way to buy gold and insure excellent returns on your investment is to know your short and long term financial goals. If you have a long term outlook it makes more sense to buy gold that is closest to spot price.

If you have a shorter term outlook and are looking to buy gold to use as money, then you can purchase smaller coins like the 1/10 ounce, but be willing to pay a premium. While it is not usually recommended for you to spend over a 10% markup each time you purchase gold, there remains the truth that each investor has his or her own threshold.

Conclusion

These are only some of the things you need to remember when it comes to investing in gold. By learning how to buy gold correctly and being knowledgeable about the basics, you can maximize returns on your investment and continue growing your portfolio over time.

In every type of market you can be sure to expect an increase and decrease in prices, but it’s important to reduce that volatility by looking at the overall bigger picture. When you learn how to invest in gold correctly you can reduce those price fluctuations in your investment portfolio.

Keep in mind that gold still offers valuable protection in case currency debasement and inflation occur. The main idea is to not focus only on one area of your portfolio since you would want your other investment options to continue gaining profits when the rest are not performing well in the market.

Diversification

According to money managers and investment gurus, it is a good idea to devote at least 3 to 10 percent of your investment portfolio to gold. For more aggressive investors, though, they aim for about 20 to 25 percent, although this is much riskier. It all depends on the kind of investor that you are whether you aim for volatile assets, which can lead to thriving and profitable investments.

When it comes to buying gold, you need to set aside a specific amount of money for gold regardless of this commodity’s cost. This should be done using a dollar cost averaging strategy on a regular schedule until you slowly build your profits.

Moreover, it is applicable for investors with moderate tolerance for risks as this strategy minimizes potential downsides. As mentioned, various managers of gold companies and brokerage firms recommend as much as 3 to 10 percent to be devoted to gold.

Considering how gold offers protection from inflation, currency debasement and insurance for your investments, it makes sense to explore this option as a means of growing your wealth. It is only a matter of deciding the best way to invest in gold to reduce risks and build your assets at the same time.

Investment Options

1. Physical Gold

There are several types of physical gold that you can buy for investment purposes including jewelry, coins and bullion bars. In terms of coins, some of the popular ones include the American Eagle, American Buffalo and the Canadian Maple Leaf.

These coins are IRS-approved and are excellent choices when investing in precious metals. You may either place these coins at home in a safe deposit box, or put them in depositories. If you decide to buy and sell at reputable custodians, your gold can be stored with these professionals or even be traded.

Pros: Allows for total control by allowing you to buy at the lowest premium over spot with the highest purity levels. It is also in your possession and out of reach of the government in case of an economic collapse.

Cons: It is more difficult to trade then “paper gold” and there may be associated storage costs when handling physical gold.

2. Gold ETFs

Also known as Exchange Trade Funds, ETFs give you an opportunity to diversify your investment portfolio, and there is no need for you to store any physical gold. The main idea is to choose an ETF that is physically-backed, and it is best that the gold spot price is indicated.

Gold Shares is one of the most notable ETFs today, although there is also SGOL that started back in September 2009.

Pros: ETF’s are very easy to trade, where you can buy or sell like stocks using a brokerage account and you don’t have to worry about any storage fees since you are not investing in physical gold.

Cons: There is no physical ownership of the precious metals in case of an economic collapse and some ETFs are not backed by real gold. Additionally, ETFs have a tracking error that may be susceptible to some price discrepancies.

3. Gold ETNs

An Exchange Traded Note or ETN behaves more like a bond. It is an unsecured debt note that is issued by an institution where it can be held to maturity, or traded at will. With Gold ETNs, there is no such thing as a tracking error, and you will like how it is regarded as among the most liquid of all ETNs.

If you are interested in investing in gold, yet you are not comfortable with physical gold or futures, then ETNs may be your best option. There is also an opportunity to opt for leveraged or normal, as well as long-or short acquisition of Gold ETNs.

Pros: There is no tracking error with gold ETNs, which means the performance replicates the underlying commodity’s performance. While some index is still tracked, the return is not solely based on this. Mainly, the ETN only serves as a promise to pay the holder an amount that matches the underlying index or asset.

Cons: Since ETNs are generally debt instruments, these come with the risk if the underwriter (usually a bank) were to go bankrupt, aside from the market risk of the asset This is one of the biggest differences between an ETN and a ETF since the latter only comes with risk from the market.

4. Gold Mining Stocks

Some investors are exploring the benefits of what gold mining stocks can do to their portfolio, particularly when it comes to gaining more exposure to precious metal investing.

By purchasing stocks within listed companies or gold miners, there is a chance for you to increase returns on your investment when there are profitable mining operations. Also, this allows investors who have a comprehensive brokerage account to buy gold-related firms worldwide.

Pros: Trading is much easier with gold mining stocks, and storage is no longer necessary because your investment does not include physical gold.

Cons: There is no ownership of metals and a lack of protection in the case of an economic meltdown. Additionally, a study conducted by Yale researchers show that gold mining stocks correlate more closely with the stock market than the real price of gold.

5. Gold Futures/Options

For short-term investments, gold futures and options may be viable choices. Large institutional investors use these contracts for hedging exposure to movements in the underlying price of gold. This investment vehicle gives you a means of leveraging your capital by using the derivative market’s margin system.

Pros: Storage is not necessary since you do not own physical gold. Also, gold futures and options are very easy to trade in the open market.

Cons: There is no certainty if these are backed by actual physical gold or metal, and there is no genuine protection if the market crashes.

6. Gold IRAs

Long-term investors opt-in for the Individual Retirement Account, or IRA as an excellent structure to grow their wealth. When opening a self-directed IRA it gives you the chance to add physical metals to your retirement account to invest for the future.

As long as these gold bars, coins, or bullion meet the purity conditions set by the IRS they can be safely added to a Gold IRA. The setup process is quick and easy, and the IRA can be rolled over from your present retirement plans.

Pros: Gives you the benefit of a tax-free investment and true protection against hyperinflation and devaluation of the US dollar.

Cons: Trading is not as straightforward as it is with paper gold and you will need to dedicate storage for your physical bullion.

Conclusion

Learning how to invest in gold by being aware of the different types of investment options available to you, can help you quickly determine the best instrument type that matches your risk tolerance and preference. So check both the positive and negative of each option and select the most appropriate way to grow your wealth for the future.