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Posted in

August

2021

Is Investing In Gold A Good Idea?

The Question

Is investing in gold a good idea is a question that never seems to go away as you can look throughout history and get a glimpse of various answers to this question. However, first, let’s take a quick look at the history of gold itself. Precious metals, gold and silver, have been around forever as they have had their place in the economy since the existence of commercial transactions and activities. It was the first primary form of money for a long time and even some of the first coins were from the precious silver metal.

Later paper entered into the world of “the value of gold” with gold being a backing, and later, that was no longer. This is just a very basic quick picture of some of gold’s backstory. However, let’s get back to the original question of whether investing in gold is a good idea. As with any and all investments, you can experience the advantages and the disadvantages.

Of course later came all of the popular companies like Blanchard Gold and many others. You can see a Blanchard Gold review to get more details of the company.

Therefore, investing in gold is no different as there are reasons to invest and reasons not to invest in gold. Let’s take a look at both.

Good Reasons To Invest In Gold

1. The old supply and demand is relevant when thinking of gold as a good investment idea as it is a real asset and the supply is limited. Where there limit of supply it item can be more valuable.

2. It is a good inflation hedge and does really well when an economy is in a recession. Gold also performs good and does well in bear markets and when there is high volatility in the stock market.

3. Gold is great if one is trying to build a diverse investment portfolio. It can hedge risk and volatility of one’s portfolio as it has a low correlation with a lot of asset classes.

4. You will not miss out on high dividend payments nor high interest on gold investments because the opportunity cost of gold is low when interest rates are low.

5. You will always know exactly what you own with gold since gold is a tangible asset. All the other financial assets are based on the future expectations of those assets which have a lot of uncertainty involved.

Not So Good Reasons
1. If you are looking for some sort of yield with gold like stocks and bonds; moreover, even with cash, you are out of luck as gold does not pay a yield of any sort. In actuality, you can end up with a negative yield with the insuring and storing of gold at times.

2. If you are not into speculating, then this could be another reason gold may not be a good investing idea for you. Gold has a speculative nature because the price is based on supply and demand. It has been explained that there is no yield with gold as you cannot calculate gold’s worth.

3. You have to store gold and gold even has to be transported, this could make liquidity a possible issue or problem.

4. It is important that people understand that in most cases assets that are electronically traded have less transaction fees and cost than dealing with physical gold.

5. Speculation in reference to gold has already been pointed out when considering it as an investment. However, when you look a little further, risks are increased when leverage and speculation are used. A meaningful decline can not be ridden out when leverage is used to buy an asset. In a very short period of time, the price can fall if there are speculations of long positions and the positions are leveraged. This is definitely a reason that it would not be a good idea to invest in gold.

Bottom Line For Gold Investments

Is investing in gold a good idea is strictly a question for the investor to decide. You should weigh the advantages and disadvantages and make your decision. Many have considered gold to be an important tool when investing because of the different attributes it brings as gold has a very low and at most a negative correlation with other asset classes. It is very effective when looking at it as a volatile hedge. With gold inflation returns are paid off and this could be a big plus if money policies lead to hyperinflation. Moreover, the whole diversification advantage has been discussed as it is a good thing to have gold in a good mixed portfolio. By investing in a wide range of assets within a portfolio, one can be more balanced when the highs and lows of the market move. However, you should never desire your portfolio to have all investments made up of gold due to all the reasons not to invest in gold as discussed here. Some financial planners advise their customers and clients to not invest in gold for the very same reason identified here.