Why should you invest in gold? This blog post will tell why.
Many people are yet to forget the impact of the global financial crisis of over a decade ago (2007) and particularly the prolonged stock market meltdown that followed. Investors lost significant fortunes that many vowed not to invest in stocks ever again. Some developments in the global economy are generating the fear that there might yet again be another round of economic crisis and people are beginning to look for more stable, crisis-proof investment options.
The asset class that offers this kind of protection is Gold.
Some may argue on the contrary that growth is accelerating due to increasing volume of global trade, flexible monetary policies and rising consumer demand. However, a deeper analysis will reveal heightened uncertainties. Global debts is on the increase and a disorder in trading patterns is emerging as the big nations pursue protectionist policies.
Let’s take a look at some of the developments that some believe are capable of disrupting the world economic order.
Increasing National Debt
If you are abreast with developments in the global economy, you would have read that US public debt is rising dramatically. At about US$21 trillion and still climbing, US public debt is more than the whole of its economy!
This is of concern to analysts because rising debt of this staggering proportion is capable of triggering off an economic crisis that may lead to erosion of value of financial assets. Why should the world be worried about the US debt levels, some would want to ask? Why not? Wasn’t the collapse of the US mortgage sector the cause of the 2007 global financial upheaval?
Trade Wars and Protectionism
Another worrisome development that is certainly affecting investment decision is the trade wars between the United States and China. This has already started affecting the stock market with the Dow Jones dropping on the back of emerging issues and it is feared that this could get worse. The outcome could be increased inflation as well as a major economic downturn, which would certainly impact people across economic levels.
Conflict of interest amongst the super powers, notably Russia and the United States in the Middle East unending issues, is another development capable of causing a major global economic crisis which could affect investment and businesses.
For these reasons, it is a sound investment advice that you take steps to diversify your portfolio to include an asset class which has proven to be safe during economic turmoil.
Gold has consistently shown the capacity to withstand economic woes; hence over time, it has been used by banks and investment firms to store value and preserve wealth. Now ordinary individuals are beginning to have strong preferences for Gold as major element in their financial planning programme.
If you are a beginner or someone who does not know much about Gold, here are key things you must understand about this commodity.
Gold is a precious stone that is malleable and is used for making jewelries and ornament in addition to applications in industry and medicine. It has been a valuable stone for over 5,000 years and was at a time used as a medium of exchange across cultures.
Gold does not move in absolute value. That is to say, if you buy a 24 carat gold today and store it in your vault or in a safe deposit with your bank, for infinite number of years later, it will still be a 24 carat gold. The attraction is in its intrinsic value which increases with time.
Investment in Gold does not earn you interest like you would expect to receive when you invest in fixed income assets like bonds, treasury bills, and other money market instruments. You primarily make money through price increase if you hold physical gold or gold products over a period of time
Unless you invest in the shares of gold mining companies, you do not expect to get dividends from gold investment the way you would receive if you are investing in ordinary shares of quoted companies.
The value of gold rises in a period of uncertainty and economic recession. The reason is that in a period of uncertainty, people to tend to exit their investment in paper asset and look for safety in physical asset that preserves capital.
Gold appreciates in value but the appreciation may not be astronomical. Infact there have been periods gold witnessed loss in value. Some analyses have also shown some periods when stocks beat Gold in terms of returns.
Financial instruments with gold as its underlying asset are derivatives in nature and as such are very volatile and risky investment like other derivative products.
Investing in gold, particularly, the physical gold will require that you make arrangement for storage and its safety. For this reason, you have to be extremely careful in handling your transactions so that you do not attract unwanted guests into your store house.
There was a time countries backed their currencies by gold. Not any more, yet gold has remained relevant in the global economy. It has been found to be an instrument that preserves wealth, hedges against inflation, withstands difficult economic cycle and most importantly provides profitable investment diversification option
Why You Should Invest In Gold
Here are six reasons you should consider having some gold in your investment portfolio.
It is safe
It cannot be emphasized enough that gold is well-recognized as a safe investment, especially in troubled financial times. It isn’t really influenced the same way financial assets are affected by the economic cycles because it does not depend on the stability of the financial or economic system.
It is tangible
Gold is tangible; you could hold it in your hand and know it exists. Other financial assets are just numbers provided on the stock market which can rise or fall.
It is good for retirement planning
Gold is just one of the very best financial investments you could use to plan for your retirement. As you get older, you wish to choose much less volatile investments so you don’t lose all your money in a financial decline. Unlike other investments, gold doesn’t lose value. As a matter of fact, when there’s economic instability, gold’s value boosts.
Gold is a good vehicle to diversify your investment portfolio and hedge against risk of diminution in the value of your portfolio No matter whether you currently invest in the stocks or other asset classes; it is always a sound principle to add some gold in your portfolio.
Gold is risk free
Apart from sovereign bonds and treasury bills that are backed by the full faith of the government, the only asset class that is risk free is Gold. People who are saving for a comfortable retired life desire a portfolio they can rely on. They do not want to fret when the economic situation suffers slumps. Gold meet these criteria. It is risk-free and also does not fluctuate widely.
It is inflation proof
Investing in Gold bars (physical gold) is usually not impacted by inflation because it appreciate in prices most of the time more than it can suffer a price decline and its price gains is always above inflation levels, giving its holder positive real returns all times. Even when currencies are devalued, gold will maintain its value in worst case scenario if not rise in value.
You can invest with privacy
Buying gold bars is just like buying other commodities. You simply identify a credible buyer and make your purchases. You have no obligation reporting your purchases to any central authority or regulator unlike stocks and other financial instruments.
How can I make money If I Invest In Gold?
You make money by either trading in physical gold, investing instrument having gold as underlying instruments, renting out gold jewelries for occasions or by doing all three.
How to trade in Gold
You can make money by buying and selling physical gold. Physical gold comes in various forms and you have to decide which type you want to trade on. The various forms gold take include: Bullion, Bars, Coins, and different kinds of jewelries. Prices of gold are based on its weight and they come in different karat up to 24.
To buy and sell gold and its associated products, you have to have a weighing scale, a place to store your gold, an arrangement to guaranty security, and a sound knowledge of identifying and differentiating real gold from fake.
Where to buy gold in Nigeria
In Nigeria gold is largely sold in Kano, Abuja and Lagos.
Be careful where you source your gold from. A good place to begin could be Sell Gold Nigeria, an online broker for used gold commodities. To keep yourself abreast with gold prices, you can visit gold price ticker, where current global gold prices can be obtained even in Naira.
To trade in gold commodities, you can start with what you have right now. A 10 karat, 1 gm gold bar as at the time of writing is sold for about N6,000. With as little investment as N200,000 to N500,000 you can begin your gold trading business and be sure to make as much as a 100 percent return in a short while.
How to invest in Gold
If you don’t have the time to source for physical gold and gold commodities, you can as well decide to invest in financial instrument having gold as its underlying assets and still make money. Some of these instruments include: Ordinary shares in companies whose primary business is gold mining or gold trading, mutual funds, ETFs and gold futures.
At the moment, these instruments are limited in the Nigerian market but there is gold ETF that is being traded on the floors of the Nigerian Stock Exchange. This is the New Gold ETF. To invest in gold ETF or shares of companies involved in gold mining, processing and trading, contact your stock broker for guidance.
As a final word, always remember to do your due diligence thoroughly before you embark on any business or investing journey.
Now you know why you should invest in gold. If you are already doing so, share your experiences with us.
Buchi provides small business owners with strategic, financial, and digital support to help them build strong, successful and profitable enterprises. He is a Blogger at night and by day, Team Lead at Stalwart Investment Partners Ltd, a research, business and investment advisory firm.