It is common knowledge that investors always turned to gold during times of economic turmoil. As a result, gold investments are perceived as a safety net to hedge risks. Our world has seen unprecedented economic adversity in the last two decades. The sub-prime housing market crisis that unfolded in the US during 2008 spiralled into a full-blown economic disaster for the world. At the peak of the crisis, in 2011 gold reached an all-time high crossing the $1900 barrier per ounce. This was clearly a result of scared investors moving their money to gold, spiking the demand for the yellow metal.
Similarly, there have been several geopolitical factors that have created adversity in the world. Over the last decade, there has been Brexit, the fallout of the US-China trade war, as well as ballooning government debts across nations of the developed world. Now, we have the COVID 19 global pandemic, which is threatening to have long-term repercussions for the stability of the global economy. Indeed, gold prices have once again risen, crossing the $ 1800 mark. Since everyone seems to be moving towards gold, let’s figure out the essential factors that can affect gold investments.
Gold investment has many forms
Gold investment can take several forms. The most obvious is to purchase physical gold coins and bars. Gold investment can also be achieved through buying Gold ETFs, gold mining shares, and gold mutual funds. Generally, the aim is for capital appreciation in line with the gold price and to profit from selling the gold at a higher price than when bought. As well as outright profit, motivations for investing in gold can be to provide balance and protection to other assets, and as a store of wealth to beat inflation.
A question of balance
Gold investments, when planned properly can provide much-needed balance to your portfolio and protect you against economic adversity. The term ‘balance’ simply refers to a diversification of your investments across asset classes, resulting in a healthy spread of risks. This means that a sudden collapse of the global stock markets may impact a part of your financial portfolio that has exposure to equities. But your entire portfolio won’t take a hit, especially since precious metals like gold, do not have the same market dynamics as global equities.
Historically, gold has also beaten other monetary factors like rising inflation, which can erode the value of your investments. Volatility in the global currency markets can also impact your portfolio. Gold investments are an excellent choice, simply because you can achieve protection against these negative outcomes.
The philosophy of gold investments
To be a successful investor, you need to select the right type of gold investments, based on your personal objectives. For example, if you are looking to make quick gains by timing the market, electronic gold investments in the form of ETFs could be the right avenue for you. If you are planning to build a strong precious metals portfolio, then you must consider attributes like liquidity, value, divisibility and variety, which can have a significant impact on your portfolio.
This simply means being able to sell off your physical gold holdings quickly, to take advantage of market prices and bring in profits. A smart gold investor will buy popular coins and bars which are easy to sell.
Value and divisibility
These two attributes have a somewhat converse relationship. You can get better value by investing in large bars and coins, due to their lower production costs. However, when you do that you sacrifice divisibility – a term that implies dividing your physical gold holdings into smaller dimensions so that you don’t have to sell large amounts of gold at one time. Variety can play an important role when selecting gold coins, as it increases the attractiveness of your collection.
Counterparty risk is an important consideration and you can mitigate this risk by simply investing in gold in a physical form. Tax efficiency is another important consideration when planning your portfolio. All investment-grade gold is VAT free in the UK, but you can become liable for capital gains tax if you invest in coins that are not legal tender in the UK. So, it’s important to choose carefully.
Talk to the gold experts at Physical Gold and make the right choices
Our gold investment experts at Physical Gold can offer you impartial, effective and practical advice when it comes to making the right choices for your gold investments. Call us now on (020) 7060 9992 or connect with our team online.