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Investing in Gold Explained

Investing in Gold Explained

If you read financial news or are dabbling in investments, gold will be a word you hear often. You may come across news articles declaring that gold spot prices are going up or down because of various events. It can be hard to believe that people would buy gold in the 21st century. Actually, prominent investors and even some casual ones invest in physical gold often. In case you are wondering what that is all about, read ahead to find out:

The Value of Gold

Gold, and other precious metals, are valued in several ways. Gold in jewelry or collectibles will have a cash value. Gold also has an industrial value as a metal used in electronics. Then there’s the investment value in gold. Precious metals like gold are valued inversely proportional to currencies like the dollar. That means, when the value of the dollar or the pound goes up, the value of gold comes down. But when the currency value comes tumbling down, then value of gold goes up.

You may wonder that if gold is valued in that manner, how can an investor get lucrative returns? That’s the golden question. People don’t buy gold to earn money like they do with stocks and bonds. Rather, gold is a form of security. Think about the scenarios when the value of currencies comes down. Financial recessions, depressions, and volatile political situations like the recent Brexit, cause value of currency to plummet. If an investor has assets primarily in cash, then that investor would lose a lot of money, if not all of it. (This happened to many in 2008.) But what if an investor has diversified his or her financial portfolio with gold? Then the gold will act as a hedge and protect the investor’s wealth because gold prices skyrocket when currency values go down.

Owning Gold

Gold stocks, ETFs, or buying bonds from gold mining companies will not have the same effect on an investment portfolio as explained above. You need to own physical gold to protect your finances in a recession or during political instability. But not all physical gold has the same value. Collectible gold coins, for example, are not considered to be gold suitable for trading. If you are interested in owning gold, then you need to buy national mint coins, marked bars, and bullion. National mints are highly suited for trading. The IRS even approved certain national mints to be included in self-directed IRAs.

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Buying Gold

Of course, when you buy physical gold, you have to be able to store it. You could buy gold from a dealer that also provides storage faculties, pay a bank to hold your gold for you, or put your gold in your IRA, in which case the trustee would hold your gold for you.

If you are interested in buying gold, you will first have to find a reputable dealer. Rather than buying online from people you don’t know, find a registered business or a bank to buy gold from. The IRS has a list of recommended gold dealers you can check out. Don’t buy truckloads of gold at a time either. Consult with an investment adviser and see how much you will need to hedge your cash assets.

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