Investing in gold and silver has at times given many investors a good and safe return. Gold and silver have been reputed to be safe investments in troubled times. In order to fully understand the purpose of gold, one must look back to the start of the gold market.
The Gold Standard
The ancient Egyptians started forming jewelry out of gold in 3000 B.C, but it wasn’t until 560 B.C. that gold started to act as a currency. At the time, merchants needed a standardized and easily transferable form of money that would simplify trade. The solution was gold coins stamped with seals.
The importance of gold as currency continued to grow throughout Europe. Great Britain developed its own metal-based currency of pounds, shillings and pence in 1066, based on the amount of gold that they represented.
The gold standard lasted well into the 1900s, when mass-production of gold substitution started. In 1913 the Federal Reserve was created and started issuing promissory notes that could be redeemed in gold on demand. Eventually this led to the transition of gold out of the monetary system. Many nations still hold substantial gold reserves.
Gold as a Safe Investment
Political and economic uncertainty is the reality of our modern economic environment - whether there is tension in the Middle East or an increasing amount of debt in the average household economy. Investors typically look at gold as a safe investment during times of uncertainty.
During such times as war outbreak or collapse of currencies, investors who held gold were able to successfully protect their wealth. Historically gold has served as a diversifying component to ones portfolio, regardless of inflation or a declining U.S. dollar.
The stocks of gold generally rise and fall with the price of gold, but there are well-managed mining companies that are profitable even when the price of gold is down.
The Cons of Investing in Gold
Some investors find gold a poor investment. Like most financial products, gold isn’t a one-size-fits-all solution. Here are some of the cons:
●Low capital gains - Property and shares tend to gain more value in the long term.
●Authenticity issue - You need to makes sure that you’re acquiring real gold. When you sell, you might have to prove that you’re the genuine owner of gold.
●Hard to store - Once you buy physical gold, what do you do with it? Put it in a bank or hide it under the bed?
●Volatility - Gold prices can make big changes in a short amount of time.
●No yield - You won’t get any yield from owning gold.
How to Buy Gold
Even though there are some cons, it seems gold is still a relatively safe investment. The main difference between investing in gold in the past and today is that there are many more investment options. You can buy physical gold such as coins, bullions or even jewelry, or you can invest in mutual funds or mining companies.
Mutual funds are investment securities that allow you to invest in a portfolio of stocks and bonds with a single transaction, making them perfect for new investors. They are professionally managed investment funds that pools money from many investors to purchase securities.
Many mutual fund companies require initial minimum investments. Other companies will waive the account minimums if you agree to automatic monthly investments.
Investment is Never Without Risk
Even though gold is a relatively safe bet, investment is never risk free and you can never eliminate the risk entirely. It can be reduced by investing wisely though. Gold has proven to withstand the test of time, and is therefore considered a wise investment.
Saving money and investing it are closely connected. Get into the habit of investing a little bit every month, and set up an automatic investment plan. Start with small amounts of money, and increase as you get more comfortable with the process.
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