Turning to gold investment has regularly been a preferred tactic for investors aiming to secure their assets during economic turbulence. This pattern was seen again following the advent of the COVID-19 pandemic in 2020. However, despite gold being an exceptional store of value and investment, it's unwise to incorporate it into your portfolio without conducting thorough research first. After all, like all investments, it's not exempt from the impacts of economic declines. With this consideration, you must familiarize yourself with some fundamental factors before using gold investment to safeguard against inflation and diversify your portfolio.

Be Cautious with Gold Certificates

"Paper gold" or gold certificates can streamline the investment process. However, it's critical to comprehend that you neither see nor handle the gold when you invest in a gold certificate. You're perceived to own it, but your only substantiation is a piece of paper. 

If you invest in gold certificates, authenticate the broker and confirm their reliability. With paper gold, there's a possibility that dishonest companies might sell the same gold to several investors. Such fraudulent activities often come to light during emergencies when you try to "cash in" your investment.

Expect a Premium on Gold Purchases

The price at which gold trades on the commodities market is commonly known as the spot price. However, as an investor, you should expect to pay more than this rate when purchasing gold, as dealers typically charge above the spot price. 

This is often due to additional expenses they incur, such as manufacturing and distribution costs, along with their own dealer fees. The elevated premiums are generally attributed to the labor-intensive nature of gold production.

When selling gold, dealers usually offer less than the spot price. As a result, you should consider selling your gold only after the selling price surpasses the premium you initially paid, but this strategy can limit your profit potential. Given these intricacies, it's advisable to fully comprehend all associated costs before investing in gold.

Know the Forms of Gold

Investors need to understand the various ways to purchase gold. Traditional jewelry buying isn't a good investment due to high losses from wastage and manufacturing charges, ranging from 10% to an extreme 35% for intricate designs.

Purchasing bank coins isn't advisable either, as banks levy a 5-10% premium and don't offer buyback options, resulting in lower liquidity.

Bullion bars are a viable investment option, but the minimum investment is often beyond the reach of the average investor.

Gold Exchange Traded Funds (ETFs) have gained popularity recently. They function like mutual funds investing solely in gold, offering an easier, safer way to invest with minimal charges and electronic access. The downside is that investors don't physically see their holdings. You can learn about Gold, including purity, weight, and cost, from a website that can compare prices from multiple dealers.

Gold Can Be Designated as Either Allocated or Unallocated

Investors can keep gold in allocated or unallocated accounts at banks or other depositories. The investor owns allocated gold and is merely stored by the depository. It's akin to a high-end safe-deposit box; you deposit a gold bar and retrieve the same one later.

Contrastingly, unallocated gold accounts do not grant investors actual ownership of any gold. Instead, they may receive a gold certificate as a receipt indicating the quantity of gold purchased. This kind of account functions like a deposit the financial institution can loan out, similar to standard cash deposits.

While unallocated accounts are less expensive, they lack insurance from the Federal Deposit Insurance Corp. If the business goes under, you risk losing all your gold.

Another aspect to consider when opting for unallocated gold certificates is the potential for fraud. Gold certificates can be susceptible to scams, especially from relatively new sellers during economic instability. There's a risk with paper gold that a dishonest company could sell the same gold multiple times, so it's crucial to research and select a trustworthy business.

Invest in Gold Without Owning it Physically

Investing in gold without actual ownership can be achieved through options like specialist funds, investment trusts, or exchange traded commodities (ETCs). Like other Exchange Traded Funds, ETCs are passively managed investments listed on the stock market. They track the price of a resource, such as coffee, or a specific sector, like precious or industrial metals.

For instance, you can invest in a physical gold ETC, exposing you to the precious metal by mirroring its spot price. The spot price refers to the current marketplace price at which gold can be bought or sold for immediate delivery. 

Alternatively, an actively managed investment fund that invests in a broad range of gold and gold mining companies can be chosen to diversify risks. These funds will not be directly linked to the price fluctuations of gold itself, but influenced by broader factors impacting the value of the companies the fund invests in.

Buying Gold Online 

Purchasing Gold online comes with its own set of advantages and disadvantages. As mentioned earlier, it necessitates a certain degree of research on every company to avoid falling prey to fraudulent websites. However, the online variety far surpasses that of a pawnshop or local coin shop (LCS), and you can easily compare prices in real-time.

Most online bullion dealers don't maintain their own inventory but pool it. This is because a small box of gold could represent a million dollars worth of inventory. Price differences between retailers are often due to marketing and operational costs, efficiency, and business optimization. Legitimate bullion retailers aren't overcharging; they're merely adjusting prices to sustain their business operations. 

A common misconception in the Precious Metals investment industry is that all retailers lead extravagant lifestyles, driving Ferraris to work. Retail sales of bullion to investors is one of the least profitable ventures due to the incredibly narrow profit margins.

Know How You'll Diversify Your Gold 

Typically, it's suggested that anywhere from 5% to 15% of a portfolio should be invested in gold. However, depending on your financial objectives, you might consider allocating up to 25% of your assets to gold.

It's not merely about diversifying your investments; the location of your gold storage also matters. This is where the concept of having a secondary residence and selecting an optimal storage site comes into play.

You should always ensure easy access to a portion of your gold. The primary objective is to have immediate reach to your gold in case of emergencies.

Yet, it's not recommended to keep all your gold in one location or within close proximity. Your insurance should ideally be based outside your home country.

Switzerland was the final nation to abandon the gold standard. Throughout history, including during wars, they have maintained a currency that could be exchanged for physical gold. Furthermore, in Switzerland, politicians lack the authority to seize gold.

Endnote 

Gold, long celebrated for its financial stability and as an emblem of prosperity, continues to gain favor among investors seeking to broaden their portfolios. However, it's crucial not to hastily dive into gold investment without thoroughly understanding its various aspects. If not, you risk purchasing overpriced gold or, worse, being tricked into buying adulterated gold. Thankfully, this comprehensive guide on essential aspects to consider when investing in gold significantly reduces such risks.