Once upon a time, gold was used as aform of payment in countries across the world. It was only after World War II thatgold started losing its shine as far as a trading currency is concerned. In 1971, the US put an end to gold standards and the role of the shining metal changed for good. Presently, gold is much more than an antiquated relic ora bad investment option. Gold is an important part of an investor’s portfolio.
Buying gold for personal use is different from buying gold for investment purposes. Regardless, if you want to buy gold for jewelry, you should monitor the gold rate. You can do so by typing 22ct gold price today in the browser search bar and conducting a Google search.
There are some myths surrounding gold that people tend to believe. These myths should be busted so that people can make well-informed investment decisions. Here are 5 myths about gold,as an investment option, are debunked below.
1. Physical Gold isn’t Money
The big fib ‘gold isn’t money’, lessens the charm of yellow metal for its investors. In many ways, gold is money. In 2016, approximately 9 percent of the demand for gold came from central banks &other financial institutions. 24 percent of the total demand included gold coins &gold bars. Statistically speaking, one-third of the demand came from buyers who were looking forward to themoney-likeusage of gold.
Furthermore, 47 percent of the gold demand came from jewelry segment. That is a huge portionand it isn’t money-related in any way. Agold necklace might be purchased for fashion or sentimental reasons. The intention, in that case, wouldn’t be to use it as money but would be wearing it in the form of jewelry. On a second thought, you can sell it for money in the hour of need.
The remaining demand for gold arises fromindustries like dentistry &technology where gold isn’t purchased for its monetary value but for its industrial usage.
While you can’t walk into a market and buy commodities in exchange for gold, you can exchange gold for money when you fall short of it.
2. You Don’t Need to BuyPhysical Gold
As far as the safety of gold is concerned, storing gold isn’t easy. Most people store gold in bank’s locker. This storage space isn’t free as they have to pay locker charges. Having said that, owning physical gold isn’t a bad idea. Hypothetically speaking, if a war or any other debilitating event strikes andbrings global financial systems to a standstill,then fiat currencies such as the USD will lose their value. In such a case, physical gold would instantly have more value.
Eventhough it isn’t advised to invest all your funds in gold, it isn’t a bad idea to own some physical gold as well.
3. Gold is aBad Investment
Gold, as an investment option, is exposed tomarket volatility and price fluctuations. Furthermore, there is aninadequate supply of gold. As mentioned earlier, the yellow metal can be traded for money. It means that gold is aphysicalsource of wealth and its prices are driven by investors’ sentiment.
Fear drives people towards gold and that makes gold a safe investment option. Even inthe worst-case scenarios, gold retains its value. Gold tends to perform well when other investment options such as stocksperform poorly.
The performance of gold depends upon the objective of buying gold in the first place. If you aim at diversification in your portfolio orwish for a safe haven asset, the yellowmetal can strengthen your portfolio. Its percentage need not consume amajor chunk of your investment composition.
4. Owning Gold Miners offer better Returns than Owning Gold
If you wish to buy gold in order to ensure your financial safety and security in worst case scenarios, then owning gold is a better option as compared to buying stocks in a gold miner. If your investment goal is to have a safe haven investment option, then buying gold is a surefire way to accomplish your investment objective(s).
Purchasing a gold ETF(exchange-traded fund) would offer similar returns. Generally, a gold ETFperformance tracks that of gold and helps you avoid anystorage issues that come with buying physical gold.At the same time, it offers most of the investment benefits.
Buying gold miners is different from buying gold. When you buy gold miners, you buy a company, suchas Goldcorp whichmines, processes, and sells gold.The company’s performance is directly proportional to the performance of the yellowmetal. Based on gold’s performance, these companies pay you a share of thedividend. The returns are under 1 percent, but it is better as compared to the returns of gold ETFs orphysical gold.
The problem is,as an investor, you are exposed to the inherent risks of the miners. Increasing costs can drastically decrease your earnings. Furthermore, aging mines gradually lead to a decline in production over a period of time.New mines can be expensive mistakes that you can’t afford to make. When you purchase a gold miner, you purchase a gold company; and,companies are bound to make mistakes since there is no shortcut to a formula forsuccess.
Again, the decision of buying gold vs. buying gold miners depends on your investment goals.
5. Physical gold, Gold ETFs,andgold miners are the only investment options that you have
There is much more to gold investment options than physical gold, gold ETFs,and gold miners. There is one more option to explore- it is streaming companies.
Streaming companies provide miners with cash in advance inexchange for theright to purchase precious metal in the future at acontractually reduced price. The business model adopted by these companies widenstheir profit margins even if theprice of gold is low and miners put up a fight. In event of commodity downturns, SC(streaming companies),for their own profit,can cash out on miners who are in need of money.
Gold (physical gold and gold ETFs), gold miners and streaming companies offer dividends. Currently, the dividends they offer ranges between 1 to 2 percent.
It must be noted that streaming companies don’t rely on 1 or 2 giant mines. These companies have investments allocated todifferent assets, such as operating existing mines &mines in a developmental stage.
In numerous ways, streaming companies offer better long-term returns as compared to the miners. That being said, these companies don’t have much influence on the rate ofyellow metal. In case youwant to invest in gold with the sole objective of diversification, streaming companies might offer a perfect blend of exposure, liquidity, ease of use, and dividends.
In a Nutshell
Gold indeed is a safe haven investment. Thereismore to gold than what meets the eye.How you want to invest in gold depends on your personal goals as well as financial goals. Once you get past these myths, you’ll be able to make better investment decisions. Discrediting these myths will help you understand how gold can affect your investment portfolio.