What To Look for When Looking for Gold? Know these four essential factors before investing your money in gold to avoid making losses.
Gold is one of the more popular and stable precious metal investments an investor can make. It isn’t just a hedge on inflation but also an excellent way to diversify an investment portfolio.
However, buying gold will not protect you fully in an economic collapse, so the temptation to stockpile this precious metal should be avoided. Several factors can help guide you when choosing how to buy gold and the amounts to purchase to help you reach your long-term financial objectives.
Investors typically buy gold to diversify risk and as a relatively safe and stable long-term investment. However, the gold market undergoes volatility and speculation, much like in other markets such as stocks and shares or real estate. Also, it is not easily transferrable to cash or other precious commodities like food and water in the event of an economic depression or collapse.
For this reason, you must know what to look for when buying gold to ensure that you make the right investment choices. As an investor interested in purchasing gold, knowing factors like types of gold, when to buy, from whom to buy, how much to buy, and what factors influence the price are essential to minimize the risk of losing your money.
What Type of Gold Should I Buy?
Gold comes in many forms, and investors must know which form is appropriate and profitable to buy.
In physical form, ingots and bullion bars are a common and relatively safe form of gold to purchase. However, buyers can also invest in Gold Exchange-Traded Funds, or Gold IRAs – investment platforms and retirement accounts backed by gold rather than paper assets.
Investors can also purchase gold as coins, mining stocks, and jewelry. Below we delve deeper into these gold forms and look at the benefits and drawbacks of investing in each.
Investors can purchase gold bars or bullion from reputable online retailers like APMEX, JM Bullion, and wholesalecoinsdirect.com.
Gold bars or bullion differ in form, weight, quality, and price, so it is essential that you only buy from reputable sources to protect your investment value. Quality gold bars should be at least 99.6% pure gold and have the manufacturer’s name, weight, and purity prominently stamped on the surface.
Well-known and trusted mints that produce gold bars include the United States Mint, PAMP Suisse, Valcambi, Royal Canadian Mint, Sunshine Minting, and Perth Mint.
Bear in mind that you will likely incur extra costs such as storage, insurance, and spread when you purchase gold bars. Spread refers to the mark-up the trader charges if you sell the gold back to them later.
Gold coins are perhaps the most expensive way to invest in gold, but they also are easier to sell than bullion and rounds should you wish to liquidate your investment in the future.
Investors typically buy gold coins from dealers with an approximate 7-10% spread—the difference between the price the dealer sells the coin to you and the buyback price. It is this high transaction cost that makes investing in gold coins so expensive.
The best gold coins to invest in include the:
- American Eagle
- American Buffalo
- Austrian Philharmonic
- British Britannia
- South African Krugerrand
- Canadian Maple Leaf
Gold coins are more straightforward to sell than gold bars or rounds. Experts recommend buying gold coins from governmental authorities as these are more widely accepted should you need to liquidate them.
Gold Mining Stocks
Investing in gold mining stocks is perhaps riskier than investing in physical gold, but the ROIs are typically higher than what you’d get with a physical gold bar or coin.
This type of investment offers dividends and a steady cash flow, which you can use to live. Mining stocks are also easier to sell than physical gold, should you need to liquidate quickly. With physical gold, you’ll need to find a buyer willing to buy at reasonable prices, which may not always be easy, especially when the market gold market is struggling. However, with gold mining stocks, you can sell them online in a few minutes to get the money you need.
Additionally, the essential thing to note when investing in gold mining stocks is your risk appetite. Gold mining stocks are influenced by external factors such as political crises, oil prices, and geological events that can affect the price and hence what you get from your investment. If your risk appetite is low, you may be better off investing in physical gold.
Gold jewelry embodies luxury and class and can make an excellent long-term investment. This precious metal has real value in almost all the cultures of the world.
Knowing what to look for when buying gold jewelry is essential to get your investment right, as jewelry is incredibly subjective. What may be valuable to one person may not be so attractive to another. Hence, it is essential to buy quality gold jewelry that is timeless and widely accepted should you wish to sell it in the future.
When buying gold jewelry, always consider the following factors:
- Alloys and colors – do you prefer yellow, white, rose-gold, or green gold?
- Design – a simple design is more marketable than complex, busy designs.
- Pricing and quality markings – look for the hallmark that shows how pure the gold is.
- Purity levels – choose high-karat jewelry pieces (18-24 karat) for investment purposes and low-carat (14– 18 karat) pieces for everyday wear.
- Quality –always opt for gold-filled over gold-plated pieces.
When Is the Ideal Time to Buy Gold?
Gold is like any other investment, and as such, buying gold should make you money. Investors are encouraged to “buy low, sell high” to protect their money.
Knowing the right time to buy gold means keeping an eye on the market. Gold has historically performed well during times of economic recession, so it makes sense to buy gold as a hedge on inflation—a form of insurance—and as a hard asset that holds its long-term value even in the harshest economic conditions—a prudent investment.
History has proven that as long as you have physical gold to sell or trade, you will always have the possibility of selling your asset for cash, even in an economic collapse.
Another factor to consider when deciding when to buy gold is the asset’s seasonality. As the summer months begin, gold prices remain constant but consistently rise from September through November.
Therefore, it is prudent to buy gold in May and hold your asset through the fall months as volumes pick up and prices continue to rise. Use December to evaluate how well your investment has done, depending on the gains earned throughout the year.
What External Factors Should I Look For That Affect the Price of Gold?
The current gold price, or “spot price,” continually fluctuates due to everyday world events such as politics, war, and supply and demand.
As an investor, you should aim to purchase gold at 2-5% over the spot price and sell for the spot price to avoid losing too much money.
You should also lookout for the following factors which could affect the spot price:
- Currency fluctuations: when the dollar drops in value, the price of gold goes up
- Geo-political factors: oil prices, war, and natural disasters
- Government reserves: this amount can increase or decrease the price
- Supply and demand: increased demand causes the price to go up; decreased demand causes the price to drop
I’m Ready to Buy Gold – What Now?
When you’re ready to buy gold, there are several factors you should consider to ensure that you make a good investment. Apart from the spot price and type of gold, you should also consider the entity from which you’re buying.
The Dealer and Their Buyback Policies
Take your time to research reputable dealers who can offer you a fair purchase price. Avoid buying gold online through bidding sites such as eBay, as you can end up paying more than what you bargained for, and choose a dealer with reasonable buyback policies that won’t lose you money.
Also, consider how much in taxes you’ll pay on your investment. Investments in precious metals and other commodities are subject to capital gains tax. These taxes are owed if you held the gold for more than one year and are payable after your asset’s sale.
And finally, think about where you’ll store your investment to keep it safe. Everything from your dealer’s premises, bank safety deposit boxes, and a home safe (with the appropriate home insurance policy) are viable options.
Buying gold is one of the best and safest long term investments you can make to spread your risk and diversify your investment portfolio.
As long as you consider all of the factors mentioned above, you shouldn’t go wrong in making your gold investment. Apart from considering what to look for when buying gold, you should also limit your investment’s gold amount.
Gold is typically a long-term investment and does not bring in much return in the short term. Investment is all about making your money work for you, so if you want to see the benefits of investing in this precious commodity, experts recommend that you only consider investing 5-10% of your assets in gold.