Around the world Central banks are grasping at straws trying to stimulate growth. Things have gotten so bad that many have started employing negative interest rates. This means that they are effectively charging you for lending them money. Some major economies have even begun to seriously consider using “helicopter money”.
Here, governments borrow money from their central bank with the understanding that they will never repay it. Thus it is no wonder that many investors are looking for non-traditional ways to preserve their wealth.
For centuries gold has served as a safe haven in times of great uncertainty. History is awash with stories of great families who rebuilt their fortunes just from their gold jewelry. Having made the decision to go for this asset class, the question you must ask is “How to invest in gold?”
In this article. I am going to give you seven simple tips on how to invest in gold and how to invest in gold stocks.
Tip #1: Have Some Physical Metal
If you have a pessimistic outlook about the state of the financial system, it really does not make sense to store your wealth in a financial market or at a financial institution like a bank.
You may feel more comfortable having physical assets whose security you can ensure yourself. I would not recommend putting everything into physical gold, but having some actual metal that you can access whenever you need has its advantages.
I must inject a note of caution here, should you decide to store significant amounts of gold at home you need to take measures to protect it as well as yourself.
Tip #2: Bars Beat Coins
I prefer gold bars to gold coins . Often gold coins are valued significantly above the their gold content due to factors such as collectibility, rarity and even the number of scratches on the coin. This excess value may not survive as well as the value of gold, especially in times of great instability.
Tip #3: Gold is Not the Only Investable Metal
There is no reason you should look exclusively at gold. Silver can serve a similar purpose while offering some advantages over gold. It is less valuable meaning that you can perform smaller transactions with silver than with gold. It it even has medicinal uses.
Colloidal silver has been a staple tool of doctors throughout the ages, particularly before the invention of modern antibiotics. Given the recent emergence of antibiotic resistant bacteria, it may even make a return. In fact given the advantages of silver, perhaps I should have titled the article “How to invest in gold and silver”
Tip #4: Platinum is Not a Substitute for Gold
Often mentioned together, platinum and gold actually have very different properties and are not good investment substitutes for each other. Unlike gold, platinum is an industrial metal.
Most of the demand for the white metal comes from its use in catalytic converters in diesel vehicles. If electric vehicles take off over the next few years, prices could easily collapse. Even the recent emissions scandal at Volkswagen pushed prices down.
Additionally, platinum is far harder to work with than gold. Gold and silver both melt at about 1000 degrees Celsius, platinum’s melting point is over 700 degrees higher making it difficult to work with without specialized equipment.
Tip #5: A Good Company is Not Always a Good Investment
So how do you invest in gold stocks? Normally when buying stocks you would look for good businesses. This may not be the best idea with regard to gold stock, if you are confident that prices are going up.
I would advise looking for a mine whose cost of production is higher than average. If gold prices were to spike, a marginal mine would have a larger jump in value than one that had always been profitable.
Tip #6: ETFs Trump ETNs
Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) have become very popular recently. Though they sound alike and often give similar returns, they are in fact very different.
A gold ETF actually owns gold. It's value is actually backed by physical gold in a vault. An ETN on the other hand is simply backed by the promise of the financial institution that created it. I know which I prefer.
Tip #7: Diversity is Good
Even an average investor who isn't as concerned about an imminent financial crisis should have some gold in their portfolio. Gold is a counter-cyclical asset, meaning that it often rises when other assets fall. In a well-structured portfolio, such assets can significantly reduce risk which is something every investor should want.
Hopefully I have given you some helpful advice on investing in gold. I would like to leave you with a parting thought...
The famed economist John Maynard Keynes once referred to gold as a "barbarous relic" but as every other civilization in history has learnt, sometimes the barbarians really are at the gate.
Wealth advisor Minesh Bhindi has more nuggets of wisdom on this subject, which he shares in his free webinar "3 Steps to Cash-Flow Gold and Silver".