Most financial media focus on assets such as stocks, bonds and real estate. Precious metals and commodities are often a brief afterthought on finance television programs and publications. With the limited coverage that gold receives, you may be wondering if gold is a worthwhile investment to park your hard-earned money.
Using logic and your ability to sift through the information around precious metals, doing your due diligence will help you arrive at an actionable conclusion. Luckily, we are here to give you a comprehensive analysis of gold as an investment and what the future may hold for this time-tested shiny metal.
We have done hundreds of hours of research on the best precious metals investment companies for anyone that wants to invest!
Gold is a precious metal with a rich history that spans thousands of years. It has been prized for its beauty, rarity, and versatility, and has played a central role in human civilization for much of its history.
The first recorded use of gold dates back to ancient civilizations in Mesopotamia, Egypt, and the Indus Valley around 4000 BC. Gold was used for jewelry, sculpture, and as a medium of exchange in trade. It was also believed to have mystical and medicinal properties and was often used in religious rituals.
In ancient Greece, gold became a symbol of wealth and power, and was used to make coins and jewelry. The Greek philosopher Aristotle believed that gold was the most perfect of all elements, and it was often associated with the gods and goddesses of Greek mythology.
The Romans also valued gold highly and used it extensively in their art, architecture, and coinage. The Roman Empire was one of the first to mint gold coins on a large scale, and these coins became widely accepted as a form of currency throughout the empire.
In the Middle Ages, gold continued to be a symbol of wealth and power. It was used to make elaborate works of art and jewelry and was often associated with royalty and nobility. In this period, gold mining also became an important industry, with many European countries establishing gold mines in Africa, the Americas, and Asia.
In modern times, gold has continued to be an important economic and cultural commodity. One of the most well-known uses of gold is in the jewelry industry.
Gold is a popular choice for making rings, necklaces, earrings, and other pieces of jewelry due to its beauty, durability, and resistance to tarnish. It is often mixed with other metals to create different colors and alloys, such as white gold and rose gold.
Gold is also used to make coins and other forms of currency. Many countries around the world have used gold as a medium of exchange for centuries, and it is still used in this way today. Gold coins are often considered a safe investment, as they tend to hold their value well over time.
In addition to its use in jewelry and coins, gold is also used in a variety of industrial applications. It is an excellent conductor of electricity and is used in the production of electronic devices, such as smartphones and laptops.
Gold has a prominent position in industry as has applications in the manufacturing of medical equipment, such as x-ray machines and pacemakers, due to its non-toxic and non-corrosive properties.
What Makes a Good Investment
Investing can be a great way to grow your wealth over time, but it's important to make smart investment decisions in order to achieve the best results. Investing is not the same as gambling and many retail investors rely on guesswork when they should be doing research. Here are a few key factors to consider:
Potential for Return
One of the main reasons people invest is to earn a financial return. A good investment should have the potential to generate a positive return on investment (ROI), whether that be through dividends, capital appreciation, or both. It's important to carefully consider the potential for return when evaluating an investment opportunity.
Risk vs. Reward
All investments come with some level of risk, but the key is to find a balance between the potential return and the risk involved. Higher-risk investments may offer higher potential returns, but they also come with a greater chance of loss. On the other hand, lower-risk investments may offer lower potential returns, but they also come with a lower chance of loss.
It's important to find the right balance between your personal risk tolerance and financial goals.
Diversification is the practice of spreading your investment portfolio across a variety of asset classes, sectors, and industries. This helps reduce the overall risk of your portfolio by ensuring that you are not overly reliant on any one investment. A well-diversified portfolio can help to smooth out the ups and downs of the market and provide a more consistent return over time.
It's important to thoroughly research the underlying fundamentals of any investment you are considering. This includes understanding the financial health of the company or asset, as well as the industry and market conditions in which it operates. A strong set of fundamentals can help to provide a solid foundation for long-term growth.
If you are not comfortable managing your own investments, or if you do not have the time or expertise to do so, you may want to consider working with a professional investment manager. A good investment manager will have a deep understanding of the market and a track record of successful investments and can help to create a customized investment plan that is tailored to your specific financial goals and risk tolerance.
Pros & Cons of Investing in Gold
We could write about the fantastic properties of gold all day. However, choosing to put gold in your portfolio should result from a careful examination of the pros and cons of the metal, and how you can best leverage gold to benefit your finances.
Starting with the advantages, let's look at what makes gold such a great investment.
An objective analysis of gold couldn't leave out the cons associated with the asset. While gold has many characteristics that make it a popular investment, there are also some potential downsides to consider before investing in gold. Here are some potential cons of investing in gold:
Current Market Conditions
Currently, gold prices are coming off historically high levels, with the price of gold reaching an all-time high in August 2020. This can be attributed to a number of factors, including the ongoing impact of the COVID-19 crisis, which led to increased economic uncertainty and increased demand for safe-haven assets such as gold.
In addition to these global factors, gold prices are also impacted by supply and demand dynamics. Gold is a finite resource, and the amount of gold that is mined each year is limited. This, combined with increased demand for gold, can put upward pressure on gold prices.
Overall, the current market conditions for gold are favorable, especially with the world's interconnected economy showing cracks. However, it is important to note that the gold market can be volatile, and prices may fluctuate significantly in response to various economic and political factors.
Potential Future of Precious Metals
As we look to the future, it is difficult to predict exactly what the demand for precious metals will look like. However, there are a few factors that may impact the future of these metals and give us a useful glimpse of the future.
One factor to consider is technological advancements. As new technologies are developed, the demand for certain precious metals may change. For example, the rise of electric vehicles has led to an increase in demand for metals such as cobalt and lithium, which are used in the production of batteries.
Similarly, the increasing use of renewable energy sources, such as solar panels, may lead to an increase in demand for silver, which is used in the production of solar cells.
Another factor to consider is the global economy. The demand for precious metals can be influenced by economic conditions, such as inflation, economic growth, and currency values. In times of economic uncertainty, demand for safe-haven assets, such as gold, may increase.
Finally, geopolitical tensions and natural disasters can also impact the demand for precious metals. For example, conflicts in countries that are major producers of precious metals, such as gold or platinum, can disrupt supply chains and put upward pressure on prices. Natural disasters, such as earthquakes or hurricanes, can disrupt mining operations and impact the availability of these metals.
How to Invest in Gold
There are several ways to benefit from the strengths of gold as an investment. Each method has different advantages and risks that you should be aware of so you can maximize your gains while minimizing the potential for any losses or missed opportunities.
One way to invest in gold is to buy physical gold, such as gold coins or bars. Physical gold can be stored at home or in a secure storage facility, and it can be a tangible way to invest in the metal. However, it is important to note that physical gold requires storage and insurance, which can add additional costs to your investment.
Exchange-traded funds (ETFs) are investment vehicles that track the price of a particular asset, such as gold. Gold ETFs allow investors to buy shares in a fund that holds physical gold, providing exposure to the metal without the need to purchase and store physical gold.
Gold Mutual Funds
Similar to ETFs, mutual funds allow investors to buy shares in a fund that holds a diverse range of assets, including gold. Gold mutual funds can provide exposure to gold as well as other precious metals and mining companies.
Gold futures are financial contracts that allow investors to buy or sell gold at a future date at a predetermined price. This can be a risky way to invest in gold, as the price of gold can fluctuate significantly, and investors may face the risk of losing money if the price of gold moves against them.
Gold Mining Stocks
A more indirect way to invest in gold is to buy shares in gold mining companies. This can provide exposure to the gold market through the performance of the mining company. However, it is important to note that the value of gold mining stocks can be affected by a variety of factors, including the price of gold, the cost of mining, and the financial health of the company.
The latter may leave you with exposure that does not involve the price of gold itself. This means that if a mining company suffers but the price of gold is rising, you will likely be left out of any gains the metal offers.
The world economy is experiencing an unprecedented period of uncertainty. With its safe haven status, gold may prove to be an increasingly important part of your portfolio.
Both during the 2008 financial crisis and the health crisis of 2020-2021, gold spiked as investors fled other instruments into precious metals. Both of these crises have not been fully resolved and their residue is still with us.
The Fed is increasing rates in order to try and stem inflation but more and more voices are calling for a pivot toward rate cuts. As the Fed's leadership and other top bankers admit, they are in uncharted waters. A financial accident triggered by a geopolitical black swan event could easily send the world economy into a deep recession, if not an out-of-control tailspin.
Despite the price of gold being fairly close to its all-time high, an economic calamity could cause the price to increase further. Prudent investors stay away from assets that are near their highest price points, but the market conditions seem to be building to a potential breakout for gold to the upside.
Every investor has a risk profile and distributing your funds across multiple asset classes should be weighted according to your profile. Our assessment is that gold will play a crucial role in the way the national and world economies deal with the coming recession.
You can start dabbling in gold with help from a reliable professional that understands the nuances of the asset class. Eventually, you can build your position to a point where you are well-diversified and comfortable holding physical gold in a safe storage space.
If gold seems like something you would be interested in, get started today. No one can predict when the next financial crisis will hit.
Don't forget to checkout our highest recommended precious metals investment companies if you want to move forward with an investment!