Understanding Gold As An Investment

Understanding Gold As An Investment

There are no second thoughts about the value of gold. Today, many routes are available for investing in gold. Investors can choose to invest in gold ETFs (Exchange-traded Funds), buy gold coins from authorized dealers, or invest in gold stocks.

Gold as an asset is valuable because it spreads beyond boundaries. Investors in gold are divided in two groups. Some believe gold does not hold the same monetary power as it did before, whereas others believe that gold is a must-have investment in a portfolio owing to its precious nature.

A hundred years ago, gold was recognized as a universal currency worldwide. Only in 1944, when the Bretton Woods agreement was signed, the U.S. dollar became the world reserve currency. Let’s understand the advantages of gold as an investment.

  • First, it is a liquid asset that can be redeemed for cash anywhere in the world. Many investors see gold as an investment because of its liquid nature.
  • Gold provides a cushion against inflation. Any fluctuations in the dollar can affect the rise in gold prices. Gold offers stability during a financial meltdown.
  • The best part about gold is that it has universal appeal. The value of gold remains unaffected, even in political turmoil.
  • If you want to diversify your portfolio, gold can add weightage and protect against any risk from other investments.

Coming back to the other group of investors, who think gold as an investment is overrated, though gold offers security and stability, it does come with some disadvantages. Here are a few.

  • Gold must be stored securely in a vault. Physical possession of gold is dangerous.
  • The rate of capital gains tax on gold is 28%, which is way higher than the typical rate of capital gains tax.
  • Analysts believe that gold prices rise only when there is an inflation or when the dollar is devalued. Other than these events, there is no chance for a rise in gold prices.
  • Gold cannot be considered a source of passive income, unlike stocks and bonds, because investors do not get any returns or dividend. Only once you sell can you expect returns on gold.

Before you decide to invest in physical gold, understand the purpose or reason behind buying it. For some, it is about security, and for others, it is purely about money. Although gold is accepted universally, both buyer and seller are required to exchange an amount equal to the value of gold in return. Gold gives you security, but in bad times, gold cannot give you a house or food.

Not to forget, IRS (Internal Revenue System) marks gold as a collectible item and taxes it. There is a constant fear among buyers when gold prices drop because the premium price paid while buying will be wiped off, and losses will mount.  

After analyzing the advantages and disadvantages of investing in physical gold, one can say that gold is indeed a profitable investment. Depending on the situation and your use for it, you should decide whether to invest in gold or not.