The pros and cons of investing in gold
Investing in gold for the first time is a big step. At Value Shop, we think it's important that this is a well-considered choice. We are therefore happy to help you weigh the pros and cons of investing in gold.
Inflation protection versus no interest or dividends
Traditionally, we have considered gold a safe investment. This is because the price of gold is not directly linked to currency. Gold does trade globally in U.S. dollars per troy ounce. A weight equivalent to 31.1035 grams.
So in a sense, the dollar does affect the value of gold. But because of the lack of a direct link, gold usually retains its value in times of inflation. In economically uncertain times, it is a good protection against currency depreciation. Especially when investors' confidence in the market wanes. Then precious metals gain in popularity, causing their price to rise.
This is also how banks act. When they are concerned about the value of their currency, they establish more gold reserves. Gold reserves then provide some stability and protection against currency risks.
Every advantage always comes with a disadvantage. When you invest in gold, you have no income such as dividends or interest. You do generate those when you invest in stocks or bonds.
However, that income also comes with a downside. When the economy is in worse shape - which is the case now due to various conflicts - stock prices can fluctuate widely. With economic uncertainty, there is always a greater chance that the financial system will have problems. This can lead to large losses for investors.
Liquidity versus price fluctuations
The global recognition of gold as a valuable investment makes it easy to buy and sell gold. Therefore, we consider it a highly liquid asset. The definition of a liquid asset is, "when you can quickly and easily convert it into cash or another financial instrument at a reasonable price."
Needless to say, there is an active market to trade gold. For example, there are some international commodity exchanges to trade gold, such as the COMEX in the United States. But you don't even have to go international to trade your gold. You can also sell it to gold dealers or directly to a jeweler. In short, physical gold is easy to convert into scriptural money.
The downside is that gold has a volatile price. In the short term, there can be sharp fluctuations in value. Therefore, it is important to consider this precious metal as an investment. It yields more when you invest your money in it for a longer period of time.
Diversification of investments versus speculative nature
The price fluctuations therefore make gold speculative in nature. You should definitely keep this in mind so that you don't make impulsive decisions. It is always important to inform yourself well before making a purchase decision.
In general, gold is a very valuable addition when you already have a diversified investment portfolio. This is because it has a low correlation with other assets, i.e. with other stocks or bonds. Gold does not follow the swing movements of the investment market. This makes it an extra useful addition, as it allows you to better diversify the risks of your investment portfolio.
General: historical appreciation
When we look at the price of gold throughout history, we see that it has historically risen. Thus, despite price fluctuations, the value of gold continues to rise on average. In fact, over the last ten years the price has risen by as much as 85%! It should be noted, however, that historical performance is no guarantee for the future.
Therefore, get proper advice before investing in gold. Through our years of expertise in buying and selling gold, we are your reliable partner for all gold questions to secure your financial future. Do not hesitate and feel free to ask the advice of our experts.