From time immemorial, gold has been a coveted asset across many cultures and regions.
Unlike many precious metals, gold is rare and thus highly valuable. The timeless beauty is found naturally in the earth’s crust, which means it isn’t and can’t be man-made. This is another factor that draws societies toward gold so much.
Today, the precious metal couldn’t be more desirable – thanks to its undeniable value. Even though gold is volatile, it’s always proven to be lucrative in the long-term.
While gold can be an excellent addition to your investment profile, buying it is a huge step nonetheless. However, learning and preparing yourself for your gold investment can help you make the right decision.
In this post, we will cover the history of gold investing, reasons to invest in gold this year, a comparative analysis of gold vs other precious metals, and other important details that you should know about gold before investing in it.
- 1 History of Gold Investing
- 2 Why Should You Invest in Gold in 2021?
- 3 Does the Type of Gold Investment You Choose Matter?
- 4 What Is Rose Gold?
- 5 Gold Stocks VS Physical Gold
- 6 Gold VS Silver VS Other Precious Metals
- 7 Does Investing in Gold Protect You from Inflation?
- 8 Hedge Funds VS Gold. What Generates More Profit at the End?
- 9 Movement of Gold Prices Over the Last 20 Years Explained
- 10 Will Gold Ever Run Out?
- 11 How Much Gold Is Used in Industries Every Year?
- 12 How Much Gold is Mined Every Year?
- 13 What’s the Possible Future of Asteroid Mining?
- 14 Conclusion
History of Gold Investing
Throughout history, gold has been used as an equivalent to currency for exchanging goods.
The precious metal was first used as a form of money in 500 B.C., when Darius the Great – a notable monarch of the Persian Empire – issued the first-ever gold coin, which is known as the daric, to fund the expansion of his army in foreign lands.
Later, in the 19th century, many European countries employed a monetary system – a gold standard – until it was suspended during the great depression.
After World War II, the gold standard was relaunched by the Bretton Woods system that fixed the gold rate to the US dollar (the reigning currency of the time) at $35 per troy ounce.
But in 1971, this direct convertibility of gold to the US dollar was suspended due to inflation and geo-political issues. In the past two decades, gold has grown to become a popular investment and has consistently held its value against all odds in long-term investment.
Why Should You Invest in Gold in 2021?
The value of the yellow metal has surged high amid rising global tensions.
Investors interested in getting gold is wondering whether or not now is a good time to invest in gold. According to Albert Cheng – the CEO of the Singapore Bullion Market Association, “there is no good time to buy gold. Every investor should have some.”
Even though gold is hitting new highs this year, financial advisors still recommend allocating a certain percentage of gold in your investment portfolio. Here are some major reasons why investing in gold in 2021 is an excellent idea.
Gold is generally considered as a “safe haven” for a reason. When the economy is extremely volatile, gold is in high demand. Investors are hoarding it to protect themselves from the looming threat of the pandemic that has crippled the entire world.
Other investments such as bonds and stocks have taken a tumble this year, but gold maintains its value and performance. In today’s failing economy, there’s an urgent need for financial protection. And owning gold can offer substantial security to you.
The economic situation in the future seems quite bleak, too. One doesn’t know if, in the coming years, the world will find its feet again.
Therefore, investing in gold is the perfect option. It is a secure asset that acts as a necessary hedge against inflation. If everything else fails in the future, you will always have gold to turn to – especially in the tough economic situation that awaits us.
Gold has a history of holding its value even in worse economic events.
This is unlike paper currency such as coins and other assets that decrease in their value as the economy takes a hit. In many cultures, gold is also seen as a means to preserve and pass on wealth from one generation to the next.
People across the world value the unique properties of gold – it doesn’t corrode, is easy to melt, and hence, easy to work with. Unlike other metals, gold has a stunning color and beauty.
Since ancient times, the precious metal is seen as an epitome of beauty and luxury. In many cultures and countries, owning a substantial amount of gold is viewed as a sign of wealth and riches.
Gold has been the most highly sought-after asset in 2021. The demand for the yellow metal has soared high by 15% in the first few months of the year.
While the precious metal enjoys an all-time demand, unfortunately, it is rare and finite, which is one of the reasons why gold is insanely expensive. Gold is a hefty metal, containing 79 protons and 118 neutrons.
Because of its unique chemistry, it’s difficult to come across gold that easily. As time passes by, fewer and fewer large gold mines are being discovered.
Explorers have to dig deeper and wider in order to find gold in all its glory. Due to this, the production of gold has slowed down over the years, and hence, gold has become scarcer than ever.
Gold not only offers safety in times of financial uncertainty but in times of geo-political uncertainty as well.
Because of this, it is known as the crisis commodity. When tensions rise in the world, people often flock to gold as it offers better performance than other investments. For example, gold prices spike high during the China-United States trade war.
At that time, all other investments experienced a fall in their prices except for gold. Remember, the value of gold surged high when the government confidence is low and uncertain.
Does the Type of Gold Investment You Choose Matter?
Since olden times, gold has been seen as a financial support system to help the owner ride over their unexpected financial emergencies. Today, you can buy gold in many forms – paper as well as physical. It is available in coins, bars, and jewelry.
When purchasing paper gold, you can go for Exchange Traded Funds (ETFs) and Sovereign Gold Bonds (SGBs). You can also invest in gold mutual funds such as gold MFs.
Choosing the right form of gold that suits your needs and interests is extremely important. After all, not all types of gold investments offer the same advantages.
What Is Rose Gold?
Rose gold is an amalgam of pure yellow gold (24 karats), silver, and copper. Pure yellow gold (24 karats) is used as the base for all types of gold. However, it can’t be used in its pure state as it is too soft. It is always mixed with other metals to toughen it up.
Rose gold was originally used in the early 19th century by an esteemed jeweler Carl Faberge. He inaugurated the unique metal in his Faberge egg (also known as Russian gold) – an adorned egg made by the House of Faberge in Saint Petersburg, Russia.
Later, in the 1920s, rose gold reached new heights in the United States. It was used alongside diamonds and other precious gemstones in jewelry and fashionable ladies of that time were seen flaunting rose gold rings and necklaces to parties and events.
Today, rose gold is equally in fashion and is distinguished for its romantic color and elegant style.
Gold Stocks VS Physical Gold
At one point or the other, every investor asks this – is it better to invest in physical gold (jewelry, coins, or bars) or gold stocks (ETFs, SGBs, etc.)?
If you have the same thing on your mind, continue reading this section where we compare and contrast between gold stocks and physical gold.
Commonly known as paper gold, gold stocks function like any stock market – only your gold price won’t suffer if the stock market crashes because your gold stock is tied up to the value of gold.
Investing in gold stocks means you are investing in companies that mine gold or own it on your behalf. Why should you invest in other companies when you can own gold by yourself?
This is because gold stocks are more stable and likely to compound as the company succeeds.
Some popular options for gold stocks include gold ETFs, gold mining stocks, and gold certificates. One of the advantages of owning stocks in gold is that you don’t have to store gold in its physical form.
Hence, you don’t have to worry about it getting stolen from your possession. Like traditional stocks, these investments can easily be liquidated. You don’t have to withdraw and sell it – you can simply trade the fund.
Unlike physical gold, gold stocks are a high-risk investment because they are dependent on more than the price of gold. Since you are investing in a company, your gold price can be affected by the success or failure of the company – not gold.
Also known as bullion, investing in physical gold is more common than buying gold stocks.
Unlike the latter, the value of physical gold tends to rise when the stock market suffers. In physical gold, you can invest in jewelry, bars, and coins. These forms of investments should be approved by the IRS if you plan to keep them in an IRA.
Gold bars come in two forms – cast and minted. Cast bars are made in a mold. They are rough and slightly flawed, while minted bars are quite shiny and smooth. Because of this, minted bars come at a higher premium than cast bars.
Physical gold can be used in economic downturns as its price tends to go up. When all other investments may suffer due to economic crisis, your gold jewelry, bars, and coins can still be at a higher value.
Unlike paper stocks, there’s no middleman between you and your gold when directly owning gold. You have the entire ownership of your gold and how you plan to use it.
Gold VS Silver VS Other Precious Metals
Gold is not the only precious metal investors put their money on.
Some other valuable metals that investors purchase to diversify their investment profile are silver, platinum, copper, and palladium. Let’s compare and contrast gold with other precious metals.
Gold Is Less Volatile Than Other Metals
The price of gold is more stable than other precious metals such as silver and platinum.
Over the past decade or so, the gold price has changed by an average of 0.8% per day while the price of silver by 1.4%. This is because gold has a larger market and ever-increasing sales and demand.
However, silver and other precious metals have a smaller target market and tight liquidity, resulting in high volatility. As being less volatile, the price of gold falls less than silver and other metals in bull markets, thus, proving to be more profitable.
Gold Is Expensive
The value of gold is twice more exuberant than that of silver and its alternatives. However, if you invest in physical silver, you get a tangible asset similar to gold.
Unlike paper money, silver, gold, or any other precious metal aren’t produced from trees. They all are naturally found on earth. The main difference is that gold is rare than other precious metals and is, therefore, more expensive.
The Value of Gold Isn’t Dependent on the State’s Economy
The value of gold is less driven by the global economy. The precious metal has no use outside the adornment industry.
On the other hand, silver, platinum, copper, etc. are useful in the industrial sector. They are employed in the making of electric appliances such as refrigerators, washing machines, vacuum cleaners, mobile phones, etc.
There’s also a growing use of silver in the medical field, as silver consists of antibacterial properties. Owing to silver’s vast industrial uses, its price is often impacted by the success and failure of the state’s economy.
Does Investing in Gold Protect You from Inflation?
Gold is viewed as an inflation hedge – a form of investment that helps protect a decrease in the purchasing power of a currency due to inflation.
The hedge usually involves purchasing an asset that is supposed to maintain or increase its value over a certain period of time.
As compared to other investments, gold is considered as the better hedge against inflation – especially in the long-term. A good example is a report by the World Gold Council from 1974 – 2008. During this time period, the U.S’s inflation rate was at an all-time high.
In those years, gold prices spiked by 14.9% every year. In contrast to other forms of investment, gold outperformed bonds, stocks, and other commodities. Gold is indeed an effective hedge and a real asset that guards against potential risks in the long-term.
Hedge Funds VS Gold. What Generates More Profit at the End?
When it comes to investing in gold, you have two options – either to invest in funds such as ETFs or purchase physical gold, including jewelry, bars, and coins.
With investing in hedge funds, you get the additional benefits of an expert, usually the fund’s manager, looking after your gold investment. This is useful if you don’t have adequate time or/nor experience to manage your own investment portfolio.
The manager handling your portfolio will use their specialized knowledge to increase your profit.
However, the success purely depends on the investment company and the manager besides the performance of the gold market, of course. Due to this reason, investing in hedge funds tend to be riskier than buying physical gold.
Please note that the previous performance of the investment company doesn’t guarantee that it will continue to bring in the same profit in the future as well.
Additionally, the management fee is charged annually to cover various operating costs of your fund. Due to these reasons, investing in physical gold can be more rewarding for investors.
Movement of Gold Prices Over the Last 20 Years Explained
If you’re considering an investment in gold, you may want to look at its price history. This will provide you crucial information about the precious metal, assisting you in buying and selling decisions. Gold is seen as a safe haven for investors across the world.
Despite that, its price rises and falls due to various economic and geo-political forces. Starting from 2000, the stock market reached its peak in March. With inflation aggregating from 2.7% to 3.4%, the price of gold increased, too.
That year, the value of gold elevated from $290.25 to $274.45. In spite of the recession in 2011, due to the Twin Tower Attack in New York City, the price of gold didn’t get much affected and was raised by 2.05%.
From 2002 till 2006, the bull market was on the rise, which means the global economy was sound and stable. This had a positive impact on the price of gold that surged higher as years rolled on. By 2007, the gold price was a whopping $833.75.
2008 and 2009 saw a period of recession, but the gold price increased considerably and reached a value of $1,087.50.
However, in 2013, the gold succumbed to the bull market, and its value declined from $1,657.50 to $1,206.00. In 2015, the price lowered to $1060. But then the gold recovered to $1,145.50, $1,291.00, $1,279.00, and $1,514.75 in 2016, 2017, 2018, and 2019 respectively.
Will Gold Ever Run Out?
Since there’s no exact estimate of how much gold mines exist in the world, it’s impossible to say whether it is likely for gold to deplete completely.
That said, considering the existing known reserves, estimates suggest that gold production can reach its “peak gold” by 2050. However, newer technologies by that time will likely push the guestimate to 2075 or further down the line.
How Much Gold Is Used in Industries Every Year?
The excessive use of gold is seen mostly in the jewelry industry, where approximately 2,118.6 metric tons of gold were used in 2019.
This accounts for a 48.5% share of gold demand by the industry. Besides that, in 2019, about 150 metric tons of gold were consumed in the United States alone.
How Much Gold is Mined Every Year?
Including all the gold mines and sources in the world, current estimates indicate that approximately 2500 – 3000 tons of gold are mined annually.
Currently, experts believe that the overall amount of gold in the world accounts for roughly 190,000 tons.
What’s the Possible Future of Asteroid Mining?
In the future, asteroid mining can be favorable for commercial ventures provided that it churns out greater profit than the cost of extracting and marketing.
Asteroid mining is also an excellent idea because certain asteroids can hold wealth equal to a massive $100 billion for every person on earth. However, the future of asteroid mining is only possible with more economic development and advancement in technologies around the world.
Gold is considered the wisest investment option, and we can clearly see why. Gold is not only beautiful and luxurious, but it offers financial support and stability in the long-term.
During economic uncertainty or recession, people often turn to invest in gold because of the metal’s ever-lasting value. When bonds, equities, real estate, and other assets fall, the value of gold only keeps increasing, driving up its price.
Gold is also used as a hedge to guard against challenging economic events such as inflation or currency devaluation. Moreover, gold is seen as a protector during geo-political instability as well.
All in all, if you are fortunate to have the financial freedom to create an impressive investment profile, make sure you invest in different forms of gold!