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A Beginner’s Guide to Investing in Gold

  • After recent developments in the markets, online investment platform XTB.com decided to put together a beginner’s guide for anyone looking to start investing in precious metals or diversify their investment portfolio.
  • The guide looks into the main advantages and disadvantages of investing in Gold, along with when the best times to invest in Gold are based on historical trends.

For anyone who is new to investing, the decision of whether to invest in Gold or not can be a confusing one as it’s not exactly the same as investing in stocks and shares, for example. So, how do you know if investing in precious metals, Gold especially, is right for you?

To help with this question, the experts at XTB have decided to put together a Beginner’s Guide to Investing in Gold, which details the main advantages and disadvantages of investing in Gold, along with the best times to invest in Gold based on the historical performance of the precious metal over recent years:

Main Advantages

Hedge against inflation

As inflation rises in an economy, if you’re holding cash you’re effectively losing money as your purchasing power is decreasing. However, Gold is considered by many to be a hedge against inflation as it tends to rise in value at the same time inflation goes up. This doesn’t mean that is always rises in value with inflation, as falling interest rates can also be a reason for rising Gold prices, however it often is the case.

Hedge against difficult economic situations

At the same time as being a hedge against inflation, Gold has also been seen to react positively during times of economic pessimism as many investors see Gold as a safe haven for their money during recessions and other times of economic uncertainty.

Diversifying your portfolio

Maintaining a diverse portfolio should be a top priority for any investors as it greatly helps manage risk and returns, and precious metals, especially Gold and Silver, tend to be a main stay in the portfolios of many experienced investors in their attempts to diversify.

Safe and stable investment

Gold is much less likely to experience the massive price falls that have been seen in stock markets over recent years, even during the COVID pandemic Gold maintained a healthy price as it as seen as such a reliable and stable asset to hold.

Main Disadvantages

Lower rate of growth

Although Gold tends to be a stable asset to invest in, there is the possibility that it will underperform other investment opportunities in the long run such as other stocks and shares. For example, Gold has risen in value by 51.77% in the last 10 years, however the S&P 500 has risen by 52.60% in just 5 years.

No dividends

Another downside to Gold is that you can only yield a return on the investment once you sell the gold, whereas stocks for example also earn you money through dividends. So depending on the amount of money you are looking to invest in Gold, you could be missing out on substantial amounts in dividends had you invested that money elsewhere.

When it comes to the best time to invest into Gold, there are different aspects that you should take into consideration:

When inflation is rising/high

As mentioned in the advantages of Gold, Gold tends to perform very well when inflation is high as it historically tends to be the best bet to hedge against inflation. So with current inflation rates sitting a lot higher than usual, now is a great time to start investing in Gold to protect your money against inflation!

When you’re a young investor

Although many people see Gold as an older-person investment choice, young investors are in the best position to benefit from the nature of Gold as they have a lot more time to purchase it and let it grow over the years and gain as much as possible once it comes to selling in the future.

Unexpected economic events

During times of crisis and uncertainty in the economy, Gold can be the best bet to ensure that you have a reliable place of investment when everything else appears to be experiencing extreme volatility. During the COVID pandemic and even the economic crisis of 2008 for example, Gold was a very good investment choice as it not only maintained it’s value but even grew during those periods in time!

Overall, just like any investment, Gold has its advantages and disadvantages and whether or not you decide to invest in it depends on your individual circumstances and you should evaluate all of the factors of investing in Gold before making a decision.