Gold is an excellent choice of investment for many reasons. It can be used to hedge against inflation, and it will always be of value due to its scarcity. It is a great portfolio diversifier for seasoned investors as an alternative investment. As there are many reasons why we should invest in gold, the presence of gold varieties makes it more favourable. So, how to invest in gold? Is gold a good investment? Read on to find the answers below!
Why invest in gold?
As a luxury item, gold is a highly liquid asset to invest in. Its scarcity makes the demand remain stable. On average, the annual gold demand is 4,100 tonnes with US$166bn in value. Most of the demand is driven by the jewellery industry with 54%, followed sequentially by investment (30%), technology (10%), and central banks (6%).
Gold has become favourable among investors from individuals to professionals. It means gold as an investment has become more mainstream. Since the turn of the century, gold as a global investment has reached an average of 18% of growth worldwide. Central banks also use gold as their foreign reserves, which makes them triple their holdings over the last ten years.
Conventionally, investors hold their gold when the risk is high and then sell it on the rise. As a long-term investment, this would be significantly profitable. However, the latest trend of gold investment shows that investors rely on gold when the market is uncertain. This behaviour influences the gold price in the short-term and medium-term, making a positive return.
Gold’s scarcity is another driving force behind its investment appeal. Unlike fiat currencies, which can be printed in unlimited quantities, gold is a finite resource. This scarcity contributes to its ability to maintain value over time, making it a reliable store of wealth. Additionally, gold has been recognised as a form of currency for centuries, adding to its allure as a long-term investment.
The diverse demand for gold also contributes to its importance in investment attractiveness. While the jewellery industry accounts for a significant portion of gold consumption, its role in investment portfolios has been growing. Investors, both individual and institutional, turn to gold as a portfolio diversifier to mitigate risk and enhance overall stability. Moreover, central banks, responsible for managing a country’s monetary policy, have been increasing their gold holdings, reinforcing gold’s status as a strategic reserve asset.
What affects the price of gold?
Gold is among the traditional forms of saving or investing. Based on many customs such as Indian and Chinese traditions, it’s common to give the newlyweds gold as a form of gold luck and prosperity. However, gold can also be used as an access to emergency funds. In modern times, investors see gold as a safe investment for risk mitigation. The value of gold does not increase rapidly, however, value does appreciate at a steady rate. Although you may not make a lot of money from it, there is practically no chance of a market crash either. Listed below are some contributing factors that can cause fluctuations:
I. US dollar exchange rate
Being among the biggest reasons for fluctuations, monitoring the exchange rate of the US dollar is crucial in the gold market, given that global gold trade is denominated in US dollars. An uptick in the exchange rate correlates with a rise in local gold prices, while a robust ringgit corresponds to a decrease in gold prices. Therefore, it is essential to stay vigilant about US dollar exchange rates as they can impact the buying and selling prices in gold trading.
II. The global economy’s effects on gold
Economic instability often triggers a flight to safety among investors who seek to safeguard their assets. As previously mentioned, gold emerged as a favoured refuge during periods of economic depression or trade wars. The surge in demand for gold during such times naturally results in an escalation of its selling price.
Interestingly, this heightened demand for gold is not exclusive to economic downturns. The metal’s significance as a raw material in the electronics manufacturing industry also contributes to increased demand during prosperous economic periods. With people enjoying higher disposable incomes, consumer spending rises, further fueling the demand for gold in electronics production.
Another critical factor influencing the price of gold is the prevailing interest rates set by central banks. Generally, lower interest rates signal an impending increase in the price of gold, while higher rates often precede a decrease in its value. These interest rate adjustments are typically responsive to the overall economic climate. In times of economic slowdown, central banks may lower interest rates to stimulate growth. Concurrently, investors tend to gravitate towards safer investments like gold during economic downturns, further influencing its price dynamics.
How can I invest in physical gold?
In the long run, physical gold has many forms that you may invest in, including gold bars, gold coins, and gold jewellery. Whatever the reason is, physical gold investments are preferable because each form has its own properties.
Gold bars are the favourite among experienced investors. Ranging from 25 g to 1 kg, gold bars are usually larger than gold coins. The cost is also cheaper than gold coins. You can put it everywhere since it’s easy to store. However, gold bars are rather inconvenient to liquidate since you need to sell them as a whole rather than split them into a few pieces.
Gold coins appear to be the reachable choice for the newbie. It weighs between 2.5 g and 25 g, making it easy to sell whenever you need the money. Since it is minted individually, gold coins are higher than the bars.
Instead of confining it to storage, gold jewellery is wearable. Gold’s shiny properties have become the reason why jewellery has made use of it since ancient times. But, as you may not know before, gold jewellery is not all pure gold. There are some metal mixes to solidify the shape since gold itself is too soft. You might also find they are losing their value due to scratching or broken.
What is digital gold?
Today, everything is digitalised. This also applies to gold. Digital gold is a virtual gold that you can buy and store without physically holding the gold itself. Since you buy it online, you can choose how many you need to buy at the current price. You can even buy gold for as little as RM1.
Digital gold is safe and hassle-free stored, which means the theft threat is no longer an issue. Even though you are not holding it physically, you can withdraw it in specific values.
To buy digital gold is as simple as online shopping. All you need is to choose the best and most trusted platform that provides digital gold. Choose how many you want to buy, whether based on Ringgit or weight. A quick pro tip, take a look at its value for the last two weeks and see if the price is reasonable or not. Gold values are changing daily, and all you need is to take advantage of them.
Is gold a good investment?
Since inflation is raging globally, gold is considered a must-have in your portfolio. The rising interest rate and its role as a hedge against inflation are more than enough to keep at least 10% of your investment. This will protect you against possible economic downturns, including stock market crises and the devaluation of most currencies.
Should you invest in gold? Gold may offer you an investing safe haven if you’re concerned about inflation and other calamities. Though it can be just as volatile as stocks in the shorter term, gold has held its value remarkably well over a very long time.
