It has been a turbulent year for the economy as a result of Covid-19, so it is no surprise that interest in gold has risen sharply within the investment world. The financial shock caused by the pandemic has left currencies and markets across the globe in vulnerable and unpredictable positions. With that in mind, more investors are turning to gold as an alternative way of strengthening their investment portfolio.
However, with the price of gold continuing to rise alongside its popularity, what is the best way to invest in the precious metal and how can new investors take a leap into the world of gold for the first time?
Gold, a safer option?
Gold has been synonymous with wealth and prosperity for hundreds of years. Coins were first introduced in 550 BC and quickly became the global currency before paper money came into existence. Ever since then, the precious metal has been an integral part of the globe’s wealth portfolio. During times of economic instability, gold is often looked at as somewhat of an oasis, compared with other investment options. With a history of retaining its value even when currencies and markets are in flux, gold remains a favoured asset as a result of its fundamental, intrinsic value anywhere around the world.
Despite the uncertainty the pandemic has caused, gold’s price continues to rise, potentially heading towards $3,000 per ounce in the near future. Now, with increasing numbers of people seeking a stake in this safe haven asset, the demand and the value for the precious metal will likely continue to rise in months to come.
Understanding gold investment
When investing in gold, it is important to note that it should only make up a portion of an investment portfolio, rather than the entirety. However, whilst signposting about ways to invest in other financial products, such as ISAs or premium bonds, is clear, there are multiple ways to invest gold, many of which aren’t often discussed.
A popular way that investors choose to own gold is through a mutual fund or Exchange Traded Fund (ETF). An ETF requires customers to pass their money over to a fund that will then pool it together with other investors’ money to buy a specific amount of gold, storing it in a high security vault. Although both mutual funds and ETFs work in a similar manner, mutual funds invest in gold mining companies, unlike ETFs, which invest in physical gold bullion. It is important to note that with both ETFs and mutual funds, investors do not own physical gold and are therefore more exposed to market fluctuations. Some ETFs, despite being described as ‘physically-backed’, are also not backed by physical gold, which can also be a risk to investors.
For some, investing in gold mining stocks through a mutual fund may be a better option than an ETF. A mutual fund will invest in a company that mines, however as investments will be contingent on the success of the company, rather than the value of the gold itself, investors will be exposed to any stock market turbulence or changes within the company that could affect this. Anyone investing in gold mining stocks should be prepared to carry out extensive research into the right gold mining companies, before selecting one to invest in.
Some investors may wish to own physical gold bullion and could therefore consider buying gold coins or bars. Whilst buying directly from dealers requires customers to ensure the gold is of a high purity level, and to ensure that they arrange suitable storage, tech platforms, such as Minted, make the process much more straightforward. Minted’s customers can choose how much money they want to invest as part of a regular savings plan, and the gold is stored in a high security London vault. Once enough has been saved for a gold bar, there is the option to either keep it in storage, or to withdraw it and have it delivered.
Unlike the other methods of investing in gold, owning gold bullion gives people complete control over their investment. With the opportunity to sell gold either back to a dealer or via the market, owning bullion is a relatively easy method of buying and investing in gold.
So, should you invest?
The pandemic has sent ripples through the financial world, that will no doubt leave scars for years to come. This being said, the value of gold remains particularly strong, and many first timers are looking to invest.
Simply put, there is no set way to invest in gold; it depends on individual situations, appetite for risk, and long-term goals. For those seeking potentially higher returns in the shorter term, buying gold mining stocks or gold ETFs may be the better choice. However, for those looking to have more control over their investment, buying gold bullion could be the best choice. The price of investments cannot be influenced by bankers or politicians, has value all over the world, and can be stored and sold however customers choose.