Advantages & Disadvantages of Investing in Gold
You think about investing in gold but still want to get additional information in this regard?
Great! Stick with me since I will show you all the pros and cons of buying gold in the following chapters so that you can better decide whether you still want to go for it or rather want to invest in real estate or the stock market instead.
Advantages of Buying Gold
- Gold is considered a safe haven
- Gold can protect your wealth during financial crisis situations
- Owning gold is a status symbol
- Gold is used in many industrial processes
- It is nice to look at your gold treasure
- Gold is mobile
- You can exchange gold for money within a rather short period of time
- Gold has a long track record in history
- Gold is not dependent on electronic devices
- You don’t have counterparty risk by buying gold
- Gold as an inflation hedge
- Investing in gold is good for portfolio diversification
- Gold investments are easy to understand
- You can invest in physical gold as well as in gold certificates
- People trust in gold during bad times
- You are not dependent on management decisions
- Investing in gold makes you more independent
Gold is considered a safe haven
One benefit of investing in gold is that it is considered a safe haven.
Gold has always had its value and is considered one of the most stable investments you can make.
Gold is also accepted by people from all over the world and is kind of a global currency alternative to local currencies that may depreciate in value in the long run.
Thus, buying gold can make sense in many countries all over the globe since it has just such a high acceptance among the general public.
Gold can protect your wealth during financial crisis situations
Gold is also great in times of financial turmoil since its correlation with stock prices and other financial instruments is pretty low.
Consequently, while stock markets may crash, gold may even increase in value since people sell their stocks in a hurry and want to buy alternative investments instead.
In fact, gold prices have increased in many recessions and financial crisis situations in the past and this will likely continue to be the case in the future since people always search for relatively safe investments during times of trouble.
Owning gold is a status symbol
Gold can not only be a great investment, but it is also considered a status symbol and if you have lots of gold at home, people think you are wealthy and you will likely have a pretty high standing among your peers.
Not only can you invest in physical gold bars, but investing in gold may also include investing in gold watches or gold art which can also be considered kind of a status symbol and also looks pretty nice at the same time.
Gold is used in many industrial processes
Another advantage of investing in gold is that gold does not only look nice, but it is also used in many industrial processes.
In fact, without gold, we would not be able to produce computers or other electronic devices on large scale and gold as a resource is therefore pretty important for the global economy.
Thus, apart from just being a storage of value during crisis times, gold also has many practical advantages and beneficial features and is therefore used in the production processes all over the world.
Consequently, you can be sure that gold will also play an important role in the future and will likely not lose its importance at all.
It is nice to look at your gold treasure
While gold can be used in many production processes and is also considered a safe haven during times of financial crises, investing in gold can also make sense since gold bars and coins can just be nice to look at.
Moreover, you can also buy gold as a gift for your loved ones and your family and friends will have something to remember when you finally pass away and they have a look at the gold coin you gave them many years after you passed away.
Thus, gold can also have some intrinsic value and can be a nice present.
Gold is mobile
Another reason to buy gold is that gold is not easily traceable.
What I mean by that is you can buy reasonable amounts of gold without having to declare it anywhere and this gives you the opportunity to hide some of your wealth from people who should not know about it.
For instance, if you buy real estate, there are ways that people can find the owner of a property.
However, with gold, this is not possible yet and you will therefore have an asset nobody knows about and you can keep your wealth a secret if you want to by investing in gold.
You can exchange gold for money within a rather short period of time
Gold is also great since you can sell it at banks or other stores within minutes and exchange it for your local currency.
You might take this for granted but this is not true for all asset classes. For instance, if you invest in real estate, it will usually take you weeks or even months to sell your property for a reasonable price and this can really get you into financial trouble in case you urgently need money and can’t wait that long.
Gold has a long track record in history
Another upside to buying gold is that gold has a pretty decent track record.
In fact, gold has been an important part of human history for thousands of years and something that has lasted and increased in value for such a long time can be considered pretty safe compared to other asset classes like stocks that had not been around that long.
Thus, people may rather trust in gold than in stocks and gold may therefore constantly appreciate in value in the long run while stock markets will crash sooner or later and may take many years to recover
Gold is not dependent on electronic devices
You should also note that stock markets rely on many electronic processes to work properly.
Hence, in case there is a blackout or a serious bug, stock markets may get out of control and you may no longer be able to trade your stocks for money.
Gold doesn’t have this downside since you can just store it at a safe place and you are independent of electronic systems needed for other asset markets.
You don’t have counterparty risk by buying gold
Another reason to buy gold is that you also don’t have any counterparty risk.
You just trade your money for gold and can take it with you right from the bank.
However, it is different when you buy other financial instruments since in case you invest in derivatives, you will have to deal with serious counterparty risk and if your counterparty goes broke, you may never get back your money.
Thus, gold can also be considered much safer in this regard since you will have no counterparty to rely on.
Gold as an inflation hedge
Physical gold is also a great inflation hedge since it usually increases with inflation and you don’t have to worry about losing part of the value as would be the case if you just held cash or money in your bank account.
Hence, by buying gold, you don’t have to worry about any inflation tendencies in the long run and can just relax in this regard.
Investing in gold is good for portfolio diversification
Another advantage of buying gold is that you can also diversify your portfolio.
While other asset classes like real estate and stocks may have a certain correlation, gold is relatively uncorrelated and often even negatively correlated with most other asset classes.
Thus, during times of financial crisis situations, stocks may go down but gold may even go up and the overall value of your portfolio may not change that much.
Gold investments are easy to understand
While you should have decent knowledge about what you are doing if you invest in stocks or real estate, you don’t need a high level of expertise when it comes to investing in gold.
Gold investments are something everyone understands and you cannot make that many mistakes in this regard since gold is traded in a perfect market and there are no big information asymmetries like in the real estate market where you can make big mistakes but also really good bargains if you know more than the seller of a property.
You can invest in physical gold as well as in gold certificates
Not only can you invest in physical gold, but you may also want to invest in gold certificates, gold stocks, gold mines, etc.
While I would not recommend this if you don’t know what you are doing, you may get higher returns compared to just investing in physical gold and those additional instruments give you plenty of room to play with gold investments.
People trust in gold during bad times
Gold has always had its value and it appreciated in value over thousands of years.
Consequently, people know that gold is a pretty safe haven and that it can be a great long-term investment for people who are risk-averse and are fine with getting moderate returns on their investment.
Thus, gold is a great investment to hedge for times when financial markets collapse since you can protect yourself to suffer huge financial losses.
You are not dependent on management decisions
Gold is also a great investment since you are not dependent on management decisions or other things that may affect the value of single company stocks.
For instance, if senior management makes poor decisions, companies often make serious financial losses and may even go out of business.
Consequently, you as a shareholder would lose your money.
However, by investing in gold, you don’t have to worry in this regard at all since gold will not be directly affected by those decisions.
Investing in gold makes you more independent
In general, buying gold can be great for you if you look for something that is not highly traceable, easily convertible to money and independent from other markets and decisions of people in general.
In fact, gold gives you a high level of freedom and it is an asset class where you can become independent from the system to a certain degree.
As you can see, investing in gold can make sense due to various reasons.
However, it is still not all upside and we should also talk about all the problems with investing in gold in the following chapter so that you can better decide whether you still want to invest in gold or rather want to put your money into a different asset class instead.
Disadvantages of Investing in Gold
- You have to store your gold somewhere
- Your gold may get stolen
- Commissions and premiums on gold can be high
- Gold does not pay any dividends
- Gold may perform worse than the capital or real estate market in the long run
- Gold price also fluctuates over time
- Gold is not a good short-term investment
- You have to buy and sell entire units
- Gold has to be mined under pretty poor conditions
- Gold mining destroys our environment
- Transportation issues with physical gold
- You may buy fake gold
You have to store your gold somewhere
One problem with investing in gold is that you have to store your gold somewhere.
While you could just store it at home, your gold may just get robbed sooner or later and you may also have a pretty bad feeling and may worry in this regard quite a lot.
Thus, you may want to get a safe deposit locker at a local bank and those lockers can be pretty expensive and if you just want to invest small amounts of money in gold, it may just not be worth it and you may be better off with other asset classes.
Your gold may get stolen
If you don’t invest in physical gold bars but rather go for gold watches, you also have to fear that you may get robbed in public and that you will lose your treasures in this way sooner or later.
Consequently, you may have a pretty bad feeling once you leave your home and if you want to protect yourself from all this trouble, you may be better off storing your gold at a safe place or investing in other asset classes instead.
Commissions and premiums on gold can be high
Another downside to buying gold is that you will often have to accept high commissions or premiums if you buy gold at local banks.
In fact, they often charge you 5% or even more if you only buy small units and you may pay even more charges for coins.
Thus, if you consider investing serious amounts of money in gold, you should make sure to buy it from a renowned vendor who also only charges low commissions to make it worth the investment and to avoid any unnecessary expenses in this regard.
Gold does not pay any dividends
You should also note that gold doesn’t pay any dividends.
While dividend stocks often pay you nice money every year, gold does not have this feature and it is rather a store of value and is not suitable for producing an actual cash flow in the long run.
Gold may perform worse than the capital or real estate market in the long run
From a historical perspective, the stock market has often outperformed gold in the long run and chances are that this trend will also continue in the future.
Thus, if you really want to maximize your returns, you may be better off investing your money in index or mutual funds instead of investing in gold.
Gold price also fluctuates over time
Even though gold is considered a safe haven, it is still pretty volatile and also the gold price changes significantly.
Hence, you should not expect gold to always go up but should rather be fine with having those temporary swings in your portfolio.
Gold is not a good short-term investment
Many people also think that gold is a solid short-term investment.
However, due to the significant swings of the gold price, gold is not a good short-term investment but rather something you should hold to make your portfolio more solid in the long run.
You have to buy and sell entire units
Another disadvantage of buying gold is that you can just sell entire units.
For instance, if you buy coins or bars, you can just sell the whole coin or bar and not part of it while you can buy and sell stocks in pretty small increments.
Consequently, you should also not buy gold in too big increments to stay flexible in this regard.
Gold has to be mined under pretty poor conditions
You should also note that gold is mined in third-world countries under pretty poor conditions and many miners lose their lives sooner or later.
Thus, gold can also be considered a questionable investment when it comes to ethical concerns.
Gold mining destroys our environment
Gold mining is also pretty bad for our environment.
In fact, many forests get destroyed and many animals and also locals lose their homes and have to migrate to different places.
In turn, cultural treasures and biodiversity is lost in the long run.
Transportation issues with physical gold
You may also get into trouble when you try moving gold across country borders since border patrol may just prevent you from shipping large amounts of gold.
Hence, if your plan is to move to a foreign country sooner or later, you may be better off buying stocks or other assets that are easier movable.
You may buy fake gold
Another reason not to buy gold is that you may also get scammed and may buy fake gold from dodgy vendors.
In turn, you may lose all of your money and you should therefore only buy from renowned vendors or banks to avoid any trouble in this regard.
Top 10 Buying Gold Pros & Cons – Summary List
|Buying Gold Pros||Buying Gold Cons|
|Investing in gold is a safe haven||You may get scammed|
|Gold has appreciated in value over many years||Gold price swings over time|
|Gold has a long track record||Not a good short-term investment|
|Gold is used in many industrial processes||Premiums are often pretty high|
|Gold is still a status symbol||Storing gold may be a problem|
|Gold is not easily traceable||Gold is hard to move across country borders|
|You can diversify your portfolio||Gold mining is bad for our environment|
|Owning gold is great during financial crisis situations||Gold is mined under pretty poor conditions|
|Gold is independent of management decisions||Lower yields compared to other asset classes|
|Gold comes in many different forms||Your gold may get stolen|
Should You Invest In Gold?
While gold can be a great investment and is often considered a safe haven, gold doesn’t pay dividends and should not be a major part of your overall portfolio if you really want to maximize your returns.
However, it can still be a good investment if you want to make your portfolio more solid and less vulnerable to economic downturns.
Now that you know the advantages and disadvantages of investing in gold, it is on you to decide whether you still want to buy gold or rather want to invest in the stock market or in real estate instead.
About the author
My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.
As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.
After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.
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