Is Buying Gold a Good Investment?

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Is gold over-hyped or is it still a good investment? Here are the top reasons how buying gold as an investment may be a good idea.

Along with the many investments that are available today, investing in gold is still a popular investment for various reasons.

This shiny yellow substance is not only attractive, but it also can retain value when other asset classes fall in value such as stocks and real estate.

Adding some of this precious metal to your individual retirement account (IRA) may be just what you need for a more comfortable retirement and a great long term investment strategy.

Why You Should Invest in Gold

Gold has always been in demand and will continue to do so. It is admired greatly for its beauty and it has always been used for money for millennia. Gold has been the currency that moved the mark for hundreds of years — as far as 1,500 years ago.

Even today, this has not changed. People still rush to obtain gold when economies fluctuate. There are certain advantages of gold as an investment, here are some of the reasons you should consider:


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1. A Hedge Against Inflation

Gold has historically risen in value as inflation increases. This means that when the dollar decreases in buying power, as well as the yield from Treasury notes, gold can still provide you with the stability your retirement account needs.

2. Gold Can Be Used As An Investment

Right now, gold is rather inexpensive. In 2008, it sold for $869.75 per ounce. In 2021, it is selling for around $1,746. With inflation, it is apt to keep on rising from where it is now.

It is always advisable when investing to buy low and sell high for the greatest profit. This means gold can keep your investments solid and growing especially in a bear market.

3. Gold Is A Safe Haven

During various financial crises of the past, investors have quickly bought gold when they saw trouble coming. Many of them sold their stock and bought gold.

4. Political Uncertainty

As the world appears to become a more unsafe place, people become afraid of the collapse of their economy.

This has earned gold the nickname of “crisis commodity.” During those occasions when things look bleak, gold will often do better than other types of investments.

5. Limited Supply

When the amount of gold available in the world becomes harder to get, the price of gold increases. In recent years, most of the gold made available has come from central banks. This reduction has occurred since 2000, and mines have produced less gold than usual in recent years.

These five reasons reveal why gold has been and still is a great investment. By adding some to your retirement account, you can grow your retirement faster and provide greater stability for it.

Value of Gold bars

What Affects the Value of Gold?

For centuries, people have relied on gold for most of their material wealth. Regardless of the number of decades that have passed and the progression that the world has been at the center of, gold is still the leading currency to date. There’s no doubt about the fact that investing early on in gold is certainly one of the best ways to ensure that you won’t be losing your wealth any time soon.

However, even if gold is one of the leading currencies in the world, the prices still do fluctuate ever so often – the real trouble begins when one is not aware of the factors which affect the value of the gold bars they safely tucked away as their investments in their safes to get them through their entire life.

Inflation

When inflation hits the real world, all investors are prepared to see a drop in the price of paper money. Inflation also affects the price and value of property as well as automobiles, etc. The one thing that actually serves as a sure-fire guarantee of a solid financial future is gold. Not only do the prices of gold rise, it is also the only investment that will decline the least in the future. Most investors prefer to buy gold bars well in advance of the crisis that inflation stirs up.

Demand VS. Supply

One of the main facts about gold is that it isn’t just used for the purpose of securing material wealth to feed off your entire life. Many people even wish to buy gold in the form of jewelry. However, when the supply of gold bars is not equal to the demands of the general public, the price and value of gold bars certainly see a decrease.

Interest Rates

Interest rates within any country affect the price of gold bars directly. This means that if the interest rates drop, the price of gold bars will also drop but not by very much. Similarly, if interest rates are elevated, you should expect the price of gold bars to also go through the ceiling. This tends to cause chaos in the market especially if the fluctuation in interest rates was unforeseen.

U.S. Dollar

Due to the fact that the U.S. Dollar continues to sit on the throne and boast the title of being the most dominant currency in the whole world, the price of gold does fluctuate along with the price of the U.S. Dollar. This is also because the U.S. dollar is also treated as a form of investment all over the world, with a price higher or the same as gold all over the world.

This means that when the price of the dollar is elevated, the price of gold bars all around the world is cheap. Similarly, if the price of the dollar decreases, the price of gold bars will increase significantly.

How to Add Gold to Your Portfolio

If you decide to diversify by adding precious metals like gold into your long-term investment strategy, it’s easy to do so through:

  • Gold Futures
  • Gold Coins
  • Gold Companies
  • Gold ETFs
  • Gold Mutual Funds
  • Gold Bullion
  • Gold Jewelry

Investors can invest in gold through exchange-traded funds (ETFs), buying stock in gold miners and associated companies, and buying physical product.

If you choose to add gold to your IRA retirement account you can do so through different types of IRA’s.

Different Types of IRA’s

When it comes to preparing for retirement, there are two primary types of IRAs. You can put your money into a traditional IRA or a Roth IRA.

  • Traditional IRA – This kind of IRA lets you get a tax deduction (up to a limit) on the money you put into the account. No taxes are paid on the interest until it is withdrawn, but at that time, your taxes will likely be lower. You must start to withdraw money when you turn 70 1/2.
  • Roth IRA – Money put into a Roth IRA is taxed – no deductions allowed. No taxes are paid on the interest as it builds, or when you withdraw it, up to certain limits. There is no mandatory age at which withdrawals must start.
  • Gold IRA – A gold IRA is a self-directed individual retirement account that invests in physical gold as well as in other precious metals.

IRAs give you a way to save money for retirement and lets you build your savings without paying annual taxes. There is a limit on how much you can put into an IRA: $6,000 if you are under 55 and $7,000 if you are over 55. The interest is compounded, so if you start early, you can have a much larger retirement sum when you reach retirement age.

Gold IRA

There is a way that you can invest in gold and use its stability as a way to reinforce your IRA and protect your retirement. Another kind of IRA, called a self-directed IRA, is capable of enabling you to take advantage of having gold in it. The value of the gold in it is affected by the gold price in the USA.

This type of IRA will let you put gold into it. The gold must be placed into an IRS-approved custodial account. Once you put gold into your account, you can track the value of it by looking at gold futures.

Just keep in mind that a gold IRA often comes with higher fees than a traditional or Roth IRA that invests solely in stocks, bonds, and mutual funds.

A gold IRA can serve as a good hedge against inflation but is also concentrated in a single asset class.

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About the author

Brian Meiggs
Brian Meiggs is a personal finance expert, and the founder of My Millennial Guide, a personal finance site helping you put more money in your pocket. He helps millennials follow the smart money in order to increase their earning potential and start building wealth for the the future. He regularly writes about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. He has been quoted as a top personal finance blogger in major publications including Yahoo! Finance, NASDAQ, Discover, MSN Money and more.

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