Investing in gold isn’t just about buying a few gold bars or picking up some gold coins at an auction. A serious investor who wants to build a robust gold portfolio should have an investment plan. Lack of planning is likely to result in wrong investments and you will end up getting stuck with gold bars and coins that have no liquidity and add no value to your portfolio. A good investor will first study the subject and understand the fundamentals before investing a penny.
Understanding the types of gold to buy may not be enough. One needs to find out where to buy them from. Many gold investors who have built lucrative portfolios have years of experience trading in the precious metals market and have the right connections to source their gold. Let us take a quick look at the fundamentals of gold investing that every beginner should know.
Planning your objectives
It is always important to first understand why you want to buy gold. You need to decide the right investment horizon for you. If you want to make short-term investments, the choice of gold products may be different. Investors who want to build wealth and acquire gold at the cheapest price per gram would often choose to buy gold bars. Gold bars have lower production costs than coins and offer investors the opportunity to acquire gold at a cheaper price. The time horizon is important – gold investments can be volatile over the short-term but generate steady and healthy returns over the longer term.
Investing in gold coins can have great tax advantages
Gold investing follows the common rules of buying the investment at a low price and selling at a higher price. There is no interest received for holding gold, so profits are only made on capital appreciation. The gold price tends to rise when the economy takes a downturn and other investments fall in value. In that way, it offers protection to an investor who owns many assets. The gold price can move down as well as up, so it is advised to hold the gold over the medium to long term.
Never invest in obscure gold coins as they may have little or no liquidity
Identifying a reliable gold broker
Once you have your objectives in place, the next step is to identify a reputed and reliable gold broker. This is relatively easy to do. Most reputed brokers are registered with the British Numismatic Trade Association (BNTA). A quick visit to the association’s website can help you shortlist the best brokers near you. It is important to initially approach more than one broker and try to build a relationship.
Once you do this, you will be able to share your objectives with your broker and he/she would know what kind of gold you are after. So, when it comes to the market, you can be the first to know. A good broker will always be willing to answer your questions and will also issue a certificate of authenticity for all the products. They would also have a buyback scheme. You should always check online reviews of the broker and find out how long the company has been in business.
Tax planning
It’s also important to do your tax planning at the time of planning your investments. All investment-grade gold is VAT free in the UK, however, if you want to capture the benefits of Capital Gains Tax exemption, you can invest in gold coins that have a face value and are legal tender in the UK.
Our experts at Physical Gold can guide you on your investments
If you are a beginner investor who wants to start building a gold portfolio, speak to one of our advisors. Physical Gold is one of the most reputed gold dealers in the UK. You can reach us on (020) 7060 9992 or send us an email to get in touch.
Image credits: QuoteInspector.com and Wikimedia Commons
FAQs
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk, especially through the use of futures contracts and derivatives. The gold market is subject to speculation and volatility as are other markets.
What is the downside of buying gold? ›
Cons of Investing in Gold
There is no stream of income associated with the investment. Other investments provide income in addition to gains from price appreciation. For example, stocks can earn dividends, bonds can earn interest and investment real estate can earn rent. Extra costs.
How to invest in gold for beginners with little money? ›
How Do Beginners Buy Gold? Mutual funds and ETFs are probably the smartest options for beginners. Each share of these securities represents a fixed amount of gold, and you can easily buy or sell these funds in your brokerage account or retirement account.
Which type of gold investment is best? ›
Sovereign Gold Bonds are the safest way to buy digital Gold as they are issued by the Reserve Bank of India on behalf of the Government of India with an assured interest of 2.50% per annum. The bonds are denominated in units of grams of gold with a basic unit of 1 gram. The maximum investment one can make is of 4 kg.
Why is investing in gold risky? ›
Price volatility: The price of gold can be volatile, and it may fluctuate significantly over short periods. This can make it difficult to predict its value and can make it a risky investment.
Is it better to keep gold or cash? ›
For short-term needs, cash is better due to its unmatched liquidity. For long-term buy-and-hold investments, gold is preferable to protect against inflation and provide portfolio diversification. The ideal solution is to hold both but allocate based on your specific needs and risk tolerance.
Is 1 oz of gold a good investment? ›
Investing in 1-ounce gold bars can be a prudent move for those who are looking to diversify their portfolios and safeguard against economic uncertainties. However, it's crucial to approach this investment with a clear understanding of the market, associated costs and the long-term commitment required.
Why is gold not a good investment? ›
Risks of Investing in Gold
Even as gold can be a good investment, it would help you to keep its downside as well to make an informed decision. The risks associated with it are: Gold does not generate income or dividends, and its value relies heavily on market sentiment.
What is the smartest way to buy gold? ›
The best place to buy physical gold depends on whether you want to buy bars, coins or jewelry. While you can buy gold bars from certain banks, it's much more common to use online dealers. You may also be able to buy gold bars from a pawn shop or individuals, and these sources may also offer gold coins.
How much gold should a beginner buy? ›
Financial experts often recommend a percentage of gold in your portfolio that aligns with your risk tolerance and investment objectives. A common rule of thumb suggests that 5% to 10% of your portfolio should be in precious metals, including gold.
You can start buying gold in amounts as low as 1 gram which is much smaller than the smallest coin. There's no upper limit. You can deal thousands of ounces if you want to.
Does gold lose value when you buy it? ›
Fluctuations in financial markets can also cause volatility in the price of gold. However, because so many investors purchase gold as a safe-haven asset, its value remains relatively constant. Long-term investments in the precious metal are unlikely to experience losses.
What is the best form of gold to buy? ›
Although high-quality gold jewelry will always retain some value, bullion in the form of bars or coins is the best type of gold to buy as an investment. When you purchase bullion bars and coins, you get purer gold with lower premiums than jewelry.
What is the cheapest month to buy gold? ›
If you're eyeing the calendar, January, August, September, and December have historically been good months for buying gold. Prices tend to go up during these times, so you might catch a good deal.
What is the point of investing in gold? ›
Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.
Can you make money investing in gold? ›
While you can make money by investing in gold, it's generally a long-term investment that takes months, if not years, to turn a major profit. Except, arguably, right now. With gold currently (and often) increasing in price, you may be able to turn a quick profit now by buying in before the cost becomes prohibitive.
How much do I need to invest in gold? ›
Most experts recommend limiting your gold investment to 10% or less of your overall portfolio. The range between 1% and 10%, however, will often vary based on your age and overall investor profile.
What is gold in simple words? ›
: a yellow metallic element that occurs naturally in pure form and is used especially in coins, jewelry, and electronics see Chemical Elements Table. 2. a(1) : gold coins. (2)
