From gold stocks and ETFs to buying actual gold, you’ve got options when it comes to investing in this most regal of metals. But, what is gold’s purpose, and why should an investor even get into the market? As an asset, gold’s intrinsic qualities make it a necessary part of an investment portfolio. Here, we’ll focus on gold’s purpose in modern economics, and you’ll learn how to get into the gold market.
Gold: A Brief History
To understand the metal’s purpose, one must first look back to the very beginning. Gold was first used as jewelry by the ancient Egyptians, but it wasn’t used as currency until about 560 BC. With the creation of stamped gold coins, merchants had a standardized, transferable monetary form.
Gold’s importance continued to grow, with relics from ancient empires displayed in the world’s museums, until Britain developed its own metal-based currency in the year 1066. Eventually, gold became a symbol of wealth throughout Asia, Africa, Europe, and the Americas, and companies like the LPM Group became prominent.
The Gold Standard
The United States government continued the tradition by establishing the bi-metallic standard, which stated that all US money had to be backed by silver or gold. This didn’t last forever though, and in 1913, the Federal Reserve started issuing promissory notes that could be redeemed for gold. Finally, the gold standard was abolished in 1971.
Gold as Protection Against Inflation
The usage of gold as a wealth preservation tool is crucial in times of increasing inflation and a declining dollar. Gold usually appreciates in value as inflation rises. When investors see that their money is becoming less valuable, they typically make the shift to hard assets that don’t depreciate. Around the world, gold is priced in USD, and those who consider buying it must give up their dollars to make a transaction. This drives the value of the dollar lower as investors diversify.
Gold as a Growth Asset
As stocks typically ebb and flow with gold’s price, gold stocks become extremely appealing to growth investors. A slight increase in gold prices may lead to substantial gains in the highest-rated gold stocks, and owners of these stocks usually obtain a higher ROI than owners of actual gold.
How to Own Gold
Though gold investing has been going on for several hundred years, it’s different today because of the wide availability of options. These include:
- Gold coins
- Gold futures
- Gold ETFs
- Gold companies
- Mutual funds
- Gold jewelry
- Gold bullion
Despite its advantages, gold isn’t always the best investment. The right time to invest is when the asset is relatively inexpensive and sentiment is negative. By following this strategy, you’ll enjoy stronger upside potential when the asset becomes favorable once more.
The Final Word
Every investment has its pros and cons, and gold is no exception. If you’re reluctant to hold onto physical gold, buying a few shares in a mining company may be a safe, viable alternative. If you see gold as a hedge against inflation, investing in jewelry, bullion, or coins may be a path to prosperity. Finally, if the primary goal is to profit from the rising price of gold, the futures market may hold all the answers. By learning more about gold as an investment vehicle, you’ll be better equipped to deal with the market’s highs and lows.
