Should Investors Consider Gold and Gold ETFs in 2018?
Bitcoin rivalled gold in price over the past few years, before surpassing it in value. This has led to Bitcoin and cryptocurrencies stealing the limelight as alternative investments. Should investors consider gold and gold ETFs in 2018? Let’s look at your options when in investing in gold, as well as the pros and cons of each.
Physical gold is the classic way to invest in gold. You buy the gold whether as bullion, coins, or jewellery. You own it, you can sell it, and you can give it away. The advantage of physical gold is that you know what you have and what you can do with it. It is transportable and privately held. The disadvantages of gold include the risk of theft and the fact that it doesn’t earn returns like bank accounts or dividend-paying stocks.
An indirect way to invest in gold is to invest in mining companies. This requires researching which companies are mining gold or building equipment used for that purpose. The upside is the potential of earning dividends. The downside is that you’re buying stock in a limited number of companies, and your returns are determined by not just the price of gold but their business practices.
Now that we’ve discussed the different ways you can invest in gold, let’s look at the advantages of investing in gold and gold ETFs.
A Literally Solid Investment
The value of gold and gold ETFs goes up with inflation, so you don’t have to worry about your investment becoming worthless as people in Venezuela did. You can own the gold and store it in a personal vault, bank safe deposit box, or hold gold ETFs that are nearly as liquid as cash. Then there is the fact that you own the gold and can often take it with you; many people have fled tyranny and the only wealth they could take with them was a few pieces of gold jewellery or coins. More recently, gold prices spiked in India because demonetisation made it difficult to deposit large amounts of cash and investors risked a 100% tax on the deposits if an administrator said they hadn’t paid proper taxes on the money previously.
The financial newsletter, the Lombardi Letter, gave its own reasons for investing in gold in 2018. According to their study, gold ETFs are valuable insurance against currency fluctuations and even currency collapses.
If you walk into a store on the other side of the world to sell gold, they’ll know what you are selling and have a standard process for converting it. If you own gold ETFs, you’re trading on the stock market and can trade those investments on almost any stock market in the world. In both cases, you have something that you can liquidate and trade almost anywhere. Compare this to alt-coins that general society is having trouble defining, much less the difficulty of using them to buy anything given how few have the IT infrastructure to mine, buy, or trade them.
Physical gold and gold ETFs are a good way to diversify your portfolio, though investing in gold mining companies is an option, too. You trade returns for owning an asset that has universal value and is easily liquidated. You don’t face the same challenges in trading gold and gold ETFs as you would the much hotter Bitcoin, and you can hold it for decades and know it will hold its value. In the case of gold ETFs, you can make money on the rise in the price of gold, without having to own the gold itself.