Large fluctuations on global stock exchanges, rising inflation, socio-political tensions in many parts of the world.... - these are just a few of the factors that encourage investors to invest in gold or to increase their involvement in precious metals. Why is the implementation of such a strategy a reasonable idea also for a small investor? How to invest in gold and what mistakes to avoid?
Why is investing in gold a good idea?
Unlike many other financial assets, gold is treated as money and is therefore exempt from VAT. However, treating gold as a currency, not as a raw material, is not the only argument in its favour. For many investors, the fact that precious metal is resistant to inflation is particularly important. It occurs in nature in a limited amount and its resources are systematically shrinking, thanks to which the prospects for gold prices increase in the long term are very optimistic. This makes gold not only an excellent carrier of value, but also an investment that makes it possible to earn above-average profits.
The ability to diversify the investment portfolio is also extremely important in the case of investments in gold. Gold is inversely correlated with the U.S. dollar exchange rate, gaining in value at a time when global indices dive due to market turbulence or political decisions, and therefore effectively reduces the risk level of the portfolio.
Investing in gold - how to get started?
You can now invest in gold in at least a few different ways. The classic and the most popular form of depositing financial surpluses in gold is the purchase of bullion in physical form. This strategy is supported by the fact that investment in gold is usually dictated by the desire to become independent of volatile financial markets. The purchase of broth coins or gold bars makes it possible to achieve this goal perfectly.
There are, however, several other alternative ways to invest in gold. We are talking about investments in so-called paper gold, i.e. all kinds of securities related to bullion or companies that deal with its extraction and processing. However, futures contracts, options or shares linked in any way to the gold market do not provide as effective protection as physical gold. Owning and storing it on one's own is a much more reliable and discreet form of securing one's assets and their possible transfer to future generations.
Once you have chosen the best way to invest in gold, it is extremely important to find the right supplier. In the case of paper gold it will be e.g. a bank, and in the case of physical gold it will be a bank or an alternative bullion dealer. The Mint of Poland is the only producer of investment gold in Poland, but its distribution is also handled by local mints and specialized companies.
Errors to avoid
Despite the fact that investing in gold is generally regarded as the best way to secure the value of the assets accumulated, the risks associated with this form of investment have to be taken into account. The most effective way to reduce this risk is to avoid the most common mistakes made by investors. Any investor interested in gold should be aware that:
- Gold is first and foremost capital protection and should not be regarded as an investment with enormous profit potential;
- Gold is a long-term investment - investing in bullion in the short term usually misses the target;
- Emotions are the worst possible advisors - seasonal, greater or lesser price fluctuations are natural;
- Gold in the form of bullion coins and bars is the best investment - jewellery and commonly advertised products should be avoided;
- there is no shortage of dishonest dealers on the market - it is worth buying gold only at authorized points of sale;
- Large one-off purchases are a risky strategy - it is more sensible to buy precious metals in smaller quantities and use an average price strategy.
Following several of the above guidelines will certainly reduce the risk and make it much more rewarding for the investor. However, it does not change the fact that before investing in gold, it is worth getting acquainted with the specificity of the market and methods of valuation of gold. Investing in products that remain a mystery to the investor will never be a good investment strategy.