An investor would be hard-pressed to find an investment market with as much appeal as the Gold / Bullion market has. In today’s complex investment market there are numerous ways in which an investor can invest in gold. However as form of investment, investing in gold too has its own set of advantages and disadvantages. Listed below are some of the advantages and disadvantages of gold investment.
Advantages Of Investing Money In Gold
Some of the advantages of investing in gold are as follows:
- Market Diversification: Owning Gold Stocks can allow an investor to diversify their portfolio. The one catch with investing in gold stocks is that while the company may see its share prices fall the actual price of the commodity itself may be soaring. The reverse is also true. One such example which springs to mind is during the great depression when gold stocks were through the roof even though it became illegal to own physical gold.
- Asset Diversification: Gold is considered a universal currency owing to its value and gold investment is therefore always considered a good idea. Every good portfolio does include a bit of direct gold in it. While gold is not an investment per se, it provides investors with a hedge against market fluctuations or currency fluctuations and even in the case of geo-political uncertainty.
- Liquidity: While gold is not as liquid as stocks or other near money instruments, it can easily be bought or sold on a variety of markets and can painlessly be converted in to cash and that is why people like investing in gold. For an asset with as much intrinsic value as gold this is a great trait to have.
- Privacy Of Investment: Unlike stocks and shares which are subject to mandatory government reporting, gold investment does not fall under any such regulation. In addition to this, gold can also be incorporated into your IRA or SEP accounts.
Disadvantages Of Investing Money In Gold
Some of the disadvantages of investing in gold are:
- Market Cycles: In a broad market cycle it is hard to determine which will be subject to more speculation bullion or gold stocks. In addition to this, unlike gold itself gold stocks are subject to bull and bear market cycles and the commodity itself could be subject to government regulations, with regard to holding etc. In addition to this the prices of gold invesment stocks are linked to the commodity itself which is the more volatile of the two.
- Company Risk: Owing to the fact that at the end of the day individual investors buying gold stocks are dealing with companies, they are subject to a whole new other set of risks. These gold investment risks could range from government regulations on the company or the industry, change of management, commodity price fluctuations, law suits, political risks, currency fluctuations etc.
- Gold ETFs: When it comes to investing in gold, consumers might feel that owning gold exchange traded funds (ETF)is kind of the middle ground between owning physical gold and gold stocks. However, even gold etfs have disadvantages. Primarily with gold etf’s there are fees and charges that eat into your costs. Moreover there are also commissions which are an add on for every buy and sell. In addition to this, owing to the fact the ETFs are actively managed, there are management risks and overall turnover risks as well which might be associated with your Gold ETFs.
The above mentioned is just a snap shot at some of the advantages and disadvantages of investing gold in its various forms. While gold is a versatile investment and attracts investors in various shapes and forms, it is also advisable that investors be prudent while investing and completely consider and understand all their gold investment options.
References:
- Advantages and Disadvantages of Investing in Gold – Money Energy
- Advantages of Gold – Blanchard Online