The Risks of Investing in Gold

Stock MarketIf you are interested in investing in gold, first make sure that you have a good understanding of how this precious metal should fit into your overall investment portfolio.  Gold investments can be complicated for many reasons.  The precious metals market is very different from other financial markets.  Just because an investor is experienced at picking out winning investments in other markets, this does not necessarily translate into wise choices in the gold market.  Many risks exist that are unique to gold. Therefore, always seek guidance of Your Personal Financial Mentor whenever you invest in a precious metal market because he can give you useful advice for maintaining a profitable investment portfolio by reducing the overall risk that you face.

First, several options exist for making gold investments.  A buyer can purchase gold bars or gold coins from any number of local dealers or online sources.  When buyers purchase gold directly, the risk exists that the metal could have been mixed with other metals of a lesser value, and thereby reduces the real value of the object.  Unfortunately, many disreputable dealers exist who simply want to exploit the buyer’s lack of information and experience.  Inexperienced investors are routinely defrauded due to their naivety.  This risk can be minimized by choosing a reputable dealer.  Buyers shouldn’t be afraid to ask for references to verify the reputation of the dealer.  Dealers who have been in business for long periods of time are usually more reputable.  Many buyers choose to buy gold from their local jeweller.  Third party certifications can also be obtained, or an authentication service provider can be hired to check the quality of the gold in person.

The buyer also assumes the risk of storing the gold.  The gold bars or coins should be stored securely in a home safe or in a bank security deposit box.  Due to gold’s high value and portability, it is a prime target for theft.  Many gold experts consider gold coins a better investment in comparison to gold bars.  This is due to gold coins being available in smaller denominations, making them much easier to sell on the open market.

Gold can also be held indirectly through an exchange-traded fund, also known as an ETF. Investing in gold in this manner eliminates storage and theft concerns.  The risk to the buyer of an ETF, however, is that the fund could be poorly managed, or have excessive management fees, thus reducing the overall return of the investment.  However, the buyer can minimize this risk by reading through the fund’s prospectus prior to making any decisions.

The biggest risk facing buyers of gold is the risk that the price per ounce could drop.  Gold has been trading at all-time highs for quite some time, and many experts fear a sudden drop in the price of gold.  Many financial websites provide real-time market values for gold.  These websites should be relied upon rather than the prices mentioned during a radio or print advertisements.  Gold usually does well during difficult economic times since investors view gold as a safe haven from inflation.  Overall, gold tends to hold its value better than any world currency, making investing in gold a popular investment alternative.


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November 30, 2013 The Risks of Investing in Gold