You’re probably looking for ways to diversify your investment portfolio and wondering whether gold is a suitable candidate for this purpose.
For centuries, gold has remained the most stable form of investment, and it’s likely to remain this way for many more years to come.
In this article, I am going to write about gold bullion investment benefits in detail to help you understand the benefits and pitfalls associated with gold.
Table of Contents
What is Gold Bullion?
Most newbie investors struggle to understand what the term gold bullion means and whether they should buy bullion bars or coins. In simple terms, gold bullion refers to the amount of refined precious metal (gold) measured in terms of weight and stamped either by a private mint or government.
The most common forms of gold bullion include:
- Bullion Bars/Ingots– minted and struck by private mints and governments.
- Bullion Coins– minted and struck by governments. Examples of popular bullion coins include the South African Krugerrand, the American Golden Eagle, the British Sovereign and the Canadian Maple Leaf.
- Bullion Rounds-minted and struck by private mints
Gold Coins vs. Gold Bars
Choosing between gold coins and gold bars is another difficult decision that many investors (novices and veterans alike) have to make.
To be honest with you, both types of bullion have their own advantages and disadvantages and your choice will largely depend on the type of investment you want to make.
In most cases, coins carry with them a higher premium than bars but they are also more flexible and you can easily convert them to money if need be.
If you are a small investor (or just want to convert a small fraction of your wealth to gold) then it’s ideal for you to go for either the gold coins or smaller units of bar e.g. 100g or 250gram bars before moving on to bigger units such as the 1kg bar. This way, it will be easier for you to buy since smaller units are cheaper and easier to liquidate. This means that you can easily convert them to cash and regain you capital in case of an emergency.
However, if you wish to make a huge investment and do not anticipate any financial emergency that will force you to liquidate part of your investment in the future then going for larger units of gold bar is the better option since it will give you the lowest premiums, and the best return on investment (ROI) in the long run.
Why Invest in Gold? The Benefits
The benefits of investing in gold are numerous and below are some of them:
Diversified Investment Portfolio
It goes without saying that having a varied investment portfolio is a great way of reducing risk. Adding gold to your investments is thus a great way of diversifying your portfolio and lowering the risk of running into financial crises in the future.
Cushion Against Inflation
Gold is regarded as an inflation hedge since its value has remained relatively stable over the years. Moreover, its value tends to rise significantly during inflation times as more investors prefer gold over the deteriorating dollar during such times. Thus, investing in gold can effectively cushion against the unpleasant effects of inflation.
Easy to Convert to Cash
Converting your wealth to gold is not the end as you will need to reconvert it back to cash someday to be able to use it for other transactions. The best part is that the process of liquidating gold is quite simple especially if you are storing your gold with a reputable precious metals firm.
Easy to Trade
This is self explanatory. Buying and selling of gold especially gold coins such as the Krugerrand is simple.
Getting the opportunity to lay your hands on the oldest and most prestigious form of wealth on earth will give you satisfaction that no other form of investment will.
Downside of Gold Investment
In spite of the aforementioned 5 benefits, gold bullion investment, like any other form of investment, has its downside too. The following are the disadvantages of investing in gold:
Some dealers charge exorbitant premiums i.e. additional charges on top of the spot price of gold for handling, insurance etc.
Difficulty Finding a Good Storage
You may find it difficult to store your gold securely to avoid compromising the security element. A secure vault is needed to safeguard gold and this will also mean you have to pay high storage and administrative costs.
We’ve seen that gold is actually a great investment commodity as it helps you to diversify your investment portfolio. However, the price appreciation potential of gold is not predictable hence should not be viewed as an investment commodity but rather a form of insurance against future economic uncertainties. It is also clear that the advantages of investing in gold are more that the disadvantages, thus it is a good idea to invest in it.