Is Physical Gold Still a Good Investment?
Physical gold investment can be costly to acquire, store and maintain; furthermore, selling it may prove challenging.
But because gold investments are uncorrelated to many other forms of investments – and can help protect wealth against inflation and currency depreciation – investing in it may be advantageous for certain people.
No counterparty risk
Gold has long been considered a safe haven asset, offering consistent buying power throughout its buying power globally. Investors are advised to incorporate physical gold into their portfolios in order to protect against market volatility and economic shocks.
Purchase of physical gold can present additional risks. Notably, its price doesn’t always reflect its true worth as an asset and dealers often overcharge for it. Furthermore, storage costs can become extremely costly while security risks increase exponentially.
Problems for investors when selling gold can arise easily. Without buyers willing to purchase it at asking price, an investor may need to sell at lower buyback prices in order to generate enough liquidity – thus diluting their investment further. Furthermore, many physical gold products – like ETFs or closed-end funds – do not contain fully physical backing meaning that an investor does not actually own any physical gold at all.
Purchase of physical gold requires an upfront investment, which may include dealer commissions, sales tax in certain states, storage costs and security considerations to prevent theft. Furthermore, selling physical gold can prove challenging or expensive during times of financial instability.
Paper gold such as mutual funds, ETFs or mining stocks can be easily bought and sold within seconds with minimal transaction fees. You also avoid storage concerns regarding purity and theft by keeping it digitally in a demat account.
Gold offers no income return compared to dividend-paying stocks or fixed-income investments that offer interest. Therefore, its portion should not exceed 5-10% of your overall portfolio due to price volatility and lack of liquidity; adding it could expose you to large losses during down markets; therefore a diversified portfolio is key in order to reduce risk.
As interest rates and savings account returns have reached historic lows, many people are turning to gold as a potential store of wealth.
Physical gold provides many attractive qualities that make it an appealing investment, such as its liquidity and lack of counterparty risk. There are other advantages of owning physical gold too!
Investors who own and sell physical gold without incurring capital gains taxes may be able to reinvest the proceeds within 45 days after selling in another precious metals investment, similar to how stocks sold short term are treated tax-wise.
Investors who prefer privacy or want to diversify their investments with tangible assets that cannot be lost digitally may prefer gold as it can be bought and sold without needing the involvement of financial institutions. Gold offers investors this capability.
Physical gold investing requires carefully considering risks against costs. Investors must assess how secure their bullion storage will be and consider storing it themselves or leaving it with third-party providers such as banks or private storage companies (with their associated transaction fees and insurance costs).
While storing precious metals at home may be cost effective, it requires careful planning in order to prevent theft or damage. Investors who opt to keep their bullion at home must ensure it is well hidden with no easy entry points into their home. Alternatively, some individuals opt for safer banking deposit boxes which are more secure yet may incur monthly fees or access times restrictions that make accessing precious metals costly.
Keep in mind that physical gold may not offer as much liquidity as ETFs due to being sold only once it reaches a buyer, with additional charges such as insurance and shipping likely applying.