Why You Should Buy Gold As Part Of A Balanced Investment Strategy
3d gold bars and coins on black
Many traditional investors are a bit put off by the concept of investing in gold. They often don’t understand the position that gold and other precious metals can play in a well-balanced and diversified portfolio.
Gold is often a reactionary investment. In times of financial uncertainty, economic or currency uncertainty, social and political unrest, gold acts as a store of wealth. Gold is thought of as synonymous with money. In the past, it was, but in today’s ever changing monetary abstraction (think paypal, bitcoins, etc) gold is playing a less and less prominent role. But that doesn’t mean that it should be overlooked as a diversification tool.
Why Buy Gold?
A well-diversified portfolio should be a mix of stocks, bonds, commodities, precious metals and cash. The purpose of a diversified strategy is that generally when investments like stocks are down, bonds and metal prices rise, keeping your losses manageable, or even giving modest gains.
Let’s take a quick look at three reasons to invest a portion of your portfolio in gold now:
1. Gold is priced right – If you are planning to add gold to your portfolio, the current price makes it a “no brainer.” Fundamentals are always a good reason to purchase any investment, and right now gold prices are lower than production costs. “Never fail to buy an investment below it’s replacement cost” is a cardinal rule of successful investing!
2. Diversification – We’ve already covered this aspect a little. In terms of portfolio weighting, a well-diversified portfolio should have holdings of 2 – 5% in investments like gold and other precious metals.
3. Value – If you are a contrarian or value investor, you can see that when filtered for value, mining companies are almost exclusively the stocks that show up on your charts as very undervalued. Gold is the place to start for value right now. One reason is the factors that play into price rallies for the metal. All it takes for gold to rally is an international incident, an unexpected flare up of inflation or another financial crisis. Gold can be driven by factors other than supply and demand, like politics, or economics, and in today’s unstable world with prices below replacement cost, gold is a smart hedge.
The case for adding gold to your portfolio now is strong. Let’s look at how you can average in a position.
Buying Gold
When buying gold it’s important to work with a reputable dealer. You should always buy physical gold and store it somewhere that is accessible and safe. Mining stocks, gold funds, and EFT s are all paper investments. The point of owning gold is to physically take possession of the metal. Gold can be purchased in a variety of forms and sizes. Countries often mint bullion coins in sizes from 1/10th of a troy ounce to 1 ounce. The United States mints Gold Eagles, Canada has the Maple Leaf, and China offers the Panda coins. These are guaranteed .999 fine gold and are backed by the issuing governments for purity and weight.
When buying coins or “rounds” you can expect to pay the daily spot price for gold along with a slight premium. On the sell side you will also receive the daily spot price and pay a small premium. Bullion coins are the most convenient way to add gold to your portfolio. You can invest a small amount weekly or monthly and dollar cost average into a position quite easily. Coins are also highly portable and liquid, making them ideal in times of financial or political turmoil.
If you have slightly more to invest, gold bars are available. While they also run to smaller sizes, the average gold bar is one troy ounce. As a general rule, the premium on bars is slightly lower than rounds, but you may have difficulty finding weights of less than one ounce.
Numismatic Coins
Collecting coins is a highly specialized hobby. If you know what you are doing, or have a very reputable dealer to work with, you can make a very good return on your investment. Numismatic gold prices are based not only on the gold weight of the coin, but also on factors like rarity, date, series, and condition.
This is where working with a qualified reputable dealer can pay dividends. A dealer will understand the factors that go into price when considering numismatic coins. They can help you to put together a collection that adds value to your investment when it comes time to sell. For example, compiling a date collection of Indian quarter eagles in MS63. Grouping the coins as a full date set can add value to your entire investment.
As a general rule, for investment purposes, bullion coins and bars make much more sense. When it comes to investing in numismatic gold coins, knowledge is the key! Educate yourself in the various series you may be interested in and always work with a reputable dealer who knows and understands the fine points of numismatic gold coins. But if you enjoy the artistic and aesthetic benefits of numismatics, with a good partner dealer, you will not only gain investment returns, you will be able to hold and admire a piece of history in your hands that is both beautiful and substantial, and benefits you far beyond investment dollars!
SOURCES:
http://localhost/ruben-uscoins-old/
http://www.forbes.com/sites/investor/2014/02/24/three-reasons-to-buy-gold-now/#4d4d4107738c
http://www.bankrate.com/finance/debt/is-it-time-to-buy-gold–1.aspx
https://www.consumer.ftc.gov/articles/0136-investing-collectible-coins
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