Gold has fascinated humans practically since it
exists. Since the most remote past it has been considered a precious metal,
highly valued in the manufacture of jewelry and ornaments . On the other hand,
it has served as a bargaining chip in itself and also as a raw material to mint
and give value to different currencies
throughout history.
Today we will see the main advantages and
disadvantages of investing in gold today, knowing a little better the position
of this raw material in an economic context.
Why invest
in gold?
Gold is considered a safe haven value . This means
that its price is highly stable, so in times of crisis it maintains most of its
value and can even increase it. This is mainly due to two reasons: on the one
hand, it is due to the consideration of gold as a precious metal ; on the
other, gold is a rare commodity and its
existence on the planet is finite.
These characteristics have made gold one of the
most used goods to accumulate wealth, in order to have a security fund to face
crisis or economic emergency situations. So much so, that until 1970 the main
states of the world backed their monetary systems with the gold reserves stored
in their central banks. As of 1971, gold was replaced for this purpose by the
US dollar, as well as other safe-haven currencies.
To know if an investment in gold can be attractive
for us, nothing better than to know the main advantages and disadvantages of
this asset in order to form a well-founded valuation.
Advantages
of investing in gold
It is a
refuge value
As we have already mentioned, gold has always been
considered a safe haven. This means that there will always be a certain degree
of demand for gold, which guarantees a corresponding stability in its price.
Also, if a state with some economic capacity decides to buy gold to increase
its reserves, this can cause its price to rise globally. Not surprisingly, in
2017 gold rose 12%.
It is a
finite good
The gold that can be extracted from the planet is
limited. It can no longer be created artificially, as happens with the issuance
of currency by states in times of crisis. This means that investment in gold
is, to some extent, protected against inflation .
Increasing
demand
The jewelry industry and the technology industry
demand 70% of the gold bullion production
worldwide. These are two sectors that are in good health and have sustained
growth prospects in the coming years. Although there may be regions of the
world where there are local crises, there will always be someone interested in
investing in jewelry and technological development elsewhere on the globe, so
demand from these sectors is expected to continue.
Gold is less conditioned by political instability
than other types of goods and investment products
Gold is gold anywhere in the world, so it does not
depend directly on the designs of a specific economic power or a company, as it
could happen in the case of investment in currencies or other stock products.
Gold is a
universal good
This implies that its liquidity is maximum: there will always be someone
willing to buy. Although this does not mean that we are going to ensure a
profitability at the time of sale.
It allows to
diversify the investment
Being a security that offers a certain level of
investment security, it can be a good complement to balance options that
present more risk in our portfolio.
The sale of
gold is exempt from paying VAT
As long as it is sell
gold bullion with a purity
of more than 99.5% or coins with a purity of more than 80%. Now, if we obtain
an increase in equity derived from a gold sale, we must reflect it in our
income tax return.
Disadvantages
of investing in gold
Gold is a
valued good
Gold is listed on the commodity market as a
precious metal. This means that its price can go up, but it also means that it
can go down. Although the price of gold tends to stay high, if we buy at one
price and sell at a lower price, we will lose money. As in all investments in
stock markets, investing in gold involves a risk, so the profitability of the
operation is not assured .
Purchase or
investment commissions
Whether we buy physical gold or if we decide to
invest in gold through a financial product, we will have to face the profit
margins with which advisors and suppliers work.
Pegged to
the dollar
Gold is priced in dollars. This means that there is
a correlation between the position of the dollar and that of gold in the
markets: if the dollar goes down, gold goes up. The problem is that the
opposite can also happen, so that the US economy directly influences the price
of gold worldwide.
Profit
margin on jewelry and coins
If we decide to buy physical gold as an investment,
we can do so in the form of certified bullion, certified coins, or jewelry. The
best option is the first of the three, since if we buy jewels or coins, the
value of the gold used in the production will be added to the price of the
manufacture and design of the jewel; or the numismatic value of the coin. In
this way, we will get less gold for the same money than if we bought bullion
directly.
The price of
gold rises when interest rates are low
When the interest rates offered by some savings and
investment products are low, investors tend to look to gold as a safe haven.
However, this movement influences the price of gold, so we will buy it higher.
Read also: WHAT
COLORS CAN GOLD HAVE?
Intermediary
companies
The mining companies specialized in gold mining can stop your
activity to manipulate the supply of the metal , in order to increase their
price. In the same way, if they decide to buy and invest in gold, they will
increase production to buy it down.
Storage
problem
The fact that gold concentrates a lot of value in a
small space can also be a problem from a security point of view. In this case,
the most sensible thing would be to keep our gold in a bank safe or at least
take out insurance. This can cause us a series of maintenance costs for the
investment.
Read also: What is better to invest in investment bullion or gold coins?
