Is Gold a Good Investment?

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Contributor, Benzinga
Updated: September 19, 2022

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Gold’s shiny yellow nuggets have been an essential part of human culture since the beginning of recorded history. Around 3100 B.C., the first Egyptian dynasty regarded this precious metal as the highest medium of exchange. The gold standard once backed the U.S dollar, and it has long been used by other economies to either back their currencies or as a basis for economic growth.  

It’s no longer the primary currency, but gold can be a solid investment for many reasons. Here’s what you need to know if you’ve ever considered investing in the world’s most precious metal.

Is Investing in Gold Risky?

Gold and risk definitely belong in the same sentence. Simply put, the answer to “Is gold risky?” is a conditional "Yes." You must consider the degree of risk and how you can control it. As a lone investment, gold is very susceptible to the whims of supply and demand. Its price can be very volatile, especially during upswings in the stock market. It’s easy to conclude that investing in gold is a risky business. 

On the other hand, gold prices tend to rise when other securities decline. This makes it an attractive asset if you’re after a diversified investment strategy. Plus, it provides protection against a weak U.S. dollar. To learn more about this, read about how to invest in gold.

So, gold can be risky, but gold can also be used to hedge against risk when you’re moving with the economy. Don’t think of gold as an “aha” investment where you “get into it when everyone else is missing out.” Believe this; Gold is a safe haven for millions of investors, but it’s not their bread and butter.

Where to Invest in Gold

You can invest in gold in many forms. Dealers offer it in the form of coins, bullion and jewelry.  Physical gold involves its own hassles — particularly storing it and insuring it. You can use the more convenient means of using an online brokers to purchase:

Although traditional brokers still exist, many of the best investment firms operate online. More and more people are using online brokerages for easy access to top-level, inexpensive investments. They generally have low fees and no minimum balances. Plus, online brokers offer research tools, analysis tools and educational material. The best way to invest is to know what you’re doing. Here’s a rundown of some of the best gold brokers online. 

1. TradeStation

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The TradeStation investment platform attracts active traders and you must have some technical prowess. TradeStation offers you over 40 years of historical data for testing your gold investment strategy.

TradeStation’s Market Insights blog provides timely updates on the events affecting gold prices and the securities tied to gold. It particularly supplies news and updates on the gold ETF market. 

2. TD Ameritrade

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StockBrokers.com ranks TD Ameritrade as the top overall broker of 2020. This is mainly due to its user-friendly platforms, extensive market research material, superior education for beginners and $0 trades. Thinkorswim is a great mobile application for gold investors. It’s great for charting indexes that directly affect gold ETFs and gold stocks. 

TD Ameritrade enhances your research capabilities with its streaming financial network, real-time social media feeds and daily market commentary. Except for penny stocks, all stock and ETF trades are free. TD Ameritrade provides beginners with courses, webinars, videos and many other educational tools. 

3. Red Rock Secured

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When you use Red Rock Secured, you will find a platform that allows you to convert your current IRA or retirement savings into physical gold (and other precious metals.)

Gold, then, becomes a very good investment because you are using its steadily rising value to prepare for the future. Plus, Red Rock Secured pays for the shipping required for all gold purchases, helps you diversify your retirement portfolio and offers a 7-day price protection policy. 

You can get free 1-on-1 advice from the Red Rock team, likely qualify (like 90% of their clients) for no fees for life and put your money into one of the safest investments out there (one that is used by the savviest investors on the market.) 

4. E*TRADE

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Like TD Ameritrade, E*TRADE offers $0 trades for all stocks and ETFs. StockBroker.com ranks it #1 in the fields of mobile trading and options trading. E*TRADE also ranks among the top 5 in research and education.

Its risk tolerance tool can help you determine how much gold you should have in your portfolio. Beginners generally have an easy time using the platforms. E*TRADE targets active investors with over $100,000 in tradable assets.

5. Firstrade

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Along with offering free stock trades, Firstade distinguishes itself by offering $0 options trading. This online broker rates high for its trading platform, research and account opening. It gets a passing grade in education, customer service and product selection. 

Firstrade’s 3 major flaws are the U.S.-only trade restriction, the lack of 24/7 customer support and the limited money transfer system. It offers ETFs that track markets in various areas and countries and you can invest in gold abroad using Firstrade. 

6. Charles Schwab

Charles Schwab puts a premium on customer service. It joins other online brokers by slashing its stock trading price to $0, which also includes ETFs and options. Its lower profit margin doesn’t deter Charles Schwab from making customer satisfaction a priority.

To support this goal, the broker offers a refund on all services to any unsatisfied customer. Plus, its analysis, education and research tools rival many of the top online brokers. Its investment tool, Expert Fund Pick, helps you narrow your search for the right gold ETF. 

7. Lear Capital

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When you invest with Lear Capital, the platform allows you to buy into a range of gold products, including:

  • Gold coins
  • International-grade bullion
  • Gold IRAs

While gold is an investment as old as time, it is especially helpful when you want to hedge against risk. Lear Capital also makes it easy to invest by waiving fees as you invest more money. For example, your first year’s storage fees are waived when you spend $25,000, the 2nd year’s fees are waived at $50,000, and even more of your storage fees are waived when you invest $75,000 or more.

IRA setup is free, and you can reach out to their experts for help with investment tips, questions about their products and portfolio construction.

Advantages of Gold Investments

Throughout centuries of change, gold continues to be a popular investment. Here are some reasons why you should consider investing in gold:

  • Hedge against inflation: Inflation happens when the rise in prices on the cost of living decreases the dollar’s buying power. Any weakening of the dollar increases the price of gold. During hard times due to inflation, gold becomes a more sound investment than cash.
  • Diversification: Risk management is essential in developing a strong investment portfolio. Wise investors add securities with a negative correlation to their portfolios. Securities with a high negative correlation move in completely opposite directions. With its negative correlation to the stock market and currency values, gold provides a vital way to lower your overall investment risk.
  • Liquidity: Cash is king — but gold runs a close second. Owners of gold can easily convert it to cash all over the planet. Other than actual cash, it has no peers.
  • Variety: You can invest in gold without storage, gold bars, bullion, gold collectibles and other collectibles that are either plated in gold or made primarily from gold. Because you have so much variety, you can make the most of your investments and arrange them in the manner that best suits your portfolio.
  • Hard times insurance: Gold holds its value when financial hard times hit, including during geopolitical unrest. People tend to seek shelter when world powers collide. During these events, gold prices generally outperform other securities. 

Disadvantages of Gold Investments

Before you decide to invest in gold, be aware of its shortcomings. These factors can come in handy when determining the ratio of gold to other investments in your portfolio. Consider these disadvantages:

  • High capital gains taxes: Most gold investments have a capital gains tax rate of 28%, much higher than the normal rate. The IRS considers gold a collectible. Without considering the tax burden, this factor could make your investment portfolio look more profitable than it really is. 
  • No passive income: Gold’s only return occurs when the price rises and you decide to sell. It doesn’t generate any passive income through interest or dividends. 
  • Beware of the bubble: Hard economic times cause many people to invest in gold. Panicking investors can cause gold prices to soar to the point of being overpriced. Once the price corrects itself, you can lose a lot of value. 
  • Dismal historical returns: Gold returns historically lag behind stocks and bonds returns. Over 200 years, a stock investor would have earned $5.6 billion from a $10,000 investment in gold. A bond investor would have received $8 million for the same investment. A gold investor would only have earned $26,000. As a standalone investment, gold can be a terrible performer. 

Choose Gold to Complement Your Portfolio

Investing in gold is risky but the risks are manageable. Gold can help you manage the overall risks in your portfolio. This is the double-edged sword. As a sole investment, it offers low long-term returns and possible losses. It can be a vital asset to your investment strategy when used correctly.

Frequently Asked Questions

Questions & Answers

Q
How much gold should I include in my portfolio?
A

Because gold is an unproductive asset, many experts suggest limiting the amount of gold you include in your portfolio. One suggestion is to add gold to no more than 5 to 8 percent of your portfolio.

Q
If I want to branch out, should I include silver (as an alternative to gold) to my portfolio?
A

Price fluctuations in silver make it less predictable than gold. Global demand for silver can change its value, which means that it’s not easy to tap into exactly what’s happening, particularly outside of the U.S.

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