Investing in Gold: A Beginner’s Guide

by James & Miel on September 11, 2009 · 0 comments

For your Friday reading enjoyment we’ve brought a guest post to go over the basics of buying gold. Enjoy!

The reasons for wanting to invest in gold are as varied as the people who do so—some are seeking a safety net against the possibility of currency depreciation or market declines, while others are simply looking to capitalize on the benefits of a bull market. Whatever your reason for investing in gold, it’s important to have a clear understanding of the process.

While the price of gold, like that of all commodities, is driven by supply and demand; hoarding and disposal plays a much bigger role when it comes to precious metals (especially gold) than any other material. That’s because all of the gold ever mined is still in existence, and has the potential to return to the market. There is a huge amount of stored gold in the world today, which leads to its price being based much more on sentiment and the public’s emotional attachment to it than on changes in its actual production. (Which is also why social changes like war, inflation, interest rates or real estate events have such a huge impact on the price of gold.)

The demand for other precious metals, including platinum and silver arises mainly from their industrial uses. However, gold is produced not for consumption, but for accumulation. Quite literally, gold is money. Unlike other commodities, gold does not have quality grades, nor does it tarnish, perish or corrode… which is why it’s so popular among investors.

There are several choices when it comes to investing in gold. Buying gold, whether it be bars, coins or bullion is a popular choice, as are stocks in mining companies, gold futures, and gold IRA accounts. Selecting the best one for you is as much about your experience level as it about interest. For example, gold stocks and futures are a professional market, and can be a bit overwhelming to beginners or hobbyists.

For newcomers to gold investment, bullion (including gold bars and coins) are often a great place to start. They can be stored easily, and won’t lose their value, even in times of financial decline or economic need. Certain countries will also let you open a gold account. There are also private companies that will store actual gold in escrow for individuals who hold accounts with them. (This trend is growing in popularity among people who want to own gold purely for investment purposes)

Once you’ve decided on what kind of gold to purchase, your next question should be “how much should I own?” After all, you don’t want to come to the sudden realization that you should have bought more… but you certainly don’t want to overspend, either. According to successful investors, a good goal to aim for is to have 10-12% of your investment funds allocated to gold and gold plays.

In the end, your decision to invest in gold is a personal one. Like all major financial moves, it’s important to take the time to do your research before you make any major moves. Take your budget, plan, and experience into account, and you’re sure to excel in your adventures in investment.

– Jeff Roberts

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