Bullion investment refers to putting your money in physical gold or silver of high purity, which is mostly kept in the form of ingots, coins, or bars. To each their own reason for picking gold bullion as their preferred investment option, but you must weigh its pros and cons before putting your money into it.
Why do people opt for gold bullion investments?
Many investors pick gold as their preferred investment option because it allows them to take a physical look at their investment. Regardless of where they store it, be it in a bank vault, a home locker, or a storage facility, they can always visit and look at their investment. This ensures satiation and immense happiness, which is in sharp contrast to investing in something like stocks. This is because a stock market investment is equivalent to a web page or a piece of paper that provides the details of the investment amount.
Several others invest in gold simply because they are either oblivious of the market conditions or do not trust it enough. Some even detest dealing with middlemen, brokers, or banks for making an investment, while others invest in gold bullion because they worry that the value of dollars will go down in the coming years. On the other hand, the value of gold will rise, year after year, and decade after decade, so it is the safest investment option for them.
If you’re planning to put your money into gold bullion, let’s look at a few things you need to know about the pros and cons of making this investment.
Why should you choose this investment option?
If your savings are a crock of gold, how about literally turning them into gold? Well, you get the idea! If you’ve had the idea lurking in the back of your mind for some time now, here’s why you should act upon it. The following is a list of why investing in gold bullion is better than stock market investments, especially if you’re a newbie investor:
One of the primary reasons a lot of people consider making a gold bullion investment is because they believe that it is a safe investment and its value will rise steadily over the years. This doesn’t mean it won’t experience a few dips or slowdowns now and then, but it always rises back, and with improved force. If we base our observations on the historical charts, the value of the gold will certainly be higher in the coming decades than it is now.
Additionally, a gold bullion investment is unlike mutual funds, bonds, or stocks, and you don’t need to worry about how a particular industry or a company is performing to determine your returns. Of course, the current economy affects the valuation of gold, but it is interesting to know that its price might not necessarily go down with a slowdown of the economy. Instead, it has had an opposite impact on gold prices in some cases, which means a decline in economic growth leads people to pick gold bullion as their chosen form of investment, which results in an increase in its price.
Another incredible benefit associated with gold bullion investment is its straightforward and simplistic nature. Even amateurs who have the money but have zero experience in making investments can put their money into gold. Of course, interacting with a financial analyst, broker, and middleman can help you understand the many inconveniences related to gold bullion, but they might miss out on mentioning that it is among the simplest forms of investment. You can find yourself a myriad of dealers throughout the country willingly selling gold to their customers, either as coins, jewelry, or bullion bars.
Now, if you’re worried about how or where you’ll stash this incredibly valuable asset of yours, fret not. You can rent a safe deposit box with your bank to store your gold. These boxes are usually small, so you can intimidate your bank about your need for another box if and when you buy yourself more gold.
Plus, you don’t need to worry about the fluctuations and complexities of the money market with a gold bullion investment. Of course, you should be aware of the fluctuations in gold prices to help you know when to sell off a chunk of your gold if the market price is exorbitantly high. It can also help you understand when you can add to your gold investments if the prices are low. That being said, you don’t need to keep a constant check on the prices of a particular industry or company, as with stock market investments.
A major question left unanswered for a lot of you might be why stockbrokers don’t encourage you to put your money in gold bullion if it is such a simple investment option. This is because investment brokers earn nothing if you make a gold bullion investment, since they don’t have permission to get involved in gold. So, if your portfolio has less stock and more gold investments, it could be an unprofitable scenario for them.
- Inflation hedge
We have our share of worries when we keep our money in the bank, and a major concern most people have is how inflation would affect their money. We know that the value of the dollar declines with inflation, and, consequently, our purchasing power also drops. To understand this, you can simply run an online search for a magazine or a newspaper from about 2-3 decades ago. Check the prices of the various products mentioned in the advertisements, and you’ll know the impact of inflation on the value of a currency. Now, let’s understand this better with the help of an example. Let’s take you to the 1990s, when the value of a particular house in the country is at $150,000. After 2 decades, the value of the same house falls at $220,000. What does this mean? Was this house a fruitful investment, or is the price rise a result of a decline in the dollar value?
Now, let’s compare the home investment to a gold bullion investment. Back in the 1990s, gold was priced at around $380 for every oz, which implies that you would need about 390 oz of gold to buy the house. Again, jumping to 2 decades later, gold is priced at around $1120 per oz. So, to buy the same house, you would now need just 197 oz of gold. This means that over the span of 2 decades, gold has retained its purchasing power, even when there was a significant decline in the value of the dollar.
- Hedge against financial meltdowns
Another reason many people opt to invest in gold bullion is that they are scared of how market crashes will affect their investments. We witnessed a disastrous market crash in 2008, so we know that a recession like that has the power to destroy your portfolio if it only comprises investments made in mutual funds, bonds, and stocks. On the other hand, if you put in a significant chunk of your money in gold bullion, you wouldn’t need to worry about global meltdowns or a devastating financial downfall, and recession wouldn’t affect your financial standing to such a great extent either. As experts and trends suggest, the market value of gold is more likely to increase during such times because people turn to physical investments when they are devastated by financial markets.
- The demand is always high
With the growth in population over the years, there has been a perennial rise in demand in the gold market demand. If we look at the statistics, it is quite evident that the trend of gold bullion investments is most prevalent in countries like China and India, both of which are countries with high populations. Despite that, their economies are doing decently well, so a surge in nation-wide wealth leads to an equivalent rise in the demand for gold among both investors and citizens. As a result, the price of gold bullion also sees a sharp-rise, increasing the profit or rate of Return On Investment (ROI). So, even if there’s a dip in the prices for 2 consecutive years, it is worth holding on to this shiny metal as an asset because its value will rise sharply.
Here are a few points to keep in mind if you’re wondering about what’s the flipside to making a gold bullion investment:
- Liquidity is low
For people seeking a long-term investment option, there’s nothing better than gold bullion. However, if you only need to invest for the short-term, this is not an ideal choice. Making a gold bullion investment means you buy gold from dealers, and the involvement of a dealer means there’s a fair share of commission involved as well. So, the price you pay is certainly more than the current market value of the gold, and you need to follow a similar process when you sell off a portion of your gold. Dealers will again charge a commission and pay you the balance proceeds of the transaction. So, if you wish to sell off the gold in less than a few years after you invest, you’ll get lower returns than the ongoing market rate of gold. The liquidity of this asset is also a prime concern, so you should curtail yourself from putting all your money in gold bullion. All in all, a gold bullion investment is a great option if you’re planning to hold on to it in the long run.
- You have zero assistance from the broker
As mentioned earlier, brokers do not profit out of any gold investments you make, so they would rather advise you against it. This can be a particularly perplexing situation for you if all your savings are handled either via brokerage or a broker. In such cases, it might be difficult for you to locate a dedicated dealer for your gold bullion investment. Also, brokers rarely know how much or the exact place to buy gold bullion. That being said, it shouldn’t be very difficult for you if you wish to do all the research. Additionally, most dealers who get into this business stay in it for a while, so there are high chances that you’ll encounter just one or two dealers throughout your life.
- The profits are lower if the market is stable
As you know, gold bullion is a perfect hedge against financial conditions, market meltdowns, or a recession, but the problem is that the value of gold generally rises sharply only because of these fluctuations in market conditions. So, there’s not much gain for gold investors when the market is steady. This means many investors who have sufficient knowledge of the market rarely invest their surplus in gold.
Now, when the supply is high, but the demand is average or low, the price of gold will either go down or stay stable. Regardless, there’s absolutely a negligible chance for you to lose your money if you put it in gold bullion, especially for a decade or two. Having said that, you might not achieve a significant ROI if your time of investment coincides with the market’s brilliant performance.