Before you invest in anything, you should know what you’re buying and how it fits into your financial goals. There’s a saying among stock traders that you should “invest in what you know,” meaning you understand the business of the companies you’re buying. If you’re going to pick your own stocks rather than let an expert do it for you, you should know the industry, or else you won’t be able to judge a company’s actions and performance.
Gold is no different. There are many ways to include the precious metal in your portfolio, and it helps to know what factors tend to influence prices. It can fit well in a portfolio that’s geared toward high-risk, high-return investments as a counter-balance to that volatility. It can help investors preserve wealth long-term against uncertainty and inflation.
Gold: A Safe Haven Asset
If you understand how the asset works, it should come as no surprise that the value of gold per ounce rose considerably during the early days of the COVID-19 pandemic. The price per ounce surpassed $2,000 USD for the first time in August, 2020, a 30 percent increase from the start of the year as ongoing lockdowns put the global economy in jeopardy.
Earlier highs were reached in 2011 when it traded for $1,900 per ounce. Prices were pushed up by the 2008 financial crisis and its aftermath, especially the debt crisis that threatened major European economies and dragged down the global recovery.
Before that crisis, gold prices were high in the tumultuous 1970s, when the energy crisis, the Soviet invasion of Afghanistan, and hyper-inflation led to skyrocketing gold and silver prices.
Fear and uncertainty drive up demand for gold. It’s not just retail investors or big funds that double down when times get tough; central banks invest in the metal as part of their reserves alongside foreign currencies.
A safe haven asset is one that investors turn to when there’s too much uncertainty in other parts of the economy. During recessions, downturns, and stock market crashes, gold prices tend to hold their value or rise as demand increases. Whether it’s a rocky economy or high inflation, a safe haven asset is one where your wealth can weather the storm.
How to Buy Gold
There are several different ways you can include the metal in your portfolio, each with its own pros and cons.
Physical Bullion: The most straightforward way to purchase this asset is to buy it in the form of coins and bars. When you want physical bullion, you can buy gold online in Canada, allowing you to compare premiums and products. This avenue gives you direct control over your asset, minimizing counter-party risks such as mismanagement in a fund or mining company.
ETFs: Exchange-traded funds buy assets including futures, stocks on the CBOE Gold Index, royalty streams, etc., to match the price of the metal. When you buy into an ETF, you’re not getting the real thing but a fund. You’re investing in your confidence that the fund will perform well.
Mining Stocks: As with ETFs, investing in gold-producing companies is not the same as owning the metal. Mining operations are complex, expensive, and not flexible enough to respond quickly to price changes. Even if prices go up, it doesn’t mean the company has been capable of producing the metal profitably. Mining stocks are a much bigger risk than simply buying gold bars from Canadian bullion dealers.
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Gold Bars vs Gold Coins
Let’s say you’ve decided that physical bullion is the best option for you. You go online to buy gold and discover that you have a lot of different options. Which one is the best value for your money? Which one is most likely to appreciate or find a buyer when you’re ready to sell? You want to make sure you’re buying the right product for your purposes.
The most common products are 1 oz gold coins and bars.
A gold bar can be produced by any private refiner, though many sovereign mints produce them as well. It has lower production costs and therefore lower premiums. When you want more metal for your dollar, bars are a great option.
Gold coins can only be produced by a sovereign mint like the Royal Canadian Mint or its equivalent in other countries. The countries most well-known for their investment-grade gold include the US, UK, Australia, Austria, and South Africa, as well as Canada, which is well-known for its exceptional, high-purity Canadian Gold Maple Leaf coin. These mints produce the best gold coins to buy for investment purposes.
Coins are more expensive to produce than bars and therefore come with higher premiums. However, unique designs and low mintages can make coins more valuable in the future on the collector’s market. That said, if you’re just looking for a quality bullion product to add to your portfolio, you’re likely best sticking to the most common 1 oz gold coins.
What Impacts the Price of Gold?
What moves gold prices? If you’re going to invest, you should have an idea of when prices are likely to rise or fall. Predicting prices can never be an exact science; there will always be factors you can’t account for, global markets are complex, and you can’t read the minds of other investors.
That said, there are a few things that consistently affect the price of gold:
- The US Dollar: a weak greenback means low confidence in the world’s biggest economy, and investors start switching from the currency to gold.
- Central Bank Reserves: when central banks buy bullion, they move the demand needle in big ways.
- Jewellery and Industrial Demand: strong consumer spending in the biggest gold markets of the US, India, and China can drive prices higher.
- Supply: gold is hard to find, and when mining companies struggle to locate new ore deposits, supply becomes scarce.
There are many other factors that determine gold prices, but these are a few that you should always have an eye on when you decide to enter the bullion market.
Don’t hesitate to get in touch if you want to learn more about gold. An informed investor is a better investor.