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The Ins and Outs of Investing in Gold

by bob.g (follow)
Money (8)      Investing (2)     
The topic of investing in gold has struck the interest of many individuals in recent years, and for good reason. An unstable economy has led people to investigate alternative options in order to gain financial stability, and when the economy takes a hit gold prices almost always seem to rise. Before you go plunking down your cold hard cash on a gold investment, however, there are some things you should probably know.

Image source: Mark Herpel (Flickr)

Types of Gold to Purchase
There are numerous types of gold available to consumers these days, and the specific type you should choose to invest in depends greatly upon your reasons for wanting to invest in the first place. If improving your financial portfolio is your primary goal, for instance, steer clear of rare coins that are better suited for collectors.

Individuals who are attempting to create a safe haven to protect themselves from inflation, deflation and other financial uncertainties should concentrate their efforts on one-ounce coins and gold bars. While many people have shown interest in buying shares in an EFT (exchange-traded fund), or purchasing gold stocks, these types of investments are often more volatile than the actual metal itself.

When to Buy
By taking a look at this chart you might notice that the price of gold fluctuates quite frequently. While you may be tempted to purchase gold when the prices are up, or the economy is beginning to fall, this is likely not your best option.

During periods of expected financial crisis, the demand for gold rises significantly, making it difficult to purchase the metal at an optimal price, and essentially, you will get less bang for your buck. The best time to invest in gold is when the market is quiet and prices are lower than average.

Image source: Jeremy Schultz (Flickr)

Compare Prices and Dealers
When you purchase gold from a dealer as an investment you can expect to pay a premium on your purchase. While this is a normal practice, and paying up to a 10% premium is typically considered average, telemarketers and many less reputable dealers will attempt to charge you higher commissions and premiums. Remember that the higher the premium, the more that the price of gold must rise before you make any profit.

Beware of Scams
There are hoards of gold dealing scams that have invaded the investment world. Consumers should be wary of red flags like promises of selling below spot price, offering free storage or requests for delayed delivery. It is best to choose a reputable dealer that has a solid track record and is committed to keeping you informed. A quality gold dealer will be more than happy to assist you with any questions that you may have about your investment both now, and in the future.

How Much to Invest
Although there is no magic formula for determining how much consumers should invest in gold, experts recommend that individuals should invest anywhere from a meager 2% to a whopping 30% of their financial portfolio in gold and other precious metals, in order to maximize financial security. Your individual situation and your investment goals influence the exact percentage that you should invest, however.

The Value of Gold
Although the price of gold, just like any other commodity, has experienced its ups and downs throughout the years, overall, the long term returns have been nothing short of spectacular, and there is no reason to expect anything less in the future.

Image source: Giorgio Monteforti (Flickr)

Throughout history, gold has always maintained its value in relationship to other commodities. During ancient Roman times, for instance, a single ounce of gold was enough to purchase a top of the line toga, a high quality pair of sandals, and a multitude of accessories.

In the early 1900's and even during the Great Depression, that same ounce of gold could pay for a high quality, custom suit, expensive shoes, and again, a multitude of accessories. Even in times of high inflation like today, an ounce of gold can by a tailor-made suit or two, shoes and all the trimmings. While these examples may not seem extremely impressive, they definitely make a difference when you compare them with the dollar.

Since the Great Depression, the dollar has lost approximately 95% of its buying power. While in 1933 one dollar could buy at least ten loaves of bread, that same dollar can barely buy a cheap loaf of bread these days.

All in all, if you are considering investing in gold, whether it be to diversify your financial portfolio or to increase your financial worth, it is wise to consult with a reputable gold dealer, choose the right types of gold for your investment, and then sit back and reap the rewards.

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