New investors contend with plenty of hype about precious metals such as gold and silver. While adding precious metals to your portfolio mix can pay off, you should take the time to understand the basic market dynamics for you to maximize your investment.
Investing in gold offers several advantages. At a time of global financial uncertainty, gold can be a safe-haven investment. Gold can also hedge against inflation and may offer significant returns over the long term.
Your first time investing in gold may seem overwhelming, but here are the basics of what you need to know to get you off to a good start.
Multiple Investment Channels
Investors can invest in gold in several ways. You can invest in gold bullion, coins, and jewelry; shares in gold mining companies; and gold ETFs, mutual funds, and futures.
Bullion, Coins, and Jewelry
Buying bullions, coins, and jewelry gives you the opportunity to own physical gold. The price you will receive when buying or selling physical gold will depend entirely on the market value of gold at any given time.
Another option is to buy stocks or shares in a mining company. Investing in companies with a proven track record, strong corporate values, and established gold reserves can provide good long-term returns.
ETFs, Future, and Mutual Funds
Exchange-traded funds (ETFs) allow you to buy a certain amount of gold via an IRA account or brokerage. Gold futures, on the other hand, are contracts that authorize a brokerage firm to buy or sell a certain amount of gold on a particular date.
Lastly, you can invest in mutual funds that own gold shares or bullions, and you receive returns based on how the assets of the mutual fund perform.
Investing in gold is a long-term strategy. Trading in precious metals, in general, is quite unlike investing in speculative assets such as stocks and shares where investors change their buying and selling
Look at gold not as an asset that you will cash in on in a few months. Instead, gold is an asset that will hedge your investments against risks such as hyperinflation and severe market downturns.
Experts recommend determining your investment goals first before entering the precious metals market. While the value of gold and other precious metals may increase significantly in the future, investors should not expect gold to deliver big and instant results.
If you are going to invest in gold, you should understand the concept of spot price. The spot price is the average value of the estimated future price of gold.
When you buy gold coins, the price you will pay today is not based on demand and supply dynamics. Rather, the price represents the expected future value of gold.
Therefore, the price of gold, which is constantly fluctuating throughout the day, will rise and fall based on the expected future price of gold and not on the physical availability of the precious metal.
Remember, as a gold investor, your focus should be on long-term price trends and macroeconomic factors such as inflation, monetary policy, and geopolitics.
This does not mean that the market will not experience short-term price fluctuations. However, because gold prices are based on future prices, a long-term view will give you a realistic expectation of your future returns.
With the right investment objectives, appropriate investment channel, and a clear understanding of how gold prices work, the upfront cost of investing in gold can pay off significantly. To avoid making critical mistakes when first investing gold, be sure to find an established, reputable, and credentialed dealer.
CMI Gold & Silver Inc. is a trustable dealer with a Better Business Bureau A+ rating. We buy, sell, and trade all the popular forms of gold. Get in touch with us today to begin investing in precious metals at the best prices.