Disadvantages of investing in gold – investing explained
Have you ever thought about what are the main disadvantages of investing in gold nowadays? Why are people so interested to know more about this particular topic so much? It seems like everyone is impatient to know if gold is a good investment in the third decade of the 21st century.
For thousands of years, it’s known that gold has been a significant investment and a store of value. Once the stock market becomes volatile or the economy starts being questionable, people are eager to know if investing in gold could be trustworthy.
However, is investing in gold a profitable and a good idea at the moment? Let’s see more about it, shall we?
Good preparation before investing is mandatory.
You need to ask yourself crucial questions before getting into all of this: What are your goals with investing in gold? Do you have a proven investment strategy? Does gold appropriately fit into your portfolio? Before you invest, it’s vital to understand how this precious metal works.
Some people believe that gold price is far less than what it seemed to be because it’s is a barbaric relic that doesn’t hold the monetary qualities of the past. In other words, they think gold value has become devalued because, in modern times, the paper currency is the money of choice. And that the only benefit of gold is just a material used in jewelry.
It’s crucial to know all the disadvantages of investing in gold.
Like in any other business or industry today, there are pros and cons that you can use to your advantage. If you are very serious about investing, it’s crucial to know the most critical disadvantages in the first place.
However, here are the top five real disadvantages of investing in gold that you need to keep in mind.
No regular income is available.
One of the main disadvantages of investing in precious metals is that gold stands for an asset that provides regular income. It means it’s much more profitable to invest in real estate, mutual funds, or stocks that could generate rents or dividends.
Gold jewelry isn’t a good idea for investment.
Although it may seem like a good idea, buying gold jewelry to earn in the future is far from good. Once you purchase jewelry, you tend to pay to make changes and wastage charges for the jeweler. For instance, a 22 karat is used to make jewelry, and when you sell the same jewelry, the jeweler doesn’t make a charge or wastage.
The storage issue is another major problem.
If you believe in physical gold, it’s essential to know that storage may be another significant problem. Imagine vast amounts of gold. Where would you store it? Will it be enough space and safety to keep it for a more extended period?
Imagine placing your jewelry and coins in a bank locker. You’ll need to rush each time to the bank when needed. In addition to that, you’ll need to pay the locker maintenance charges every year, which can be pretty expensive. Bank deposits would provide you with the recent returns based on the tenure.
Investment in gold ETF and coin bars aren’t profitable.
It’s no surprise that Gold ETFs are slightly more expensive than actual gold. The reason for that is the management fees that are charged by the respective fund house. Don’t also forget that you’d need to incur brokerage, which may increase the price of a unit of the ETF.
Also, investing in gold coins and bars isn’t a good idea, so here’s why. It means that each time you intend to sell them, you will get a lesser amount of money than you paid for them in the first place. Remember that banks from all over the world do not buy back the bars and the gold coins they previously sold to anyone.
Liquidity – investing in gold for times of uncertainties
Did you know that Indians have an emotional attachment to ornaments? That, when it’s the time of need, these emotions act as a hindrance. It’s the same with many people nowadays whose main motive of investing in gold is to use it at the “bad times,” or as some like to call it, the “times of uncertainties.”
However, these bad times may never come, and your money will be “stuck” in physical assets such as jewels. In addition to that, you may find it challenging to find a buyer and sell it for the total price.
International markets determine the price of gold.
One of the most important disadvantages of investing in gold prices is determined by the international market. It means that any significant movements internationally will also impact the gold value. Keep in mind that the Dollar plays a vital role in gold prices and that a stronger dollar will hurt the gold sentiments.
There’s no demand for gold on the planet.
Believe it or not, there’s no worldwide demand for gold at the moment. Everyone is interested in investing in cryptocurrencies and index funds, while only the minority of people are into gold investment, mainly in Germany, England, Hong Kong, Middle East, and America.
Price correction of gold may lead to losses.
Many times, the gold value rises once a stock market crashes. Therefore, numerous investors in gold are rushing to invest in gold at high prices. After a while, the gold price will correct itself once the panic is over and the situation gets better. That’s why many investors lose their money.
The premiums and taxes are also an issue.
The premiums and taxes are also leading to specific issues. In everyday situations, you’ll pay a bonus when you buy the precious metal. It’s marked up from the current market price. These premiums are usually less with pooled accounts. However, sellers miss to remove them.
It means that in a particular event that gold loses its value, you incur a loss equal to the current gold value. Besides that, it’s possible to increase the loss because of the additional premium you’ve paid to buy in the first place.
The Bottom Line
In conclusion, we have to point out that this precious metal has failed to give good returns to investors. The rate of gold is related to changes and needs in the international bullion market.
Don’t forget that the actual growth of the gold price depends on the proposition that somebody else will pay it more, eventually. Gold gives absolutely nothing as an asset until it is sold.
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