Gold is one of the most important metals in human history. It has been used as a store of value and a medium of exchange for thousands of years.
Gold became currency around 1500 B.C.E. with the introduction of the Egyptian shekel, a coin made of a combination of silver and gold. It was used for international trade.
The shekel continued to evolve with technology, and around 50 B.C.E., the Romans issued the Aureus. As time went on, coins became the primary mode of currency around the world, and many countries and kingdoms across the globe adopted gold coinage. The value of the coin was based on the weight of the coin, and the non-metal currency was attached to a fixed amount of gold, a.k.a. the gold standard.
Today, our currency is not backed by a gold standard, but gold still has immense value for investors. It’s not only valued for its aesthetic beauty and function, but it’s a valuable asset class for investors due to its relatively low volatility in most market environments.
Gold As An Asset Class
Gold is a precious metal that has been used as currency and jewelry for thousands of years. It's also an alternative asset class, and works as a hedge against inflation.
There are different ways to invest in Gold. Here are some of the commonest:.
Investing in Physical Gold
When you invest in physical gold, you can buy Bullion Gold Coins, Proof Gold Coins, Gold Bars, and Numismatic Gold Coins.
Bullion is a tangible asset with a timeless value. Proof coins are like bullion, but are specially treated and hand-stamped, distinguishing them as a higher quality gold coin.
Rare or collectible coins are called numismatic coins, and their value is less stable, as it is primarily derived from their age or rarity and not their weight.
However, there are a few drawbacks to purchasing physical gold:
- Hard to store: Gold is heavy and takes up a lot of space, making it difficult to store securely.
- Premiums and taxes: When you buy physical gold, you pay premiums for the transaction and insurance against theft, loss or damage. In addition, some states have sales taxes on purchases made from out-of-state sellers or by phone or mail order.
- Bad returns historically: Historically, gold has not been a good investment option. It has had lower return rates than other assets like stocks and bonds.
Alternative Gold Investments
The primary benefit of investing in gold is that it has historically been regarded as a safe haven asset and used as a hedge against inflation. There are, however, other ways to gain exposure to this precious metal than just purchasing physical gold.
Gold ETFs and Mutual Funds
ETFs, or exchange-traded funds, are a type of security that tracks the price of an asset and can be traded throughout the day, like stocks. The vast majority of gold ETFs are structured as trusts. The fund owns specific gold bars for each ETF share issued under this structure. Purchasing a gold ETF share entitles you to a portion of the trust’s gold holdings. Examples of Gold ETFs includes SPDR Gold Shares, iShares Gold Trust, etc.
A mutual fund is a pool of money that’s managed by an investment firm, which then invests it into different stocks and bonds. The money can come from many different investors, and it’s used for the purposes of investing in securities—that is, buying shares in companies or government bonds.
When it comes to mutual funds, there are two basic types of gold funds: those that hold physical gold bullion (the actual metal) and those that hold futures contracts on the price of gold or stocks in mining companies that produce it.
Sovereign Gold Bonds
Sovereign gold bonds are issued by governments and act as a debt instrument for investors. The interest rate paid by sovereign gold bonds will vary depending on the issuer, but they’re typically higher than other bonds.
Gold futures are contracts between two parties that agree to buy or sell a certain amount of gold at a specified price on a given date in the future. They let you lock in an agreed-upon price for the asset without having to actually own it until the contract expires.
Gold options are contracts between two parties that give one party (the “option holder”) the right—but not obligation—to buy or sell an asset at a fixed price within a certain period of time.
Why Invest in Gold?
Gold is a great way to diversify your portfolio and protect your assets against market crashes.
Benefits of Gold
There are many reasons to consider investing in gold:
1. Inflation Hedge - Because the price of gold increases along with inflation, it can be used as a hedge against rising prices. This makes it helpful in protecting one’s portfolio against inflation and economic downturns.
2. Security of Value - Unlike other assets, gold has a long history of retaining its value over time, making it an ideal investment for those who want to protect their assets from market disasters or unexpected economic downturns.
3. Portfolio Diversification - Since gold has historically performed well in times of economic uncertainty, it can be used as a way to diversify your portfolio and reduce your risk exposure.
4. Simplicity - Many investors like the simplicity of owning physical gold bullion because there are no additional fees or commissions associated with owning the product; this makes it easier for investors to understand how much money they have invested at any given time.
Drawbacks of Gold
Unattractive Long-Term Returns - While gold might outpace other assets at times, it might not hold up as well to long-term price appreciation. This is why investing in alternatives like ETFs or futures is a smart decision for savvy investors.
How Hedgeful Invests in Gold
Hedgeful invests strategically in non-physical gold assets creating a well-balanced and hedged portfolio for retail investor. Our approach to gold as an asset class ensures better protection from market risks while offering sufficient diversification. Our dynamic risk-adjustment approach also helps investors create a balanced return-profile regardless of the market environment.