Gold is one of the most popular precious metals and has been an important part of society for centuries, dating back to ancient times. Today, it is used for jewelry, dentistry, electronics, medicine, aerospace and, last but not least, investment.
If you’re thinking about investing in gold, read on to learn about factors that impact gold prices, advantages and disadvantages, ways you can invest in it and how you can do so with DEGIRO.
Before getting into how you can invest in gold, it is important to understand the factors that can impact the price performance of this precious metal. Some of these include:
US dollar: Currency movements are a strong influencer of gold prices, mainly the US dollar. There is generally an inverse relationship between gold prices and the dollar. When the dollar is falling in value, gold prices tend to increase. On the other hand, when the dollar is increasing in value, gold prices tend to decrease.
Monetary policy: Interest rates can impact gold prices whereby high market interest rates can have a bearish impact on gold prices.
Economic data: For the most part, in a stronger economy with indicators such as low employment, job growth, manufacturing expansion and GDP growth, gold prices can be pushed down.
Uncertainty: Although very general, uncertainty can play a role in the price of gold. In particular, political uncertainty. This is partly due to the fact that gold is commonly viewed as a safe haven asset, which are investments that are expected to retain or increase in value in times of market volatility and downswings.
Gold is the most popular investment out of all the precious metals. Below are some of its main advantages:
Diversification: Adding gold to your investment portfolio can help to diversify it. Having a portfolio containing a mix of asset types, industries, currencies, etc., that are not closely correlated to one another can help spread risk. Historically, gold has had a negative correlation with stocks and other financial instruments.
Liquidity: Gold is generally considered to be highly liquid, meaning you can buy and sell gold with ease and without delay. Of course, liquidity varies from product to product so, for example, a gold ETF may be more liquid than a gold bar or vice versa.
Preserves its purchasing power: Compared to other assets, such as paper money, gold generally has preserved wealth throughout generations.
Investing in gold can be advantageous, but like any other investment, it has its drawbacks and also risks. Some of the main disadvantages are:
Capital gains only: If you invest in physical gold, the only income received from gold are gains in the event that gold prices rise compared to the purchase price. However, some gold mining stocks, for example, pay dividends in which case passive income is possible.
Volatile: Gold has generally maintained its value over the long term, but prices can be volatile in the short term.
Risk: While some consider gold to be a relatively safe investment, all investments carry some level of risk.
There are many ways that you can invest in gold. Before doing so, it is important to think about your investment plan and make sure it is in line with your investment goals and risk tolerance. Common ways to invest in gold include:
Bullion: One way you can invest in gold is to buy physical gold. For example, by purchasing gold bullion (in the form of bars, ingots, or coins) or jewelry.
Gold mining stocks: You can also invest in gold mining stocks. This is a more indirect route in investing in gold as you do not personally own the gold. The value of gold mining shares will typically fluctuate up and down, closely following the price of gold. However, there can be price fluctuations and additional considerations, such as the company’s financials or other mining-related issues.
ETFs: There are also many gold exchange traded funds (ETFs) available that can enable you to put money into the gold market. Some gold ETFs concentrate on the commodity aspects of gold, such as price fluctuations. Others will invest in companies in the gold industry. You can find out information about the fund and its composition in its Key Investor Information Document (KIID). Either way, with gold ETFs, you do not own the physical commodity, but rather small quantities of gold-related assets within a single share.
Examples of gold ETFs on our platform are: iShares Physical Gold ETC (IE00B4ND3602), Xetra-Gold (DE000A0S9GB0) and Sprott Physical Gold Trust (CA85207H1047).
Futures and other leveraged products: Another popular way to invest in gold is via gold futures or other leveraged products where the underlying asset is gold. Futures and leveraged products are complex instruments and can have a high risk of losing your investment, or even more. We advise only investing in products that match your knowledge and experience and understand the risks.
With a DEGIRO account, there are several ways that you can invest in gold. As an online broker, we do not offer physical gold investment, but you can invest in gold mining stocks, ETFs and leveraged products. There are even two gold ETFs on our platform that you can invest in commission free. For details, please see here.Open an account
The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Investing involves risks. You can lose (a part of) your deposit. We advise you to only invest in financial products that match your knowledge and experience.