Gold is considered absolutely crisis-proof. Nevertheless: private investors should at most invest a small part of their assets in gold. Because gold has many disadvantages.
The essentials in brief:
Gold is advertised as particularly crisis-proof by some investors.
A survey of the market watchers shows that gold is often an attractive investment alternative, especially for younger people.
But investing in gold savings plans, gold deposits, or buying coins and bars as an investment is a risky and speculative investment.
Therefore, as a private investor, do not put large parts of your assets in gold.
Why consumers choose gold as an investment
In times of low interest rates, gold seems to be an attractive investment alternative for some consumers: around three out of ten respondents can imagine investing in physical gold.
Younger respondents in particular are interested in gold as an investment.
Main arguments for gold as an investment
Gold is considered absolutely crisis-proof for supporters of the yellow precious metal. Your arguments:
Gold is crisis-proof
It has been valued by mankind for millennia. Wars, depression and several currency reforms had survived.
Gold is solid
Unlike our paper or book money, it is something solid and of real value.
Gold is expensive
In addition, unlike paper money, gold cannot be multiplied at will. This limitation and the enormous demand mean that gold is comparatively expensive.
All of that may be true. But: This does not make gold an investment in which private investors should invest a large part of their assets. Because gold has many disadvantages.
Main arguments against gold as an investment
Buying gold is expensive
Gold is relatively expensive. The demand is enormous, not only for private investors, but also for countries like China. However, there is no guarantee that prices will continue to rise. On the contrary! Past losses have shown that the price of gold can also drop quickly.
Surcharges and fees incurred when buying (and later selling) gold investments can also make it expensive. As an investor, you should take into account, for example, that traders generally set lower bid than sell prices.
That means: for example, if you buy a gold bar and sell it immediately, you make a loss because you are only paid the lower purchase price. The surcharges are particularly high for small quantities (1 to 5 grams). Five 20-gram bars together cost more than one 100-gram bar.
Keeping gold is expensive
Storing the expensive precious metal at home in the linen closet is a high risk and should be carefully considered. Instead, you can deposit the gold as an investor in a locker at the bank. But it’s not free.
It is also necessary to clarify the amount up to which the contents of the locker are insured. In the event of a case, this coverage may not be sufficient, additional locker insurance is necessary. These are also ongoing costs that you have to bear.
Gold poses a currency risk
Gold is traded in US dollars. Put simply, this means that when you sell your gold, you first receive dollars and then exchange them for euros. Therefore, currency fluctuations affect the equivalent in euros. This means that if the dollar is devalued, there are disadvantages for investors when reselling gold because they get less euros for the dollar.
In this case, losses may occur even though the gold price in dollars has risen. The positive side of the coin: If the dollar appreciates, you will benefit from it.
Gold brings neither interest nor dividends
Gold itself is not productive: it does not generate profits like the companies in which shareholders invest. And it doesn’t pay interest like the banks and states that buyers of bonds or holders of time deposit accounts and savings bonds lend their money to. You only make profits when the gold price rises and then you sell.
But be careful: The price gain must first incur costs – for example for a safe deposit box, accruing fees for buying and selling, possibly incurred shipping costs, the difference between purchase and sale price – before you really make a profit.
The gold price can fluctuate greatly
So as an investor, you have to hope that the demand for gold will increase in the future. If it should fall, then the price also falls. In the past, strong price fluctuations were not the exception, but the rule: between 1987 and 1999, the gold price halved.
Also in 2008, the price fell about 30 percent from $ 1,000 to $ 705 a troy ounce (31.1 grams).
By contrast, the gold price has risen sharply since 2009 as a result of the financial crisis.
In June 2010, the gold price reached more than $ 1,250, and in summer 2011 even more than $ 1,900.
By June 2014, it would have dropped to $ 1,300, and in 2015 it would drop to less than $ 1,100.
In the summer of 2018, the price was just under $ 1,250.
It has also happened that investors had to wait 25 years to get back on their entry level. Who else can speak of a safe investment?
Still, gold is one of the safest investments out there.
Don’t just buy gold in physical form, from now on you can also buy in tokenized form.
Pyrrhos Gold gives you the opportunity to buy gold and store it on your computer or smartphone.
Visit the Pyrrhos Trust Company website at www.backed-by-gold.com and find more information there.