An Investor’s Guide to The Pros and Cons of Investing in Gold

Midway through last year, inflation rose above 13%, with many of the UK population expecting a recession towards the end of the year or at the beginning of the new one. This scary statement has caused many Britons to seek ways to increase their income while reducing their outgoings.

One of the most popular ways of achieving this is through investing since there are so many ways, from cryptocurrency and online stock trading platforms to high-yield saving accounts and private pensions. Yet, one of the most popular ways of doing so is acquiring and trading precious metals like silver, platinum, palladium, and gold.

Whether you choose to put your money into digital gold or tangible assets like buying gold bars from an online dealer, both can provide great returns. While you might already know how to invest in precious metals, learning the pros and cons will help you optimise your investment.

Despite being known as a valuable commodity throughout history, there are several advantages and disadvantages of investing in this precious metal which might be unbeknownst to several interested investors. Therefore, we’ve outlined several of them below to help potential investors decide whether it’s a viable investment option or not – keep reading to find out more.

The pros of investing in gold

It can diversify your investment portfolio

One of the most popular reasons individuals and businesses choose to invest in precious metals like platinum, palladium, silver, and gold is because it gives them a chance to grow their investment portfolio beyond traditional methods. As the famous proverb goes, you should not place all your eggs in one basket.

This warns people against investing all their resources (or, in this case, money) into a singular thing for fear of losing everything. Due to this, it is essential that investors put their money into various investment opportunities to protect themselves against the risks associated with investing (and make it a more enjoyable experience!). Investing in physical precious metals provides a unique investment balance, that no other asset class can offer.

For instance, business, airline, and hotel stocks fluctuate for various reasons, from trends, news, demographics, incidental transactions, inflation, and much more. Yet, gold is more likely to keep its value, making it a more secure investment while diversifying your investment portfolio.

Not to mention, you can buy gold bullion in various ways, from physical gold bars or coins to gold ETFs and mutual funds. This can be achieved through your bank or, more commonly, through specialist bullion dealers like Physical Gold which is a website for buying gold bars, coins, and finding out more about silver/gold investment opportunities. Consider visiting their site or contacting them directly for specific inquiries. 

Protects against inflation

Another popular reason for investing in precious metals is that they help protect against inflation. Let’s face it; one of the scariest parts about investing is that it can be completely unpredictable, one day, you might experience much growth, and the next, you could experience significant losses.

Any wise investor should have this fear when undergoing any investment. Yet, regarding some investment opportunities, they can be assured that their money is more protected than other methods. With the trading of gold being one of them!

For instance, many people expect the stock market to crash as it did back in 2008, which caused losses for hundreds of investors since their investment portfolios were wiped out (or at least those that were only made up of traditional investment opportunities!).  

Yet, those who branched out into non-traditional investment methods like buying/selling gold experienced minimal losses since their investments weren’t affected by political chaos, global market meltdown, and other crises.

In contrast, those who invest in precious metals see their price increase as many people lose faith in the financial market and shift their focus to physical investments, like precious metals, which are considered ‘safer’.

Its value could increase

Another benefit of investing in physical metals like silver, gold, platinum, and palladium is the knowledge that their value could increase over time, granting you security. Inevitably, there will be highs and lows along the way, but ultimately it could go back up if demand rises or supply falls.

Although it is wise knowing how the price inflates and deflates, you won’t find yourself firing up your computer each time there is a price change. Unlike stock markets, where you constantly worry about your investment, the price of commodities actually tends to increase when the economy shrinks as investors seek safety.

The cons of investing in gold

Storage space

One of the most significant disadvantages of investing in physical gold is the storage space needed. Unless you have an extremely heavy-duty safe lying around or are willing to keep it all deposited in a bank, you might struggle to store your investment. Not to mention the anxiety you’ll have about leaving it out in the open where thieves could find it.

As you can imagine, there are various benefits to storing your gold on and off-site, but there are multiple ways investors can get around this conundrum. Some of the most straightforward methods for investors to store their gold bars or coins are using a safe, third-party option, a bank’s safe deposit box, a secure vault, and various other ways for investors to store gold.

Doesn’t generate passive income 

Many knowledgeable professionals believe that for an investment to be successful, it must generate passive income, which precious metals sadly do not do since it doesn’t do anything once you’ve procured it.

Ultimately, one of the most significant reasons people want to start investing is to increase their income, so it makes sense that they’ll want to choose an asset that will improve their finances. Due to this, many investors decide against investing in gold since it doesn’t produce anything over time.

One of the downsides is that you only get your dividends from precious metals when you decide to sell them. And at times, you end up losing before you gain since you must pay extra for storage and insurance options, which can result in losses before you even get around to selling your gold.

Price is variable

Another disadvantage of investing in precious metals is that their price is variable. Despite not being wholly affected by politics and the economy, supply and demand calculate the value of precious metals like gold and silver. Due to this, its value can be variable and swayed by various factors that don’t always work out in investors’ favour.

As well as personal opinions, other factors can cause the value of precious metals to fluctuate from digital assets like cryptocurrency and stocks to a lack of demand. Yet, despite this, physical gold remains one of the most popular investment options. Due to its popularity, it is considered one of the ‘safest’ methods of putting hard-earned money into something.

You’ll need plenty of capital to invest

Like many other investment options, the value of physical gold rises and falls daily, even if it is only by a measly 0.01%. As of this writing, the price of a gold sovereign is around £400, yet this is subject to change. Due to this, much capital is generally needed to invest so that you can get a fair amount of gold, which doesn’t make it a suitable investment opportunity for everyone.

As you can imagine, you’ll need a decent amount of assets to gain a fair return, making acquiring precious metals such as silver and gold comparable to traditional investment methods like the stock market, mutual funds, and bonds.