How to Start Investing in Gold.

By Richard Cox
Richard Cox
Richard Cox
July 20, 2014 Updated: April 23, 2016

When we think of traditional investments, stocks and mutual funds are probably the first things that come to mind. But when we think in historical terms, precious metals have been around far longer, and are still actively used by investors today. Rising trends in American household debt and consumer credit ratings have made it easier for small investors to start taking positions once again in the financial markets.

Assets like gold and silver have set a strong historical precedent in the marketplace but there can be difficulties when trying to figure out when and how to invest. There are common market instruments like the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV), but these are typically referred to as “paper assets” because they do not allow you to take ownership is physical assets. Further resources for both of these assets can be found here (for GLD) and here (for SLV).

Physical Assets vs. Market Funds

In these cases (GLD and SLV), you are buying into a fund. This is very different from buying a gold coin or gold bar, and these two asset types will generally not trade at the same value. For these reasons, most traditional investors feel much more comfortable owning physical gold or silver, which generally comes in the form of jewelry, gold coins, or gold bars. There is a variety of ways to buy these types of assets but it is important to understand that much of what you might typically see in the financial news headlines does not actually refer to gold prices, but instead to funds that are designed to trade close to the underlying prices in the physical metal.

When To Buy Gold

Now comes the real question: When is the best time to start buying gold? Traditionally, investors have used gold as a hedge against price inflation and a falling US Dollar. When the Dollar is buying, your cash purchasing power is falling, and it will often make sense to start moving into safer assets in order to gain additional financial protection. Most investment managers recommend that you have at least some precious metals exposure as part of your portfolio.

Gold also tends to perform well during times of uncertainty. If we think back a few years to the financial crisis of 2008, gold markets began trading in an incredibly strong rally that ultimately reached valuations above $1,900 per ounce. This was largely because investors were looking for asset security during a time of financial turmoil. Since gold has one of the longest histories as a stable financial market asset, gold tends to be one of the first choices when the economy starts to look gloomy and negative.

But even when we understand these historical tendencies, there are still difficulties that can be found when you first start trying to invest in gold and other precious metals (like silver or platinum). It is a good idea to read sources that highlight some of the common mistakes when many people start to invest in gold coins, a good practice given the fact that most investing newbies tend to make the same mistakes over and over again. Fortunately, these mistakes can be avoided when we take a conservative approach.

How Long Should You Hold a Gold Investment?

“Gold investments tend to be long-term investments,” said Sam Kikla, markets analyst at BestCredit. “This means that most people buying exposure in these sectors tend to avoid the ‘day trader mentality’ and hold their positions for extended periods of time.” When price moves occur in gold and other metals, those moves tend to unfold over years (rather than months or days). This is the reason that a majority of investment advisers recommend obtaining exposure with a “retirement mindset” rather than to assume you will be actively buying and selling your assets on a regular basis. Fortunately, this makes investments in these areas much easier as you will not be forced to “time the market” and risk significant losses if you happen to buy or sell at the wrong time.

Richard Cox
Richard Cox