Understanding the risk involved in gold investing

In any investment there is promise and there is risk. Understanding the risk involved in gold investing starts with knowing physical gold investment products. Managing risk in gold investing includes picking a reputable and professional dealer, having a clear idea about investment goals, and a firm knowledge of the history of gold markets in bullion and rare gold coins.

Who you deal with

A reputable deal will not promise that every investment will succeed and an honest dealer will not continually steer you towards bullion purchases with high markups. A long standing dealer with an A+ rating with Better Business Bureau a record will be a help in investing and not a risk.

Products

Investing in the right product for the right purpose will help reduce investment risk in gold. Gold bullion bars and coins are used for short to medium term investment in the gold market. These products track the price of gold bullion. Gold bullion can be bought for as little as 2% above the spot price of gold bullion, sometimes less. Certified gold coins have a higher cost of purchase so they need to be held longer to expect a profit. However, these physical gold investment products can substantially outperform bullion over a number of years.

Investment goals

Short term investors belong in gold bullion and long term investors belong in certified rare gold coins. The risk of buying rare coins short term is that the investor may not be in the investment long enough to recoup investment cost. The risk of investing long term in bullion is twofold. It may not do as well as a gold coin investment and it may be confiscated (see below).

History as a guide to the risk in gold investing

Markets rise and market fall. The investor does not need to be steeped in esoteric theories such as Elliot Waves and the like to see this. Over the last ten years when gold rose four fold it also dropped back substantially in both 2006 and 2008 before moving up again. Having a clear idea about how gold moves and how it correlated with the US dollar will help the investor improve the chances of profit and reduce the risk of gold investing. A long time ago, but in the memory of some still alive, is the confiscation of gold in 1933 by the United States government. Economic times were even worse than today and president issued an executive order against “hoarding” gold. But rare gold coins were exempted! This precedent has led many to invest in certified rare gold coins for the long term as they believe this reduces the risk of their gold investments being confiscated when the government comes again for your gold.