A Guide To Understand About Gold Investment
Key Points
- Gold investment means investing in gold.
- Gold investment is considered as one of the safest investments.
- Physical gold, EFT, gold mining stock and gold investment account are types of gold investment nowadays.
Gold is an excellent choice of investment for many reasons. It can be used as a hedge against inflation, and it will always be of value due to scarcity. As an alternative investment, it is a great portfolio diversifier for seasoned investors. Investors can diversify their portfolio by investing in gold, in addition to other investments in equity, fixed income and unit trusts.
Gold has been used as a medium of exchange throughout history because it is scarce and durable. The metal doesn’t corrode or tarnish over time like some other commodities such as copper or silver, which makes it an ideal form of currency to hold long-term. In times of economic uncertainty or high inflation rates, gold tends to hold its value better than most paper currencies. This makes the precious metal a good hedge against uncertain financial conditions.
For experienced investors looking to further diversify their portfolios, gold can be a valuable asset class to include alongside stocks, bonds and mutual funds etcetera.. Gold prices may move independently from stock prices and bond yields so including the commodity within one’s holdings could potentially help reduce overall risk levels while preserving potential returns during times when these traditional assets are performing poorly.
History Of Gold
Gold has been a valuable asset for centuries, with its worth being recognised in everything from art to currency. Gold coins were first struck around 550 BC, and they have been an important part of our monetary system ever since. Even when countries moved away from gold coins and started using paper money, the ‘gold standard’ meant that this paper currency still retained an important link to gold. Treasures containing gold have been discovered dating back as early as 4000 BC, showing how long this precious metal has held power and wealth.
Gold is a precious metal that has been used as currency, jewelry, and other decorative items for centuries. The very nature of what makes gold precious is the rarity and scarcity of the metal. Gold is so rare that the world produces more steel in an hour than it has poured gold since the beginning of recorded history!
What Is Gold Investment?
An easy explanation is investment that is related to gold. In Malaysia, investors tend to open a gold investment account through a bank to invest in gold. However, other than investing through a gold investment account, there are different types of gold investment in Malaysia. We will talk more about it later.
Gold-related investments can be a great way to capitalize on short-term changes in the gold market. By investing in stocks of gold-mining companies, or through ETFs, mutual funds and futures that are backed by gold, you can easily trade on price movements. This can provide opportunities for quick profits if the market moves in your favor.
Why Investing In Gold?
Gold is a valuable resource that has been used for centuries as a form of currency and investment. Even in a digital age, gold remains an important foundation in the portfolio of any savvy investor. Here are four reasons why:
- Gold is a tangible asset that can be physically stored and easily accessed.
- Gold has intrinsic value due to its rarity and use in jewelry, electronics, and other industries.
- Gold is not correlated with the stock market or other investments, making it an effective diversifier for your portfolio.
- Gold has long-term stability and tends to hold its value even during economic downturns.
Gold is often seen as a safe haven investment, because its price is usually negatively correlated to the stock markets. When stocks and shares plummet, gold often rises as investors move away from riskier assets into the safe haven of gold. This makes it a good option for diversifying your portfolio into different areas.
Types Of Gold Investment
There are a four types of gold investment in Malaysia, which are:
We are going to explain more later.
Physical Gold
While some people may prefer to invest in digital assets such as Bitcoin or Ethereum, others believe that physical gold is a more secure investment. Let’s have a look at different kinds of physical gold nowadays.
Gold Bar
Gold bars are usually the first choice for experienced investors. They come in various sizes, from 25g to 1kg. Gold bars offer an effective option for investment if you’re looking to make a sizable one. However, the downside is that gold bars are not a convenient option to liquidate.
| Pros | Cons |
|---|---|
| High liquidity | Not a good option to liquidate |
| Cost cheaper than gold coins | Easy to get steal |
| – | Extra money spent for gold storage box |
Gold Coin
Gold coins are a more convenient investment option due to their size and their easy liquidation. They usually weigh between 2.5g and 25g of pure gold, making them easy to store and trade. Gold coins are also an ideal investment option for new investors that are trying to get their feet wet in the market.
Gold coins are often worth more than their face value because they are individually minted. Therefore, it is more authentic and valuable.
| Pros | Cons |
|---|---|
| Easy to liquidate | Might lost it due to smaller size |
| Easy to store | Could be more expensive than gold bar |
| Higher value if rare | Pay additional storage fees for storage |
Gold Jewelry
While some people prefer to invest in gold, others enjoy wearing it as jewelry. The price of gold jewelry can range from a few hundred ringgit to millions of ringgit, depending on the quality and design of the piece. Whether you’re looking to buy or sell gold jewelry, it’s important to know what to look for and how much you should expect to pay or receive.
Gold jewelry is often combined with other materials, such as silver. Before purchasing gold jewelry, be sure to know the carat weight of the piece. You don’t want to purchase a piece that is falsely advertised as being made of 8-carat gold but is actually only 5-carat gold. You can purchase from trusted sellers such as Poh Kong or Wah Chan.
Gold jewerly’s value is not guaranteed if it has scratches or broken. In this case, your selling value might be lower than your buying price, resulting in losing money. Unless it’s a rare and antique gold related item, the value of the item will not decrease.
| Pros | Cons |
|---|---|
| Use as an accessory or decoration | Low liquidity |
| Easy to get compare to gold coins | Selling price might not same as buying price |
| Antique might have higher selling value | Higher risk of getting stole |
| – | Need pay more attention to take care of it |
Gold Mining Stocks
When it comes to gold mining stocks, there is a bit of a misconception that you are automatically investing in gold. However, with this type of investment you are actually investing in the company that does the mining. Their performance will dictate your dividend payout. That said, it’s important to do your research before jumping into any particular stock and be aware of what could affect its value.
Gold mining stocks are a way to gain indirect exposure to the performance of gold. However, it is important to remember that these stocks do not always reflect the performance of gold prices. This is because other factors such as stock market conditions and the company’s current circumstances can also affect stock prices.
| Pros | Cons |
|---|---|
| Low initial investment (depends on company) | Volatile and risky (stocks) |
| High liquidity | Company performance affected value |
| Indirect exposure to the gold performance | No physical gold |
Gold Exchange Traded Funds (ETF)
Gold exchange traded funds known as ETF, are similar to gold mining stocks whereby you don’t exactly buy gold. You’re investing in the ETF that’s backed by gold instead of buying the actual commodity. This is a great way to get started with investing in gold without having to worry about buying and storing physical gold.
Investing in stocks that are heavily influenced by the dollar can be risky, so a gold ETF may be a good option. The gold ETF can help shield you from the downside if the stock market takes a downturn.
| Pros | Cons |
|---|---|
| Gain exposure to the gold performance | Broker fees must paid |
| Easy to invest | Volatile and risky |
| No storage cost | Might not suitable for everyone |
| High liquidity | – |
Gold Investment Account
Opening an investment account with a bank is one way to invest in gold. This option allows investors to purchase gold with 99.9% purity, without having to store the physical gold. Some people prefer this method because it is more secure and they can access their funds easily if needed.
Banks such as Public Bank and Maybank provided this kind of service. Some banks only require a minimum initial deposit as low as 1g, which is great for people who don’t have a lot of money, but want to invest in gold.
Investing through a gold investment account is not like other investments. There is no interest, dividend, or insurance. Some banks also charge a conversion fee and service fee if your gold is under the required minimum balance. One thing you should be aware of is that the gold investment account is not insured by the Perbadanan Insurans Deposit Malaysia (PIDM).
| Pros | Cons |
|---|---|
| 99.9% gold investment | Do not generate interest nor dividend |
| Easy to create account and invest | Not insured by PIDM |
| Higher security | Conversion fees needed |
| High liquidity | Required minimum initial deposit |
| No storage cost | – |
Physical Vs. Gold Stock
Before investing in gold, it’s important to consider what type of investment you want to make. There are two main options: buying gold stocks or physical gold. Both have their own pros and cons, so it’s important to weigh them carefully before making a decision.
With buying gold stocks, your investment will be tied to the performance of the stock market as a whole. This can be good or bad, depending on how the stock market is doing overall.
However, with physical gold you’ll need to store and protect your investment yourself, which can be more risky if something happens to it, but you are given full control over your investment. You can choose to store it or make it as an jewelry, it’s all up to your choice.
What Will Affect The Price Of Gold?
Gold value is determined by a number of factors, including:
Economic Uncertainty
Gold prices have historically increased during times of high inflation. This is because investors and others tend to flock to gold as a safe haven asset, as it is seen as being less affected by inflation than other assets. As a result, the price of gold tends to go up when there is high inflation.
Exchange Rate of US Dollar
Most likely the biggest variable in determining gold price fluctuations. In order to understand how global gold prices affect local prices, it’s important to remember that global gold is traded in US dollars. An increase in exchange rate will result in an increase in local prices.
Demand and Supply
Gold is a profoundly desired product with many purposes. Aside from being a valuable metal, gold is also commonly used in the manufacturing sector such as electricity conductors or life-maintaining machines.
The price of gold is determined by the supply and demand for the commodity. So, whenever there’s more supply than demand, the gold price would be lower and vice versa.
Pros And Cons Of Gold Investment
Below table shows the pros and cons of when investing in gold.
| Pros | Cons |
|---|---|
| Protect against inflation | Without interest and dividend |
| Lower investment risk | Lack of steady income |
| Low long-term volatility | Required storage protection for physical gold |
| Portfolio diversification | High short-term volatility |
Is Gold Investment Suitable For You?
It is considered a safe investment because the price doesn’t drop by much and it tends to rebound eventually. However, it is also a very low yield investment because the price doesn’t increase very fast under normal circumstances.
If you need short term fast money, gold investment might not be suitable for you. However, if you consider long term investment, gold investment is the safest option.
Conclusion
Gold is often seen as a safe haven. However, in the end it’s up to each individual to decide whether or not they want to invest in gold. Adding gold to your portfolio can help you diversify your assets and protect you from inflation or market instability.
However, investing in gold also comes with some downsides. It is very important to weigh all the pros and cons carefully, before making any decisions. You can read here to compare different types of investment in Malaysia, and choose the one that meets your needs.
