Investment in gold is very popular for various groups, especially those new to work or to enter retirement age. Maybe you also hear a lot from parents that you should buy precious gold for investment. Gold investment is safe and profitable for the long term. But as with other types of investments, investments in precious gold are also not free from risk, although they may not be as big as others.
8 Real Reasons Why You Should Not Buy Gold Right Now
Although there are benefits that you can get, gold investment also has its shortcomings. Before buying precious metals, first, consider the following things.
1. There is no dividend income
Warren Buffet (one of the most successful entrepreneurs of all time) strongly opposes buying gold as an investment. One of the strongest reasons is that this investment does not provide income (such as dividends or interest). But actually, this is a reason that doesn’t matter because the money you invest in gold has a lower opportunity cost (the lost profit when you choose other investment alternatives).
2. More Long-Term Benefits
When you invest in gold, you cannot expect large profits in just a few years, unlike stocks, for example. If you buy gold today and sell it 5 years later, you might be disappointed, especially if you don’t have a lot of gold.
3. Changes in Prices Can Cause Losses
Sometimes the value of gold rises when the stock market collapses and investors race to invest in high-priced gold. Once the panic subsided, the price of gold changed again by itself. This can cause losses for investors, so you should be wiser when buying it.
4. Dead investment
Gold will remain gold. That is, a bar of gold will never turn into two bars. Gold possessed approximately the same purchasing power at all times – from ancient to modern. Gold is a dead investment that can do the most that can block inflation in the long run. You will not receive any dividends from gold. All you get is frustration from fluctuations in gold prices and frustration from the result of your investment (in comparison with other opportunities).
5. Unfavorable conditions for the purchase and sale of gold
The initial conditions for the purchase of gold bullion are predatory. Let’s say we decided to buy gold at a bank. Firstly, the difference between the purchase and sale of metals, particularly gold, can reach up to 10% and even more. In addition, the amount of VAT is added to the purchase price. If we change our minds and sell gold at the same moment when we bought it, we will immediately lose up to 30%. On the other hand, to sell bought gold to break even, you need to wait a long time until it grows in value.
6. Not Practical
One of the weaknesses of gold investment that can be felt most is that its physical form is not practical, so you need a storage area equipped with extra security, especially if you have gold bars in such a large amount and certainly need more than just a small safe.
7. Risk of Loss
Because the physical form of gold is impractical and requires storage, this creates a higher risk of loss. In addition, the striking physical condition of gold can also invite crime, so the risk of losing gold can certainly be easily experienced, especially for those of you who choose the type of gold jewelry and are often used. If this happens, surely you will experience a substantial loss.
8. Fake Gold
Both gold in bars, jewelry, coins, or other forms is easily falsified today. Not only can individuals experience fraud like this, but the bank can also experience fraud like this. Therefore, it would be better to make a sale and purchase gold in a trusted gold place.
9. The gold color can fade
Another risk that can be obtained when investing with gold is that the color in gold can fade, thereby reducing the value of gold sales. The gold color can fade quickly, especially if not done properly. The sale value of a falling gold will certainly make you suffer losses. So it is highly recommended for those who invest in gold to take good care of their gold so that the selling value remains high.
10. Technical problems
Lots of people do not understand the standards and calculations of gold prices correctly. So that when you want to sell gold, the results obtained will be less than the maximum. Even for those who still lay, you can be deceived by calculations that are not transparent so that your gold selling value is not too high. Therefore, please study in advance the price standards and the exact calculation of gold so that the process of buying and selling gold is right and does not harm you later.
11. Bulging investment practices
This one might often occur when investing in gold, especially for those still beginners in this field. Several parties usually offer gold investments with sizable profits. But if you experience this, you should not be interested first. This could be one act of fraud. It will be safer if you invest in gold in an already trusted place.
12. It depends on what the next person will pay
There is no immediate value in the precious metal, and it is worth decreasing if people reduce the amount of money they invest in that commodity. In addition, some argue that it is potentially a bad exchange item in an economic meltdown if people decide on genuine consumables. For example, toilet paper is worth more than a metal coin that is not on top of real physical needs, such as food.
13. Geopolitical risks
The fear of extreme events comes back regularly to enhance the coat of arms of gold and to recall its haven. In 2019, geopolitical tensions in the Middle East, political unrest in Hong Kong, the prospect of a hard Brexit, the Italian crisis, India’s takeover of Kashmir, the trade war between the United States and China rushed purchases. They would certainly increase in a blast in the Middle East, in Honk Kong, in Korea, in Kashmir.
14. Declines faster than increases
Gold cycles last on average six years and declining cycles less than four years. After its peak in 2011, gold has lost almost 45% of its value, and gold mines 80% in 45 months, according to Alain Corbani, manager of the Global Gold and Precious mining fund at Finance SA. The current upward cycle started in 2016. There would, therefore, be three years left to invest. The end of the economic cycle is rather favorable for gold in general. But better watch the psychology of the financial markets.
15. Surprise speculation
Speculation by financial investors maintains price volatility and may surprise. Investors choose between stocks, which offer a dividend, bonds, which yield a coupon, and gold, which yields nothing (except mines). At times like today, they are looking for diversification assets; the rest of the time, they neglect gold because of its cost of ownership.
16. The rate policy
The rates of gold on the evolution of real rates in the United States according to Benjamin louvet who are the commodity manager of OFI Asset Management. According to Benjamin, the ten-year rates on US government bonds are reduced to 0.15% instead of 1.16% in November 2018. If real rates went up, gold would lose its attractiveness. But then paying interest on the debt could become unsustainable.
17. The profitability of gold is not a big deal.
Although it is often said that it never goes down and that it is a haven, gold is a very volatile and long-term product; if you count inflation, you can end up with less money than initially. Buying gold and forgetting are not synonymous with earning money.
18. 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 bids than sell prices. That means: for example, if you buy a gold bar and sell it immediately, you make a loss because you will only be 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.
Depending on where you look, you will find that everything is advantageous, but that will be because they try to sell you the idea, and they don’t show you everything they know. If you are investing in the short term and are good at it, speculating with gold can be profitable. But it is certainly something very complicated to carry out, and you should not do it lightly or without training long before as it can lead you to lose a lot of money.
Alternative investment other than gold that can give you more profit
Investing in gold is the old investment technique that your parents and grandparents often advise. It can be beneficial if considering the risks and if you take careful measures and up-to-date information. However, there are also other investments that you can put your money in, especially after seeing the risks in gold investment, as has been mentioned above. These investments can be more secured and profit yielding than gold. Some of those investments can be:
The first most popular alternative investment type that you can try to buy is residential, which can be in an apartment or house. Seeing the need for housing in big cities that are more and more in line with population growth, the property business can be quite promising in the future. House prices that continue to rise every year can be a source of your wealth as long as you can sell it at the right time and buy it at the best price.
You can also use the property as a place to stay for work. So the benefits you get are doubled. You can also rent your house or apartment if you don’t want to sell them immediately and gain monthly income. But you have to prepare a capital that is about hundreds of millions if you want to jump into this investment. It can do with a mortgage, but the burden of interest is certainly not a little.
If you don’t have enough money to build a house, you can also try alternative land investment types. Land can also be credited, but of course, those who already own a piece of land from parental inheritance can certainly be the king in the future, especially if the location is strategic. Compared to property, finding a buyer for the land is usually easier because its function can still change as needed. So it is not fixed by people who want to find a place to stay. Entrepreneurs can also build a place of business.
3. Mutual funds
This investment is also much in demand. The risk of mutual funds is quite varied. There are low, medium, and high. It all depends on what mutual funds we buy. Mutual funds can be interpreted as a fundraising activity carried out by investment managers. After funds from investors are collected, the funds are invested in several instruments. The advantages of investing in mutual funds are that you do not need technical knowledge. It is not necessary to invest large amounts. It is done immediately, and they are safe investments (the investments made by this management company are made by professional investors and are supervised by government entities.
4. Bank Deposits
Saving money in a certain amount and time can be another alternative investment that can be tried. The interest offered is also quite attractive, ranging from 4 to 7 percent depending on the bank’s policy where you deposit money. With a fixed deposit account, you invest your money over a certain period. The term is at least one month and a maximum of 10 years. That means you can’t get your money for that time. In return, the interest is higher than the savings accounts. The longer duration you invest your money, the higher the interest rate you receive.
Shares are not for the inexperienced.
When you buy shares, you buy a share in the respective company. If the value of the company increases, the value of your share also increases. As a shareholder, you also receive a
premium at the end of the year, the dividend. But nobody can guarantee whether the value of the company increases. It may just as well go down, and your stock will lose value. Trading stocks requires precise knowledge of the environment and involves a high level of risk. However, getting started in the equity business is easy. First, you open a deposit at a bank of your choice. Then you decide on certain stocks or stock packages and buy them through your portfolio.
6. Art, antiques, musical instruments, cars, shoes, bags, wine
Tangible assets are assets that have a certain value and for which there is demand. This creates a broad field: Real assets can be real estate and raw materials, precious metals, and collectibles. A painting by an unknown artist can be extremely valuable in 30 years, and a rare pair of sneakers can be in greater demand from year to year. Many investors buy wine not to drink it but to sell it profitably. However, a high level of expertise and a large portion of luck is necessary for real assets as a safe investment.
7. Peer to peer loan
Peer to peer loans is becoming increasingly popular. You slip into the role of a traditional bank and can lend money to private individuals or companies. You get a return of up to 10 percent, sometimes even more, and can get started with a minimum amount. However, you take a great risk as a lender and run the risk that your debtor can no longer service the loan. For this purpose, some providers offer so-called buy-back guarantees, which affect if the payment is not received for a certain period. Despite the risk, more and more investors are opting for P2P loans.
8. Start or buy a franchise
Opening your own business is one of the best ways to make a profit. But one of the most important things to keep in mind when undertaking is that you really must be passionate about the activity you do. It will be many hours of work, personal and family sacrifice, and if you don’t like the job, all these sacrifices will be in vain. On the contrary, you like the business you have decided to start, with effort and dedication you can achieve good results. Of course, if you intend to have benefited quickly, this is not the alternative you are looking for.
Since it will not be until after the first six months when you see any profit, we must investigate if we want to acquire a franchise. And see if this business is a good solution to solve our problems and if it is in line with our interests. A huge mistake would be buying a franchise because we like that product or because we use it. Without a doubt, this should never be done.
9. The Commodities Market
Commodity’s raw materials it is the financial market for any basic input sold in bulk. Every imaginable raw material can be a commodity: Oil, gas, any form of energy, precious minerals, metals, any agricultural product such as cotton or coffee, even livestock. When you invest your money in commodities, you are not necessarily buying raw materials in bulk. But you are negotiating future or cash purchase, and sale contracts called the spot market. Like stocks, commodity prices are subject to volatility, and it is extremely important to dedicate time and research to the analysis of each particular market.
Tips for investing in gold
Though there are risks that gold investment presents, it can’t be neglected that all the other investments also don’t present any risks. All the investments have risks one way or other, little or high. So if you want to take risks in buying gold, you can certainly minimize the risks by considering some factors. Such as:
1. When to buy?
If you want to invest in gold, but experts say that the cost of precious metals is high, then do not hesitate. Buy gold at the current price since you need it not for speculation but to save your savings from inflation and the financial crisis. In any case, the value of gold will manifest itself in all its glory during the crisis, and by that time, it will no longer matter at what price you bought it. You will still benefit.
But do not invest all your money in the precious yellow metal. It would be best if you bought gradually since, in the volatile market, you will have different prices at different times. In the long run, you will minimize your costs.
2. How to buy it?
To protect your savings from the effects of the financial crisis, you need to own gold only in physical form, that is, buy coins or bullion. Since the cost of precious metals is subject to great fluctuations, please do not consider it an investment in its pure form. And do not build high expectations about high returns. When buying precious metal, look at it as real physical gold that will save your capital from destruction in the long run.
3. How much to buy?
Invest in gold only the money that you will not need urgently shortly. You should not have a situation shortly when you urgently need to sell gold. Otherwise, you will lose some of the investment. About 20% of your capital can be safely invested in precious yellow metals. It will be a big mistake to buy gold on credit.
4. Where to buy?
It would help if you bought investment gold only from trusted dealers. Only at them will you find honest prices and good quality of goods, as well as professional advice. Gold can also be bought online. The main thing here is to find a proven and reliable online store.