Updated on January 21, 2023
Many investors ask the question: Is gold a commodity? There are different perspectives on this topic, but before we dive in, let’s start at the very beginning; What is a commodity?
Commodities are natural resources like gold, silver, and oil, and each has its own unique properties and risks. Gold is a prized metal whose application as a form of currency was for centuries. Silver is a precious metal with a lower price than gold, making it a more affordable option for investors. Oil is a non-renewable resource that produces energy. Investing in commodities can be a remarkable way to diversify your investment portfolio.
Gold as a commodity
Gold is a chemical element with the symbol Au (from Latin: aurum) and atomic number 79, which makes it one of the higher atomic number elements that seemingly occurs naturally. In its purest form, it’s a bright, slightly reddish yellow, dense, malleable, and ductile metal. A relatively singular element, gold is a prized metal whose transformation into coinage, jewelry, and other arts went on throughout much of recorded history. In the past, a gold standard was often administered as a monetary policy, but gold coins as a currency fizzled out in the 1930s.
Here are some reasons why gold is a good investment
- Gold is a tangible asset – it cannot be created or destroyed. This makes it a valuable commodity to trade and exchange.
- Gold is scarce – there is only a limited amount of it in the world. This makes it valuable and sought-after.
- Gold is durable – it does not corrode or tarnish over time. This means it will retain its value over the long term.
- The portability of gold makes it easy to transport and store. This makes it a convenient investment for people who want to diversify their portfolios.
- Gold’s liquidity makes it easy to buy and sale. This makes it a great investment for young professionals who are looking to grow their wealth.
Although gold is often touted as a good investment, it also has several disadvantages. For one, gold is a very volatile asset, meaning its price can fluctuate significantly from day to day. This can make it difficult to predict the best time to sell. Gold also doesn’t generate any income or interest, so you’re simply relying on its price going up to make a profit. Finally, there are storage and insurance costs to consider if you buy physical gold.
how to invest in gold as a commodity
For centuries till date, people recognise gold as a form of currency and investment. It is a valuable commodity that many used to diversify their portfolio and protect their wealth. Here are some tips on how to invest in gold:
Determine why you want to invest in gold
When investing in gold, it is important to first determine why you want to invest in gold. Are you looking to hedge against inflation, or are you simply looking to add diversity to your investment portfolio? Once you know your reason for investing in gold, you can develop a strategy for achieving your investment goals.
Consider how much gold you would like to purchase
Before you invest in gold, consider how much you would like to purchase. You can start with a small amount and gradually increase your investment over time. An investment in gold is of a long-term nature and must be considered with great deliberation before putting any money down.
Choose a method of buying gold
Buying physical gold
The process of buying physical gold is relatively simple. You can find a reputable dealer online or in person and then purchase the gold in the form of coins or bars. Be sure to conduct enough research ahead of time to ensure that you get a fair price for the gold.
Investing in gold mutual funds or ETFs
Gold mutual funds and ETFs are investment vehicles that allow investors to hold a basket of gold-related assets in a single fund. These funds can provide exposure to the gold market without the burden to purchase and store physical gold. Gold mutual funds and ETFs typically invest in gold-mining companies, gold futures contracts, and other gold-related assets.
There are many gold mutual funds or ETFs available to investors. Some examples include the SPDR Gold Trust ETF, the iShares Gold Trust ETF, and the VanEck Vectors Gold Miners ETF. Each of these funds offers investors a different way to invest in gold, and each has its own unique benefits and risks. Therefore, before investing in any gold mutual fund or ETF, be sure to research it thoroughly to make sure it is the right investment for you.
Purchasing stocks in mining companies
Mining companies are a great way to invest in gold. They offer exposure to the precious metal without the need to own physical gold. Additionally, mining companies offer shareholders a share of the profits generated from gold production. This makes them an ideal investment for young professionals who are looking to diversify their portfolios and generate long-term wealth.
Plan its storage
Now that you’ve decided to invest in gold, choosing a safe and secure place to keep your new asset is important. There are a few varied options for storing gold, including at home, in a safety deposit box, or in a specialized gold storage facility. Each option has its own merits and demerits, so it’s important to do your research and choose the alternative that best suits your needs.
In conclusion, we can say that gold is a commodity and has been used as a currency for centuries. Nowadays, gold is still considered a valuable asset, but it is important to conduct research before investing in it.
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