Gold is anything but a safe investment. The prices sometimes fluctuate wildly. Investment is, therefore, only worthwhile with small shares of the total assets.
Is It Worth Investing As Security In A Crisis Duration?
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| Investment In Gold |
The Essentials in Brief:
- The value of gold is subject to violent fluctuations and therefore remains a risky and speculative investment.
- In general, gold is only suitable to a limited extent as an investment. In an investment mix - for example, with interest securities and equity funds - you can reduce the risk overall.
- However, you should invest 5-10 percent of your assets in gold.
Table of Contents
- Is gold a safe investment in unstable times?
- Main arguments for gold as an investment
- Main arguments against gold as an investment
- Is an investment in gold worth it?
- Investment opportunities with gold
- Your experiences matter
Is gold a safe investment in unstable times?
In the last 22 years, gold prices have fluctuated between 300 and 1880 euros. Even if the price of gold is currently at its highest, gold is anything but a safe investment. Despite the risks, you don't have to rule out gold as an investment altogether. Adding gold to an investment mix - for example, consisting of interest securities and equity funds - can reduce the overall risk of your investment.
For Example:
While many share prices collapsed in the summer of 2020 due to the Corona crisis, the cost of gold reached new records. During the financial crisis of 2007, share prices collapsed worldwide while the price of gold rose rapidly. The overall loss of a portfolio with a gold component was thus reduced during these crises by adding gold. After the problem, the price of gold fell again while other stock prices recovered.
In times of crisis, gold can contribute to risk diversification and, thus, to stabilizing value development. For a long-term investment strategy, however, you should weigh the arguments for and against investing in gold and the various investment options.
Main Arguments For Gold As An Investment
1. Gold is a crisis currency
Gold has survived wars, depressions, and several currency reforms and is still valued as an investment.
2. Gold Can Lower the Overall Risk of a Portfolio
Gold can stabilize a portfolio when stock markets crash or paper money falls in value. In moderation, it, therefore, reduces the overall risk of an investment.
3. Gold is a scarce commodity.
In addition, gold cannot be multiplied at will, unlike paper money.
All of that may be true. Only: Gold does not become an investment in which you, as a private investor, should invest larger parts of your assets. Because gold also has many disadvantages.
Main Arguments Against Gold As An Investment
1. Buying gold in small quantities is expensive.
A troy ounce of gold costs around 1,800 euros. However, that is the market price. If you want to buy gold in a bank or from a gold dealer, they want to make money from trading. Therefore, there are two prices: the buying price and the selling price. For an ounce, the selling price is about 6% higher than the purchase price. On the other hand, if you want to buy a tenth of an ounce, there is already a difference of around 20% between the buy and sell price. The price of gold must, therefore, rise by this range - the trading margin of the provider - so that you can come out of the red.
2. Storing gold is expensive Storing
the expensive precious metal in a linen closet at home or even in a small safe is a risk and should be carefully considered. Whether it is insured against theft depends on the terms of the contents policy. Alternatively, as an investor, you can deposit the gold in a safe deposit box at the bank. But that is only available for a fee. You can find a provider comparison for safe deposit boxes at Stiftung Warentest.
In addition, it must also be clarified here up to what amount the locker contents are insured. If the worst comes to the worst, this cover may not be sufficient, and additional locker insurance will be necessary. These are also running costs that you have to bear.
3. Gold carries currency risk.
Gold is traded in US dollars. This means that when you sell your gold, you first receive dollars and then exchange them for euros. Therefore, currency fluctuations affect the equivalent in euros. This means: If the dollar is devalued, there are disadvantages for the investor when reselling gold because he gets fewer euros for the dollar.
In this case, losses may occur even though the price of gold in dollars has risen. The positive side of the coin: If the dollar appreciates, you will benefit.
4. Gold does not earn interest or dividends.
Gold itself is not productive: it does not generate profits like the companies in which shareholders invest. And it doesn't pay interest like the banks and governments that bond buyers or owners of fixed-term deposits and savings bonds lend their money to. You only profit if the price of gold rises and you sell.
But be careful: The price gain must first exceed the costs incurred - for example, for a safe deposit box, fees incurred when buying and selling, any shipping costs incurred, and the difference between the purchase and sale price - before you make a profit.
5. The price of gold can fluctuate widely.
As an investor, you have to hope that the demand for gold will increase. If it falls, the price will also decrease. In the past, strong price fluctuations were not the exception, but the rule: between 1987 and 1999, the cost of gold halved. The price also fluctuated heavily in both directions around the financial crisis of the corona pandemic.
Is an investment in gold worth it?
When investing, you should pay particular attention to risk diversification. You can include some gold in your portfolio. Previous crises have shown that the price of gold can partially offset losses in other stocks. However, only invest a small part of your assets in gold to absorb the violent fluctuations in the price of gold through other investments.
However, it is important to remember that it is questionable how easily a gold bar can be exchanged for valuable goods in everyday life if a serious crisis occurs.
Also, note that gold pays neither interest nor dividends. After deducting the inflation rate, the long-term performance of gold over decades was also only in a few periods higher than that of other investments.
That is why consumer advice centers advise against investing more than 10 percent of your assets significantly in gold.
Investment Opportunities with Gold
If you decide to invest part of your long-term assets in gold or would like to give away gold as a stable investment for a specific reason, you have various options.
gold bars and gold coins
Gold bullion coins and bars are the obvious solutions for many when buying gold. After all, they offer the opportunity to hold the gold in your own hands.
Gold Jewellery
Gold jewelry is usually not offered as fine gold but as an alloy, i.e., a mixture of gold and other metals. The most common alloy is 585 gold, corresponding to a gold content of 58.5 percent.
Gold Funds, Gold ETCs, Gold Certificates
With gold funds, you invest in gold or a fund that replicates the price of gold. But make sure to distinguish gold funds from gold stock funds, which invest in companies that prospect for gold (see below).
Gold Savings Plans
Investing a large amount in physical gold at once is sometimes possible or sensible. Gold savings plans are being advertised as an alternative to a one-off investment. A certain amount, for example, 100 euros, is paid into a savings plan every month. It would be best if you gradually acquired ownership of the gold, which the provider then stores for you.
Conclusion
Gold stocks and gold stock funds allow you to invest in gold prospecting companies. However, their courses can develop completely differently than the price of gold.
Based on our experience in consumer advice with various dubious providers of gold savings plans, we advise against taking out a contract. Anyone who can only spare 100 euros is usually better advised to wait with investing in gold until larger sums have been saved, or to choose another form of investment.