Gold Investing 101: A Beginner’s Guide

The number one precious metal in the world is gold. The king of all metals has been a valuable commodity since ancient times and even in contemporary times, it hasn’t lost its relevance. 

Aurum is one of the best investment commodities in the world. Little wonder many wise investors are adding it to their portfolio. But what if you are just a beginner who is thinking of investing in this precious metal; what are the things you should know?

It is due to the above question we have written this gold investing 101 article just for you. This article will provide you with basic but relevant information that will set you running as you begin your aurum investment career.

Why gold is Valuable 

As we said already, aurum has been used since the time of the pharaohs and likely before then. Its unique luster and malleability qualities made it perfect for jewelry use. It was even made into coins and used as a means of exchange and show of wealth. 

The initial psychological understanding of the early humans has remained with us till this day that the harder it is to get a thing, the more valuable it is. As a result of this, aurum was cherished because it was difficult to extract out of the ground. 

As time passed, aurum began to gain widespread usage as a trade exchange medium. The value of this commodity was relevant even when the first paper money came to exist. These currencies had to be backed by the king of metals. 

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Hence, every bill that was printed had an equivalent in aurum that was stored somewhere that one could exchange the bill for the aurum (although this hardly happened). 

Although this link no longer exists between paper money and aurum, it hasn’t reduced the value or love that we have for this precious metal. 

Where Gold Demand comes from

The demand for aurum mainly comes from the jewelry industry. In fact, the demand percentage from this industry alone is half of the overall demand. 

Direct investment in the physical commodity accounts for another 40% of the demand. This includes the amount used to manufacture bullion, coins, bars, and medals. 

Individuals, ETFs (Exchange-traded funds), and central banks are the physical investors of this commodity. You might be surprised that central banks even invest in this precious metal. Most countries have gold reserves held by the central banks. The United States of America is said to have the largest gold reserve in the world. Visit https://www.statista.com/ to check out the list of countries with the largest gold reserves.

This is kept as haven against any crisis that might cause paper money to lose its worth. In such a scenario, folks who have invested in this yellow metal can fall back on this item as a means of preserving their wealth.  

The rest of the demand for this precious metal comes from different industries to be used in different applications. For example, this commodity is used in dentistry and also in tech gadgets and heat shields.

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How Gold Price is Determined

The price of the king of all metals is largely determined by the law of demand and supply. The spot price for this item is determined by the relationship between the demand and supply of the commodity. 

The jewelry industry’s demand for this item is usually constant, although slight downturns in the economy can lead to a temporary demand reduction.

Investors’ demand, on the other hand, is dependent on the situation of the economy as well as the sentiment of the investors. Hence, when these individuals and government feel that the economy is facing some crisis, they tend to buy aurum. The result of this demand increase is an increase in the price of the yellow metal.

The Amount of Available Gold

Like many natural resources, the king of metals is abundant in nature in many places. The only problem is that it is quite challenging to extract. (Yep, we still face the problem ancient humans faced in extracting aurum although not to the same degree). 

For instance, small quantities of this precious metal are found in seawater. However, mining it would definitely cost more than the worth of the metal itself. Hence, while the commodity is abundant, its availability is still limited. 

It has been estimated that almost 190,000 (one hundred and ninety thousand) metric tons of the precious metal are presently above ground and in use today. Compared to that, an estimate of 54,000 (fifty-four thousand) metric tons can be carefully extracted from the ground with the use of current technology. There is the possibility that advancements in technology could cause the number to rise.  

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Different Gold Investments you can opt for

1. Jewelry

Just purchase any gold jewelry of at least 14 karats. You can read this article to learn more about this measurement. 

Pros

  1. Easy to get

Cons 

  1. Uncertain resale value
  2. High markups

2. Physical Aurum

In this case, you can buy collectible coins or bullion (either bars or coins). 

Pros

  1. Tangible ownership 
  2. Direct exposure

Cons

  1. Storage
  2. Might be challenging to liquidate 

iii. No upside apart from changes in the price of the commodity

  1. Markups

3. Gold Certificates

You can obtain a gold certificate from a company in possession of aurum. Bear in mind that you won’t have physical possession of the aurum. A good gold certificate example is Perth Mint.

Pros

  1. Don’t have to possess the physical commodity
  2. Direct exposure

Cons

  1. Largely illiquid
  2. Issued by a few companies 

iii. Only as valuable as the issuing company

4. Gold ETFs

If you opt for a gold exchange-traded fund, the fund will purchase the commodity on your behalf as a shareholder. You will then have to make a commission payment to trade. 

Pros 

  1. Highly liquid
  2. Direct exposure

Cons

  1. No upside apart from changes in the price of the commodity
  2. Commission fees  

Apart from the above, other ways to invest in aurum include futures contracts, gold mining stocks, mining-focused ETFs, mutual funds, and streaming and royalty companies. 

Conclusion 

The article above is a beginner’s guide to investing in gold. The subtopics we discussed are building blocks you can build upon as you continue your career in investment. Before you invest, ensure that you gather all the facts and information you need to know about that investment option.

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