The implications of investing in gold: pros and cons

You've probably heard this about investing in gold for a long time. And yes, it's true that gold is one of the oldest assets in living memory and still attracts the interest of many investors today. Why? Because it comes up, never better, when there are situations of crisis or geopolitical tensions.

Because gold is, by definition, a source of wealth and can act as a diversifying element in portfolios in times of uncertainty. In fact, it is in these environments that this asset behaves best, acting also as a shield for any heritage.

Investing in gold during crisis

And to show the above, a piece of information. There is a report prepared by JP Morgan that warns that for the last 20 years prior to 2018, gold was the asset that obtained the second-best annual return, reaching 7.7%. As can be seen, the period analyzed corresponds to the great financial crisis that the world experienced at the end of the first decade of the 2000's.

According to the owner of the world's largest hedge fund, Ray Dalio, gold would be the key investment in the face of the "paradigm shift" that was coming.

In any case, the advent of a crisis is one of the three main reasons for choosing to invest in gold. The other reasons would be due to a change in the asset composition of sovereign wealth funds or the loss of bond yields against equities.

In these cases, gold becomes a safe haven asset in the opinion of analysts. Seen in this light, the situation of the coronavirus crisis combined with geopolitical tensions between the two main world economies - the United States and China - would be two arguments that would support the investment position towards gold.

How to invest in gold?

Now, if you are a beginner in this business of investing in gold, you will be interested in knowing how to buy, what to buy or where to buy. To begin with, you can differentiate between buying physical gold bars or coins (there are even vending machines that offer this product) or investing in exchange-traded funds (ETFs).

Physical gold will always be an eternal resource that will survive the years. The possession of gold by the pirates of yesteryear is the spitting image of what we are talking about. Having this raw material is a safe value that will provide control and security, although security guarantees are needed to protect the asset.

As for whether to acquire ingots or coins, the answer we can give is rather inconclusive, since it rather depends on one's needs. In this matter, it is important to know how we will store the gold, how long we will have it, as well as the profits that are sought with each investment.

Perhaps the process of investing in gold through a publicly-traded fund or ETF is faster. However, ETFs can be risky because their value can fall to zero if the issuer suspends or defaults on payments. This situation could never occur with physical gold.

Despite this, analysts maintain that investors continue to look for gold-backed ETFs because of the depreciation of the dollar and the possibility of inflation driving up the price of gold.

If you are going to buy gold, do it with certified dealers

Having seen the options, let's move on to the issues of security and trust. Whether you decide to bet on ETFs or go for physical gold, you must have certified agents or trusted managers.

As far as the physical material is concerned, it is advisable that in the case of coins you check the official issue lists of the institutions that mint the coin, whose mark will obviously appear on the piece. The name of the manufacturer and the weight of each piece should appear on bars and ingots. The purity and the seal of the certifier must appear.