AMFIE ACADEMY - Investing in physical gold
Investing in physical gold
ARE YOU CONSIDERING INVESTING IN PHYSICAL GOLD? HERE ARE A FEW ISSUES TO CONSIDER BEFORE MAKING A PURCHASE.
Gold, and in particular physical gold, has always been perceived as the ultimate ‘safe haven’ asset in times of uncertainty and the current crisis is no exception. Over the past few months, investors have sent gold prices ever higher and some experts believe the trend will continue - leading many to wonder whether now is a good time to buy.
However, before you make the leap it is important to consider the unique costs and risks that come with purchasing physical gold, which includes ingots and gold coins.
What are the downsides to investing in physical gold?
- Physical gold does not generate earnings such as interest or dividends.
- Short-term prices can fluctuate substantially.
- Physical gold must be stored in a safe for security reasons. This leads to additional costs for transporting, handling and storing the investment which come in addition to the purchase price.
What risks should investors be aware of before investing in physical gold?
Market risk: The price of gold depends on a wide array of factors, which can be difficult for inexperienced investors to understand: global demand for jewelry, industry demand, the volume of gold production, changes in central bank stocks and investor speculation.
Currency risk: Investing in physical gold entails a currency risk for investors outside the United States because gold is listed on the international markets in US dollars. If the dollar depreciates against your currency, you can have a capital loss even if the price of gold has remained constant.
Liquidity risk: While gold is a relatively liquid asset, when it is held physically it is less liquid than other assets that are traded daily on the stock exchange.
This article is provided for educational purpose only and on the basis that you make your own investment decisions and do not rely upon it. AMFIE is not soliciting any action based on it and it does not constitute a personal recommendation or investment advice.
As part of AMFIE's cash management - Off Balance, the Association excludes all speculative products (Commodities, precious metals, options, convertible bonds). The categories of financial products in which AMFIE may invest are listed in Article 4 of the discretionary management mandate.