Investing in precious metals is a way to protect yourself from volatile markets and to diversify your investment portfolio. However it is your choice on how exactly you wish to invest in physical precious metals.
There are several options one can take, each with its own unique benefits. Buying physical gold or silver as an investment is not always as straightforward as it sounds.
Novice investors often lose themselves in a variety of options: “Should I buy minted bars or sovereign coins?” “Maybe that limited edition coin would be a good investment?”
Throughout human history, gold has constantly emerged as an unparalleled form of savings, investment and wealth preservation.
Due to its unique characteristics and features, gold has inherent value and cannot be debased.
When holding physical gold, there is no counterparty risk or default risk. You can also store and hold your wealth in gold anonymously and secretly.
Main Reasons to Own Physical Gold Bullion (Rather than Paper Gold)
There are various reasons to own physical gold in the form of investment-grade gold bars and coins but these three reasons stand out the most:
- Gold’s ability to retain its purchasing power over time,
- The safe haven it provides in times of financial turmoil and uncertainty, and
- Its ability to diversify investment risk.
1) Gold is Tangible with Inherent Value
Physical gold is real and tangible. It is indestructible, impossible to create artificially, and difficult to counterfeit.
Mining physical gold is arduous and costly. Physical gold, therefore, has inherent value and worth.
In contrast, paper money doesn’t have any inherent value.
2) Physical Gold Has No Counterparty Risk
Physical gold has no counterparty risk. When you hold and own gold bars and gold coins outright, there is no counterparty risk.
In contrast, paper gold (gold futures, gold certificates, gold-backed ETFs) all involve counterparty risk.
3) The Scarcity of Gold
Gold deposits are relatively scarce across the world and difficult to mine and extract.
New supplies of physical gold are therefore limited and explains why gold is a precious metal. Gold’s scarcity reinforces its inherent value.
4) Gold Cannot Be Debased
Because of its physical characteristics and features, gold cannot be debased, and gold supply is immune to political meddling.
Compare this to the fiat money supplies which the government constantly debases and destroys. They undermine fiat money supplies through deficit government spending, central bank quantitative easing and financial system bailouts.
On a survivorship scale, gold has far outlived all fiat currencies by thousands of years.
5) A 6000 Year History
Gold has played a central role in society for thousands of years from the early civilizations of ancient Egypt, right up to the contemporary era.
Gold has facilitated international trade throughout history, has been directly responsible for the economic expansion and prosperity of numerous civilizations throughout history.
Due to gold exploration and mining, it has even been the direct catalyst for the growth of some of today’s best-known cities such as San Francisco, Johannesburg, and Sydney.
6) Gold is a Preeminent Store of Value
Gold is a preeminent store of value. Physical gold, in the form of gold bars or gold coins, retains its purchasing power over long periods of time despite general increases in the price of goods and services.
In contrast, fiat currencies such as the US Dollar are not stores of value and their purchasing power consistently becomes eroded by inflation or the general increase in the price level.
Fiat currencies have a long history of either becoming totally worthless and going out of circulation. They are otherwise known to become completely debased, such as the US dollar, while remaining in circulation.
7) Gold is a Long-Term Inflation Hedge
People sometimes refer to the purchasing power of physical gold over time as the “Golden Constant.” This reflects the fact that gold’s purchasing power is constant over long periods of time.
This ‘constant’ exists because the gold price adjusts to changes in inflation and future inflation expectations. Therefore, physical gold is a long-term hedge against inflation.
8) A 2500 Year Track Record as Money
Because of its ability to retain value and act as a store of value, physical gold has been used as money for over 2500 years.
Gold coins were first issued in the Lydian civilization in what is now modern Turkey.
Subsequently gold was used as a stable form of money in Persia, ancient Greece, ancient Rome, the Spanish and Portuguese Empires, the British Empire, even right up to the various international gold standards of the 20th century.
It was only in August 1971 that the US famously suspended the convertibility of the US dollar into gold. This famous political move triggered the debt-fueled expansion of fiat currency which still shows its repercussions in today’s monetary system.
Let’s put gold’s monetary importance into perspective this way. For 97% of the last 2500 years gold has been recorded to be chosen by numerous sophisticated civilizations as its base form of money. Its anchor of stability is precisely because of its ability to retain its value.
9) Gold is a Safe Haven Against Economic Turmoil
Physical gold acts as a safe haven asset in times of conflict, war and geopolitical turmoil.
During the financial market stresses and heightened uncertainties caused by wars, conflicts and turmoil, the counterparty risk of most financial assets spikes.
But since physical gold does not have any counterparty risk, investors rush to gold during these periods so as to preserve their wealth.
This is analogous to sheltering in a safe harbor. Gold can thus be seen as a form of financial
10) Gold Has Universal Acceptance as an Item of High Value
Gold is universally accepted as money across the world. There are highly liquid global market always providing ample sales opportunities for gold bars and gold coins.
This means that whichever city you are in across the world, you can always sell or trade your gold bars and gold coins.
11) Gold Acts as Emergency Money
Military personnel are often issued with gold coins that they carry with them in conflicts zones as a form of emergency universal money.
For example, the British Ministry of Defense often issues RAF pilots and SAS soldiers with Gold Sovereign coins to carry on their persons during combat missions and activities, such as in the Middle East.
12) Gold Operates Outside the Banking System
In the current era of global financial repression, physical gold is one of the few assets outside the financial system.
There is no monetary authority, central bank or government that issues gold. Gold is independent of the banking system because there is no government or central bank that issues it.
Fully owned physical gold stored in a non-bank vault or held in one’s possession is outside the banking system.
13) Gold Has No Default Risk
Unlike a government bond, Gold does not have any default risk because it is not issued by any authority that could default.
Gold bars and gold coins are no one else’s liability. Physical gold cannot go bankrupt or become insolvent.
Therefore, there is no need to have to trust any other party when holding physical gold.
14) Gold Optimizes Portfolio Diversification
Adding an investment in gold to an existing portfolio of other investment assets such as stocks and bonds, reduces the volatility (risk) of the investment portfolio and can increase portfolio returns.
This is because the gold price has a low to negative correlation with the prices of most other financial assets. Gold is less influenced by business cycles and macro-economic cycles than most other assets.
Numerous empirical studies by financial academics, as well as industry bodies, such as the World Gold Council, have validated gold’s role as a strategic portfolio diversifier.
Optimal allocations to gold in multi-asset portfolios have found to be in the 10% to 30% range.
15) Gold is a Currency Hedge
There is generally an inverse relationship between the gold price and the US dollar. The gold price generally moves in opposite directions to the US dollar, showing this inverse correlation.
Therefore, holding gold can act as a currency hedge of the US dollar, and help manage the currency risk of portfolios denominated in US dollars.
16) Gold’s Various Metallic Properties
Gold has many and varied metallic properties. These properties provide gold with many technological and commercial applications and uses. In turn these properties contribute as demand drivers in addition to the financial demand for gold.
The high-value metal is highly ductile. It is also highly malleable.Gold is a very good conductor of electricity and heat, and does not corrode or tarnish. It is chemically unreactive, non-toxic to the human body, possesses a high luster and shine, and has an attractive yellow glow.
These properties explain gold’s use in electrical and electronic wiring and circuits (e.g. computers and internet switches), its use in the medical and dental fields, its use in solar panels, space travel, and further uses in jewelry, decoration, and ornamentation.
With new technological uses being found for gold all the time, gold’s demand pattern is diversified and underpinned by its commercial importance.
Physical Gold – A Tiny Fraction of Paper Gold
The London Wholesale Gold Market and the US-based COMEX Gold Futures Market generate huge trading volumes of paper gold that dwarf the size of the physical gold market.
However, these markets only trade derivatives on gold (futures and unallocated positions). These paper assets can never be convertible to actual physical gold.
In a scenario under which these paper gold markets became unsustainable, the prices of paper gold and physical gold would diverge, with the paper gold markets ceasing to trade and collapsing, and only physical gold retaining any real value.
Owning physical gold is therefore an insurance against the collapse of the world’s vast paper gold markets.
IRA-Backed Physical Gold: Not an ETF by Definition
Investing in hysical gold provides all the benefits that gold-backed exchange traded funds (ETF’s) do not.
ETF’s provide exposure to the gold price, not to gold. Holding physical gold is by definition direct exposure to gold.
You cannot convert gold ETF’s into actual physical gold and have them delivered to you. In many cases with a Gold IRA, on the other hand, the owners of the Gold IRA may not even know where the vault location is, as it is stored safely by the depository.
If holding physical allocated gold bars or gold coins in a vault, such as with BullionStar in Singapore, you can always take delivery.
Gold ETF’s have many counterparty risks since there are many moving parts in an ETF such as a trustee, a custodian, and a sponsor / issuer.
Physical gold has no counterparty risks. When you hold physical gold, you always remain with 100% of the actual gold you first purchased. There is no erosion of holdings.
Sensible investors evaluate bullion options by the price and premium on the gold spot price. But the premium is only one part of the equation. It doesn’t necessarily mean that you’ll get that premium back upon the sale.
Worse, there are unscrupulous dealers out there. They will try to trick you into buying numismatics and other collectibles that have a huge premium and won’t retain their value over time.
Best Option: Physical Gold-Backed IRA
As a result, it’s essential to get an understanding of precious metals before dipping your toes into this market.
To research more about investing in physical gold, read first why we recommend purchasing or rolling over your retirement plan to a Gold IRA here.
If you are ready to invest your resources into or rollover your retirement plan to a Gold IRA already, view our List of Top 10 Gold IRA Companies and see for yourself why we recommend Regal Assets as the #1 Gold IRA company.
Do you have any questions on why it is a good idea to add gold bullion to your precious metals IRA in 2019? Ask below!
Investing in precious metals is a way to protect yourself from volatile markets and to diversify your investment portfolio. Every business has it own risk but investing in on something that is profitable and trustworthy is worth a go and from my perspectives Gold bullion is a promising investment.Gold bullion is tangible with inherit value , scarcity of gold , Gold is debatable and gold has various metallic properties .
Hello Adisa, thank you for dropping by with your comments and sharing what you have learned!
Phisical Gold is a natural and everlasting future asset that a person can buy and keep. I am already making the move to buy gold for my future. I have learnt in your post that no government or bank has power over physical gold, this is enough reason for everyone to try to buy and keep to safeguard one’s future. Thanks alot for sharing this insightful article. This is a must read for everyone.
Thank you for sharing what you have learned and the awesome compliment, Achievers!
You have been an inspiration to me in the past through your articles and reviews. I can tell you this is not an exception. I have heard severally that Gold is extremely lucrative but i have not been able to know the process to go about it. Your article is an eye opener for me because it has answered my questions.
You really have a good line of digital products. Gold processing is changing everyday and we need coaches like you to help keep us up to date in every areas
Thanks for this indepth analysis, It is well appreciated
Thank you for the gracious comments, Ola!
What an incredible blog post!I really love the way you outlined the reasons why its is a good idea to have physical gold bullion. Of course, Gold has turned to be a very lucrative business even right from the inception.I must say this is an eye opener; I cannot help but agree with everything that you had written here. Thanks for your in-depth analysis.
Thank you again, Michael! I’m glad that you enjoy my posts and especially this one. Thank you for the encouraging words!
Thank you for simplifying a subject that is well over my head. I’m getting started at investing a little (well, maybe a lot) late in the game, so I need all the good advice I can get. What is the minimum amount I need to invest to start a precious metal portfolio?
Hello Cedric, and thank you for dropping by! The minimum amount you need to invest in a Gold IRA with cash is $5,000 and the minimum for a retirement rollover is $10,000.
Wow…..what an interesting topic about Gold investment ,investing in gold bullion is the best way to avoid risk. This article highlights ways to own a physical gold. Gold has the capacity to retain is purchasing power.
buying of gold bullion also serves as an emergency money and it’s acceptable in every part of the world. This article has given me the insight to diversify my investment into gold for future purposes. Thanks for sharing this informative article
Thank you for dropping by again and sharing what you have learned Adamu! I am glad the article was helpful to broadening your knowledge of precious metals investments.
I’ve always been interested in expanding my wealth portfolio and at present only have property investments. I gave up trying to make money shares and have gradually just been selling off shares when it makes sense to do so. I still have some that I lost money on that will likely never recover. Gold seems like a sensible piece to add to the puzzle. However I’ve only ever thought of investing in gold as something a wealthy person would do. I am not even close to being in that category! Is investing in physical gold something that is achievable for the every day person? For someone like me who is new to gold, and perhaps only has a couple of thousand dollars to invest, is gold something that would make sense? Or would you need to invest more than that? Thanks
Hello, Melissa! Owning gold even in small proportions is still considered an investment. When you hold large amounts, it is best to keep it safe in a vault with a depository via a Gold IRA company and that’s why we recommend then. Thank you for stopping by with your comments and question!
You have some great points to consider when investing in gold and they are valid if there is no manipulation of the precious metal’s value.Gold has a prominent feature in our country as that is what our currency is based on, however, our currency has a lot lower value than the dollar. So in my estimation, the dollar and the pound have more worth than gold.It would appear from history that powers that be, manipulate the worth of gold with many diverse factors and if gold really were more valuable than the dollar and the pound, how is it that our currency is of a much lower value even being based on the value of gold?You state in your review that gold is not influenced by politics, if this is true, our currency would be worth far more than the dollar or pound.Hoping you can shed some light on this, looking forward to your soonest reply.
Hello LearnToEarn and thank you for your question. The dollar and the pound are decreasing in value rapidly because of inflation as gold is rising in value. This is the actual case, and all other currencies, including your currency, the pound, and the dollar decrease in value because they are not backed by any tangible asset. I hope this answers your question.
Me and my brother are into stocks, and we have invested a significant amount of money in our local stock market here. Our problem started with President Duterte got elected, the world knows how bad his mouth is, and has frightened away foreign investors that resulted to our stock market here tumbling down. This article of yours brought hope in me, maybe instead of pouring more money in the stock market, we rather explore investing in gold.
Now, my question is, are these Gold IRA specialists catering to international customers like us here in the Philippines? Can we call them via a long distance call?
Hello Gomer! Yes, the gold IRA specialists can contact you in the Philippines or anywhere in the world. If you get a gold investment kit from our best company, Regal Assets, they will can even assign a specialist to you who can translate in Tagalog. I hope this helps you in your quest for a Gold IRA!
I remember, when I was little, watching commercials about gold coins. I did not know a small piece of gold held so much monetary power. In one of your points you mention that gold does not have counterparty risk. What does counterparty risk mean? And, for instance, if I wanted to sell my gold coin how much should I sell it for, how do you know its monetary value (USD)?
Hello Claudia!
Counterparty risk can be defined as such (Investopedia):
Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract.
Basically, it is the risk that one part will not do its due its initial promise, whatever that may be, from a contract.
Also, gold coins differ in value all the time. Gold coins, especially numismatic gold coins, get more value than gold bullion because of its collector’s item worth. We don’t really recommend it for storing them in your Gold IRA as much as gold bullion, but they are an option. Just remember they can vary in price oftentimes and it takes a skilled collector to identify if they are profitable.