Investing in gold requires a strategic approach, particularly in today's unique economic climate.
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The price of gold has seen a notable increase in recent years as investors turn to the precious metal during a period of high volatility. With ongoing economic uncertainty, global and political instability, and lingering inflation, investors are flocking to this time-tested safe-haven asset. The price of gold per ounce now is hovering close to $3,300.
Gold investing can provide portfolio diversification and more stability when the markets are particularly unpredictable. While adding gold to your portfolio can be a worthwhile addition, it's key to have a strategy. We spoke to various gold experts and financial professionals about smart gold investing strategies to consider in the current economic climate. Below, we'll break down four approaches they recommend investors take now.
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Expert-driven gold investing strategies to use right nowWhether you want to start investing in gold or already have some in your portfolio, here are four strategies to use now:
Consider gold's price in contextGold is having a banner year. "This year, gold's performance year to date is off the charts," says Joshua Barone, wealth manager at Savvy Advisors.
The gold price started this year close to $2,650 per ounce, while the price of gold today is now around $3,300, representing more than a 20% increase. A gold price rise of this level is eye-popping, but isn't necessarily typical. It's important to understand the historical performance of gold.
If you're getting started with gold investing, don't expect this to be the norm. But if you're also timid about jumping in with prices so high, consider it in context.
"If you're buying gold today, that can be a little scary. But the fundamentals of it are highly in place and suggest that it can go higher from here," says Barone. "And those fundamentals being that you're seeing huge purchases from foreign central banks, banks like India and China…In times of stress and uncertainty, it tends to be a bastion of safety."
For those who feel that the high costs are a barrier and are waiting for a gold price drop, there are alternatives you can look into. For example, gold mining stocks. "If you're worried about the price of gold, then you can shift to buying gold mining companies," says Barone.
Explore your gold investing options online to learn more.
Understand the different gold investment typesIn today's gold investment market, you have various options to choose from if you want to invest in gold. While this flexibility can be appealing, it's important to be aware of the pros and cons of each.
In addition, understanding the nuances of each gold type as an investment. For example, physical gold bars and gold coins give you direct ownership. But you also need to consider how you're going to store gold, look into insuring it and have a strategy.
"As a previous financial adviser with almost 30 years of experience, I would always advise owning physical gold with a longer-term time horizon to manage any short-term volatility," says Paul Williams, managing director at Solomon Global and a specialist in the supply of physical gold bars and coins.
"With physical gold, a 'buy and hold' strategy is often adopted as the asset is used as a long-term store of wealth," says Williams. "ETFs, on the other hand, can be used to gain short-term exposure to gold prices and to respond to market events. As such, ETFs tend to be more susceptible to market volatility than physical gold."
If you're interested in gold investing, but don't want to deal with storage or insurance, gold ETFs can be an alternative to look into. Just be aware of the differences and the risks. "Our strategy has been to position gold in people's portfolios. We've been doing that with ETFs," says Barone.
Look at liquidityFor years, gold has shown it has staying power and provides numerous benefits to investors.
"Gold is an effective hedge for the average portfolio that is weighted towards equities and bonds. Historically, it has acted as a hedge against inflation and tends to do well during periods of times of economic and geopolitical uncertainty," says John Berman, founder and chief investment officer of Berman Capital Group LLC, an investment management company.
As an investment, though, it's essential to look at liquidity. "For the average investor looking for gold exposure, a physical gold ETF is likely the best option," says Berman. This can be a lower barrier to entry and gives you the option to buy or sell in the market fairly easily.
Berman mentions that gold bars and coins "will be a less liquid investment and require more logistical complexity in storing them, where to source them, and how to sell them."
Be tax awareBarone says it's important for gold investors to be tax aware and to understand how their gold investments are taxed. For example, physical gold is considered a collectible in the eyes of the IRS. Barone notes that physical gold can be taxed at the maximum collectibles rate of 28% for long-term capital gains.
However, the IRS also includes some exceptions, including certain coins and bullion of a specific fineness that are held by a bank or approved trustee. Still, that's higher than the typical long-term capital gains rate, which caps out at 20%.
It's important to understand how gold bars, gold ETFs, and gold stocks may be taxed. You can also look into a gold individual retirement according (IRA), which can provide some tax benefits.
Learn more about investing in a gold IRA here.
The bottom lineOngoing inflation and economic uncertainty led the Federal Reserve to keep the federal funds rate unchanged after its May meeting, leading to elevated interest rates. During times like this, investing in gold can provide diversification and may protect against the negative effects of inflation. To make the most out of your investment, understand potential tax consequences, the different forms of ownership and how you plan to include gold in your portfolio.