Disadvantages of investing in gold – investing explained

Investing in gold, often hailed as a safe haven and a hedge against inflation, carries its own set of challenges. While buying gold, whether in the form of gold coins, bars, or ETFs, might seem like a solid long-term investment strategy, it’s important to consider the disadvantages.

For starters, physical gold requires secure storage, raising the risk of theft. Unlike traditional investments in the stock market or other asset classes, gold does not generate income through dividends or interest rates.

Gold prices can also be quite volatile, influenced by various global factors, making it a less predictable investment compared to others. Moreover, investing in gold ETFs or gold mining companies brings a different set of risks, akin to those found in the stock market. While gold is often considered a good investment and a precious metal that retains value, it may not always align with the goals of a long-term investor seeking consistent growth or income.

Additionally, the costs associated with buying and selling gold, including storage, insurance, and transaction fees, can diminish its appeal. As with any investment, it’s vital to weigh these disadvantages against the potential benefits and consider how gold fits within the broader context of your investment portfolio.

It’s crucial to know all pros and cons of investing in gold.

Investing in gold has its perks, so let’s take a look at them before we delve into cons. For starters, it’s like a shield against inflation. When prices soar, the value of your cash drops, but gold might just go up in value. It’s not a sure thing, but it’s something to think about.

Also, gold can be a safety net when the economy gets shaky. There’s a study showing that when more people are worried about the economy, gold prices often climb. It’s not a guaranteed win, but it’s a smart move for those who like to plan ahead.

And let’s talk about diversifying your investments. Putting your money in different places, like gold or silver, can help you balance risk and returns. It’s all about not having all your eggs in one basket. The right mix of gold in your portfolio can really make a difference, but remember, it depends on your personal investment goals, how long you’re planning to invest, and how much ups and downs you can handle.

However, outlined below are the top five genuine disadvantages of investing in gold that should be on your radar. Keeping these in mind will not only help you navigate the market more efficiently but also aid in making more informed decisions as you diversify your portfolio.

Disadvantages of investing in gold – the storage issue 

If you believe in physical gold, it’s essential to know that storage may be another significant problem. Imagine vast amounts of gold. Where would you store it? Will it be enough space and safety to keep it for a more extended period?

Imagine placing your jewelry and coins in a bank locker. You’ll need to rush each time to the bank when needed. In addition to that, you’ll need to pay the locker maintenance charges every year, which can be pretty expensive. Bank deposits would provide you with the recent returns based on the tenure.

So, the safety of having a gold item is the biggest concern so far.

Investment in gold ETF and coin bars aren’t profitable.

It’s no surprise that Gold ETFs are slightly more expensive than actual gold. The reason for that is the management fees that are charged by the respective fund house. Don’t also forget that you’d need to incur brokerage, which may increase the price of a unit of the ETF.

Also, investing in gold coins and bars isn’t a good idea, so here’s why. It means that each time you intend to sell them, you will get a lesser amount of money than you paid for them in the first place. Remember that banks from all over the world do not buy back the bars and the gold coins they previously sold to anyone.

There’s no demand for gold on the planet.

Believe it or not, there’s no worldwide demand for gold at the moment. Everyone is interested in investing in cryptocurrencies and index funds, while only the minority of people are into gold investment, mainly in Germany, England, Hong Kong, Middle East, and America.

Gold averaged US$1,789.5/oz in Q3 of 2020, which is slightly lower than the Q2 average. However, this is still a 6% fall from the August 2020 record high US dollar price. Gold’s performance is due to the demand and supply dynamics, as well as the higher interest rates and risk-on investor appetite in the current macro environment.

The Bottom Line

In conclusion, this precious metal has often disappointed in terms of returns to investors, with rates tied to the fluctuating international bullion market. Physical gold, including jewelry, typically does not yield good returns, and its resale value may be lower than the purchase price.

The challenges of safely storing physical gold, vulnerable to theft, further dampen its appeal as a reliable income source. The growth in gold price hinges on finding someone willing to pay more for it later.

Gold doesn’t yield any return until sold, with its purchase rationalized mostly for diversifying an investment portfolio, as many other investment options prove more promising today than a trove of gold.