Before buying gold it’s worth knowing what is a myth and what is reality.
Gold has been around for over 5,000 years, and has since been a large part of our culture. This means that everyone is aware that gold exists, but not everyone understands how gold prices work or the benefits of having it as part of your portfolio.
We put together an article that would explain some of the common gold myths you may have heard, and why they aren’t true.
Buying gold stocks or gold ETF funds is different from buying real, physical gold. Buying gold stocks and ETFs means you are buying a portion of a gold-mining company, or are buying into a larger gold fund. Your investment is an electronic book entry, which means you don’t have as much control over your investment and your money could be more exposed to the uncertainties of the market. If you had invested in the London Gold Exchange ETF, for example, you would have had to sell all your investments when they permanently closed for business in September 2011. This doesn’t happen with physical gold bullion – the inherent value of gold means your gold investment will remain valuable no matter what happens.
Buying gold stocks is a strategy for those who want to invest in gold as an appreciating asset. In a downturn, the shares of a gold mining company will be lower, so investors can buy them at a cheaper price and sell them for more when prices increase.
However, for those who are buying gold to preserve wealth, beat inflation and diversify their portfolio, physical gold bullion is the better investment.
Depending on the time period you are looking at, gold does or does not beat inflation.
During a certain period of years, such as during the 70s, gold did not beat inflation. However, long term, gold does beat inflation. According to some sources, Romans could buy a toga, belt and shoes with one ounce of gold. Today, with one ounce of gold (which equals £1,400), one could buy a very nice suit, shoes and a belt. However, some argue that this though process is a bit of a stretch.
If we look at the rate of inflation in today’s time period, we can see that gold has been beating inflation since 2008:
(image from Sunshine Profits) (yellow for gold, red for inflation).
Usually, gold works as an inflation hedge when inflation increases, which is the case when the global monetary system seems unstable and citizens fear the state of their currency. From the year 2010 to 2020, the price of gold has increased by 36% – in that time period, gold most definitely beat inflation.
Does this mean that gold could not beat inflation in the future? Yes, it could be. However, during the times when gold is not beating inflation, you are still diversifying your portfolio against a market crash and currency risk.
Decades ago, buying gold was a complex process. Buyers needed to sign contracts, send in documentation and pay hefty fees. This meant that buying gold was a luxury only accessible to those who could afford it – usually the wealthy.
However, now with the advance of Fintech and entrepreneurs, buying gold is now accessible to everyone. In fact, with apps such as Minted, investors can start with as little as £30! No contracts, no minimum deposits and no hidden fees! Investors can now pay for insurance and storage at an affordable rate, and rest assured that they own what they buy.
When it comes to keeping your money safe, many people believe that financial instruments such as Cash ISAs or savings accounts are safest. However, the main issue with using accounts such as Cash ISAs is that your money won’t be beating inflation. The highest interest account at the moment is 1.26%, and with inflation at 2%, that means your money is slowly losing value every year.
Gold has maintained its purchasing power over the centuries, and beats inflation long term. It’s backed by its inherent value – the fact that banks all over the world have been increasing their reserves of gold over the past few years proves this.
The other issue with Cash ISAs is that you may have to pay a penalty if you withdraw your money and you’ll be limited to £20,000 per year – you won’t have this restriction when saving with gold.
As mentioned above, gold used to be difficult to buy. Investors had to find secure storage vaults, pay high insurance fees and spend hours on the phone doing research. On top of that, there were contracts and high minimum deposits.
Now, everything can be done from a gold dealer website. In fact, with Minted, investors will soon be able to buy gold through an app! Companies such as Minted make the process incredibly easy: we buy 999.9 purity physical gold from one of the top refineries in Europe, we handle the transport and we store your gold in a secure vault insured by Lloyds.
When buying through Minted, you’ll be able to start with as little as £30 and enjoy one of the most competitive rates on the market. We also offer a gold savings plan so you can automatically contribute a certain amount of gold every month – you won’t have to do the transfer yourself. With Minted, gold is accessible and easy to buy for everyone.
We hope we’ve been able to clarify some of the gold myths out there and helped you understand what investing in gold really entails. Education and transparency is at the core of Minted, and we always recommend doing your research and your own reading before making an investment.
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