Gold investing risk is a factor many investors ignore. But, just like any other investment, there are several risks involved when investing in gold. Gold and other precious metals such as palladium, silver, and platinum have risks associated with them. The main aim of investing in gold IRA is to protect your wealth against inflation, global currency uncertainty, and money corruption. Here are some of the ways you can lose money while investing in gold or other precious metals:
Risk of gold investing
Gold fluctuates in price
If you will buy gold when it has high rates to the US dollar, and you sell it later when the price of gold is down in the world markets, then you will lose money. The best ways for you to go about it include investing for an extended period. In average, gold appreciates in value over a long time. For example, you should think of letting gold stay in your IRA account for more than two years for you to make a profit. If you will buy it and later liquidate within two weeks, there are high chances you will lose money.
Opportunity cost of gold
There are several alternative assets such as stocks, bonds, and other investments. Gold will just sit in your account and wait for the value to increase so that you can sell it and earn more. In simple terms, gold is a store of value. Other investments will make you money as time goes. It is unlike gold which can sit in your account for several years before it can make any gains.
Storage fees as part of Gold investing Risk
After you buy gold, you will have to turn attention to the storage costs. You can end up storing the precious metals for several years to come. The cost of storing the precious metals can become expensive in the long run. The venture can end up being uneconomical if you will store the gold for an extended period before you can liquidate it. There are several gold IRA companies which offer the storage services. Take your time and locate the best company where you can access the storage services.
Supply And Demand Affects Gold Price
Just like any other commodity, the supply and demand influence the price of gold. Gold does not expire; some of the precious metals which were mined several centuries ago are still available in different reserves. When the demand rises, the owners can avail it to the market for them to access the high prices. You should venture into the gold investment with an open mind knowing the demand and supply can affect its price. From reliable sources such as World Gold Council, there is approximately 2500 tons of gold mined annually. About 2,000 tons go to jewelry production while the rest is used in gold funds and traded exchanges.
Central banks affect Gold Price
Most banks hold precious metals especially gold as reserves. In the year 2004, the International Monetary Fund and other international banks held more than 19% of mined gold as reserves. Other banks which have a lot of gold reserves include Bank of England, Swiss National Bank among others. The Washington Agreement on Gold signed in 1999 limits the amount of gold which can be kept by banks as reserves to less than 500 tons. The members of Washington Agreement on Gold include Japan, United States, Europe and Australia.
Gold investing Risk driven by state policies
Some states such as Russia have expressed interest in increasing their gold reserves. China announced in 2005 that it would increase its reserve of gold from 1.3 to a higher value. It made most Chinese investors shift to gold as an investment instead of the Euro. India is another country which is buying a lot of gold. Since The Euro Zone Crisis, India has bought more than 200 tons of gold. The financial decisions made by world banks affect the price of gold.
Gold Hedge against financial stress
Most countries are in the deficit of currency. The more the money is pumped into printing currencies, the less the value the paper currency it attains. It makes it necessary to invest in gold bullion bars and coins. Investment alternatives such as equities, bonds, and real estate don’t compensate for the risk involved due to the devaluation of currency. Many experts recommend gold as a portfolio insurance. The more the alternative investments are affected by inflation, the less the gold and other precious metals are affected by the inflation.
Jewelry and industrial demand affects the price of gold
About 70% of annual gold production goes to jewelry. India is the largest consumer of gold used in jewelry. It consumes more than 27% of the gold used in making jewelry. China and the USA also consume a lot of gold jewelry.
Also read: Benefits of investing in gold
About 12% of the gold produced goes to medical and dental uses. Gold has high electrical conductivity and thermal properties. It is also very resistant to corrosion and any form of bacterial colonization. Middle East economies are increasing their gold consumption. This is due to their aspiration to adopt western lifestyles.
Trading in futures of gold has led to market manipulations. People believe gold prices have been suppressed. The traded futures of the commodities especially in precious metals leads to short selling which affects the price of gold in one way or another.
Gold can be stolen
It depends on where you have kept your precious metals. Some people will buy gold and store it in their safes. But, you should be careful, if someone will notice you have the precious metals, he can steal from you. You should have it in a custodian who has fully insured it. You will have to pay for the insurance services as well as the cost of storing it.
Even if there are some risks associated with gold investing, the overall risk cannot outweigh the benefits you will enjoy out of gold investing. Take for example what has happened in the Brexit and the ever-changing government administration. You never know whether Trumps administration can affect the value of the dollar, if it will be affected, then those with gold IRA will be protected.