If you are thinking about growing your wealth, consider investing in gold or other precious metals. Gold has long been considered a reliable and stable investment asset for preserving or increasing wealth and diversifying investment portfolios.
However, if you’ve never purchased gold assets, you may have questions about what assets are best for portfolio diversification and how to start investing. Understanding the answers to these questions can help you make the right investment decision for your financial goals.
Why is Gold Considered Valuable?
Gold is and has been a valuable commodity for thousands of years. While the metal is considered precious primarily due to its rarity and aesthetic appeal, it is also valued for more practical uses.
Gold is softer than most other metals, making it easy to mold into jewelry. It does not rust, corrode, or tarnish, is a good conductor of electricity, and is easy to alloy with other metals, making it useful for industrial applications.
As an investment asset, gold is a rare and finite resource, meaning the price of gold is primarily determined by supply, demand, investor sentiment, and global economic and geopolitical factors. These properties are the primary drivers behind the value of gold today and why gold is considered a good investment.
How Good is Gold as an Investment?
Gold is considered a good investment, especially during periods of economic uncertainty. Gold investment has three primary benefits: portfolio diversification, acting as a hedge against inflation, and high liquidity.
Gold is a Good Option to Diversify your Portfolio
Diversifying your investment portfolio involves investing in various asset classes or different types of financial investments. A diversified portfolio protects your wealth when your investments gain or lose value based on market fluctuations.
If an asset loses value, other asset classes may become more valuable or hold steady. For example, if your stock investments go down in value, your gold assets may increase in value. Investments in different asset classes help you maintain your wealth if any are performing poorly.
Gold is a traditional choice for diversifying your investment portfolio because it consistently performs well during economic downturns like a recession. If you invest in assets that lose value during these periods, gold assets can help your portfolio retain its value, helping preserve your wealth.
Gold is a Hedge Against Inflation
When inflation rises, the purchasing power of a currency decreases, causing the prices of most commodities to increase. Inflation hedging is investing in assets that maintain or increase in value when the fiat currency, such as the U.S. dollar, you used to invest is worth less. An asset is considered a good hedge against inflation when it protects your wealth against the effects of inflation.
Most investors and economists consider gold the traditional safe-haven hedge against inflation. This is because, historically, the value of gold rises during inflationary periods.
For example, the U.S. saw 6.4% inflation between January 2022 and 2023, while gold has consistently risen during this same period. Investing in gold allows you to preserve your wealth, compensating for the erosion of a fiat currency’s value.
Gold is a Highly Liquid Asset
The more liquid an asset is, the easier and faster it is to convert into cash. Gold is a liquid investment for five reasons:
- Gold is universally recognized and accepted worldwide and can be easily converted into U.S. dollars or another currency.
- Gold assets are easy to buy and sell, especially when dealing with a trusted gold dealer like AU Precious Metals.
- When selling gold assets, you can easily check the spot price online to ensure you’re getting the fair market price.
- Physical gold is tangible, meaning there is no counterparty risk involved when investing in it. Its value doesn’t depend on another person or institution.
- Gold is naturally scarce, keeping its value relatively stable.
What Are the Most Common Types of Physical Gold Investments?
Purchasing physical assets is the safest and easiest way to invest in gold, especially for beginner investors. Physical gold assets come in three primary categories: bars, coins, and jewelry.
Buying physical gold from a reputable dealer such as AU Precious Metals lets you experienced personalized customer service. Our friendly and knowledgeable staff can help you understand different types of gold investment options to ensure you purchase gold assets that align with your wealth-building goals and budgetary needs.
Gold Bars
A gold bar, or bullion bar, is a brick-shaped bar made of investment-grade gold. Gold bars are standardized to ensure they contain an exact quantity of gold. Depending on the manufacturer, gold bars may be sized using the metric system or imperial units.
Standard metric denominations for gold bars range from 1 to 1,000 grams (1 kilo). Gold bars made to imperial standards use troy ounces (oz t.) instead, with the most common sizes ranging from 1 to 400 troy ounces.
Gold Coins
Gold coins are another typical gold investment and a popular alternative to gold bars. Unlike gold bars, most gold coins weigh 1 to 2 troy ounces, making them more affordable than jewelry or bars and easier to store and transport.
Gold coins are minted by government organizations, making them a form of legal tender currency. Commonly traded gold coins include the American Gold Eagle, Canadian Maple Leaf, South African Krugerrand, and Chinese Gold Panda.
Although gold coins have a face value, their actual market value is slightly above the spot price for their weight in gold. Besides the spot price of the gold they contain, gold coins can be collectible and are often sought after by enthusiasts and numismatics experts. Investors selling a gold coin to the right buyer may earn more than a gold bar of similar weight and purity.
Gold Jewelry
Although gold jewelry is mainly intended to be worn and enjoyed as accessories, it is also an excellent way to invest in gold. Gold jewelry includes rings, bracelets, earrings, necklaces, tiaras, and other wearables. Like coins, two factors influence the value of a gold jewel: the gold content and their desirability as collectible items.
Authentic gold jewelry from a reputable jeweler or goldsmith typically contains high-purity gold (20-karat or higher), making them desirable as jewelry pieces and investment assets.
How Can I Ensure the Purity and Authenticity of a Gold Asset?
Like silver and platinum, the value of a gold asset is determined by measuring its weight and assaying the gold purity. The higher the purity, the higher the percentage of gold in the asset’s total weight.
High-purity gold assets are preferable for investment purposes because their value is more closely aligned with the spot price of gold than lower-purity equivalents.
Unless the gold asset is alloyed with another precious metal, only the gold content is used to calculate its value.
The best method to determine your gold assets’ purity, authenticity, and value is to contact a trusted gold dealer such as AU Precious Metals. We use advanced, non-destructive technologies like X-ray fluorescence (XRF) spectrometry to test your gold items and accurately determine their exact gold content.
What Are the Most Common Purity Levels in Gold Assets?
Gold purity level is expressed using one of two units: karats and decimal notation. A karat (K) corresponds to approximately 1/24 of the asset’s weight in pure gold. Every 1 point in decimal notation equals one-thousandth purity (0.1%).
Commonly seen purity levels in gold assets include:
- 999.9: Four-nines fine gold, equal to 99.99% pure. 999.9 is the purest gold investors can readily access. Only specific mints, such as the Royal Canadian Mint, produce gold assets at this purity level. A typical example of a 999.9 gold coin is the Canadian Maple Leaf.
- 24-karat (24K) or 999: Three-nines fine gold. This purity level corresponds to 999 in decimal notation, or 99.9% pure. It is the most common purity level in gold bars and coins. 24k gold is rarely used in jewelry because it is too soft and prone to scratching and denting. Many gold coins employ 24K gold, such as the Australian Kangaroo, the British Gold Britannia, or the American Gold Buffalo.
- 995: Gold assets made of 995 gold contain 99.5% pure gold. This purity level is primarily seen in gold bars and coins produced in Europe, India, and the Middle East. Specific gold purity charts consider 995 equivalent to 24-karat despite being slightly less pure than genuine 24-karat gold.
- 23-karat (23K) or 958: This purity level is 23 parts pure gold and 1 part alloy metal, or about 95.8% pure gold.
- 22-karat (22K) or 916: This purity level corresponds to 22 parts pure gold and 2 parts alloy metals, or approximately 91.67% pure gold. It is sufficiently durable for use in gold jewelry yet valuable enough for investment-grade gold coins and bars. Famous gold coins like the American Gold Eagle or the South African Krugerrand use 22-karat gold.
- 21-karat (21K) or 875: A gold asset made of 21-karat gold is 21 parts pure gold and 3 parts other metals, or about 87.5% pure. It is a durable and versatile gold alloy primarily used in jewelry.
- 20-karat (20K) or 833: Gold objects made of 20-karat gold are about 83.3% pure gold and 16.7% alloy metals. 20K gold assets are relatively rare and mainly comprise jewelry.
- 18-karat (18K) or 750: A gold asset made of 18-karat gold is about 3 parts (75%) pure gold and 1 part (25%) alloy metals. 18K gold is one of the most common purity levels for jewelry, usually alloyed with copper, nickel, and silver.
How Much Gold Should I Invest In?
Investing in gold for wealth preservation is the most effective when you use it to diversify your portfolio. Gold is categorized as an alternative asset because it doesn’t fall into one of the three primary asset categories: bonds, stocks, and cash. Other alternative assets include other precious metals, such as silver or platinum.
Most economists and expert investors recommend investing at most 5% to 10% of your portfolio in gold to maximize its effectiveness as a hedge against inflation.
What Are the Tax Implications of Investing in Gold?
Investors purchasing gold in the United States may need to consider two types of taxes. These include a sales tax when purchasing gold assets and a capital gains tax when selling.
Sales Taxes
While there is no federal sales tax, your state’s sales tax rates may apply when purchasing gold from a reputable dealer. However, some states exempt gold or precious metals from the sales tax, allowing you to avoid additional charges when investing in gold assets.
For example, in Michigan, state legislation says that investment coins and bullion bars are exempt from the state’s 6% sales tax if they meet all three conditions:
- The investment coins are legal tender (for example, American Gold Eagles)
- The coins or bars are made of gold, silver, or platinum
- The purity level is 900 or higher.
Capital Gains Taxes
If you decide to sell your gold assets, you may owe federal capital gains taxes if you realize a gain on the sale. Gold coins, bars, and jewelry fall under the federal definition of a collectible (IRC Section 408(m)(2)), for which the capital gains tax rate is 28%.
An exception applies to coins listed in 31 USC 5112, which includes specific types of gold coins issued by the Secretary of the Treasury.
- Example: If you invested $20,000 into gold bars on January 7, 2022, then sold them for $25,000 on May 31, 2023, you’d realize a long-term capital gain of $5,000. According to the IRS, these gold bars fall into the federal definition of a collectible, meaning you owe 28% federal taxes on your realized gains, or $1,400.
Are There Laws, Regulations, or Reporting Requirements for Investing in Gold?
Federal law does not require investors to report their purchases of precious metal assets such as gold. You do not have to report your gold asset purchases to the IRS, regardless of the amount invested.
The only laws that apply to your gold investments are when you sell them. Besides capital gains taxes on profits realized, if you sell gold assets worth $10,000 or more to a reputable dealer, they are legally required to report the transaction with an IRS Form 8300. This reporting requirement allows the federal government to track large cash purchases and combat money laundering.
How Can I Store My Physical Gold Investments Safely?
One of the main benefits of physical gold investments is their tangibility. Buying physical gold lets you hold the assets and store them where you can access them as needed.
With the proper safety measures, the best way to store your gold assets is to use a secure location at home, such as a safe, a vault, or a hidden compartment. If you decide to store your gold assets at home, ensure your storage solution protects your gold from damage and unauthorized access, and that you have insurance.
Protect Your Gold from Damage and Degradation
The safe, vault, or storage solution you choose to store your gold must be resistant to elements that could damage or degrade your gold assets. While gold cannot rust or corrode, it can be damaged or partially melted in a house fire. High-purity gold, such as 24K or 999 gold, is softer and more vulnerable to scratching or denting than lower-purity equivalents.
Chemicals like chlorine, bleach, or bromine can also attack, discolor, and dissolve gold.
The alloy metals in lower-purity gold assets can react with water and either rust or corrode. The lower the gold purity, the more vulnerable to water damage. Store your gold in a safe or container that is waterproof, fireproof, and resistant to chemical exposure to protect your assets against the most common forms of damage.
Protect Your Gold from Unauthorized Access
To protect your gold from unauthorized access, implement secure at-home storage. Invest in a reliable home safe that offers strong security features like sturdy construction and combination locks.
Consider a hidden safe within your residence for added discretion. Keep the location of your safe confidential and avoid sharing it with others.
You may also want to enhance security with a home security system. Installing a professional security system can provide an extra layer of protection by deterring intruders and alerting you to any unauthorized access attempts.
With features like motion sensors, door/window sensors, and 24/7 monitoring, a home security system can help safeguard your gold, giving you peace of mind regarding your investments.
Insure Your Gold Assets
The average homeowners’ insurance policy does not adequately compensate you for the loss, theft, or destruction of precious metals such as gold. The best solution to insure your gold assets is to cover them using floater insurance.
A floater policy is a specialized type of insurance that specifically covers high-value items, including gold and other precious metals. It offers comprehensive protection and can be tailored to the specific value of your gold holdings.
Obtaining a floater policy, ensures your physical gold investments are adequately insured against unforeseen events, providing financial protection if a loss occurs.
Where Can I Buy Gold to Start Investing?
Begin your gold investment journey by purchasing your first gold assets from a trustworthy gold dealer. The ideal gold dealer should be experienced, local to your area, and offer fair prices for all sales and purchases.
- Choose a local gold dealer. Visiting a local gold dealer with a physical location in your area lets you speak to the staff and benefit from their knowledge, advice, and expertise. AU Precious Metals has one location in the greater Detroit: Rochester, MI.
- Select a location with a mail in program. While visiting a gold dealer in person offers you the most benefits, a mail-in service is a convenient way to buy and sell your precious metals from the comfort of your home. AU Precious Metals accepts all types of gold assets and other precious metals through our exclusive mail in program.
- Verify your gold dealer’s reputation. The longer a gold dealer has been in business, the more customers they’ve served. Look online for customer reviews and testimonials, and visit them in person to ask questions about their processes and experience. Reputable dealers like AU Precious Metals will answer your questions and provide valuable investment advice.
- Ensure your dealer’s prices are fair. A reputable gold dealer will sell you gold bars, coins, and jewelry at fair market value with minimal extra charges. AU Precious Metals always follows the spot value of gold to ensure you get a fair price on all purchases.
Start Your Gold Investment with AU Precious Metals
Buying gold is one of the best ways to store wealth and preserve purchasing power during recessions and economic turmoil. If you are ready to invest in gold in the greater Detroit area, visit AU Precious Metals at one of our convenient location in Rochester today.
Contact us today to discuss your investment goals, and let us help you make the best purchasing decision.