Following the financial crisis of 2008 more and more people have come to realize the importance of investing in gold. When there’s turmoil in the stock market or the dollar is unstable, gold provides some stability in your investment portfolio. While buying and training gold is ideal, there are several things that you need to consider.
When is the Right Time to Invest in Gold?
The best time to invest in gold is now. Timing the market is difficult, and if you’re going to hold onto this metal for years, the earlier you buy the better. Historically speaking gold prices go up so it’s best to invest as early as you can.
If you’re a trader, use technical analysis to find a good entry, i.e. buy on the dips. If you’re investing in gold, you can also use technical analysis to help you decide when to buy. However keep in mind that investors and traders have different objectives and goals.
Bottom line: don’t wait for the perfect time, just do it.
Do Not Let Your Emotions Control You
This is something that all traders and investors need to keep in mind. Just like the stock market, the price of gold goes up and down. Sometimes the fluctuations are mild, but in other cases it is significant. Swings can vary wildly during the day especially if there are news that affect commodities.
It is during these wild swings that investors and traders lose money. When the price of commodities goes up, people want to get in on the action and end up buying gold at a premium. When the price of the metal goes down they panic and start selling. That’s how you lose money in gold, but it can be avoided.
If you’re going to invest in gold, you’ve got to keep your emotions in check. Trade and invest based on the strategy you chose and stick to it.
Remember Your Investment Objectives
The key to keeping your emotions in check is to remember your objectives. People buy gold for different reasons. So if the price of gold goes down:
- If you’re a trader, use technical charts and analysis to guide your entry and exit points.
- If you’re a long term investor, remember that price fluctuations are normal. If your investment horizon is 5 years, 10 years, or longer, the daily price swings of gold should not bother you.
- If you’re cost averaging gold, keep doing it. Just buy more gold on the dips or buy more every month regardless of the price.
One of the most common mistakes new investors make is they let their emotions get the better of them. This is a no-no. Anytime you get emotional about trading, keep track of your investment goal. By doing that you’ll be able to avoid the most common mistakes and not lose a ton of money.
Do Not Go All In
There is a reason why people invest in gold, and that is because it is a safe haven when the money markets experience turbulence. What this means is you should not put all your money in gold.
Before you invest you’ve got to have a portfolio diversification plan. You could for instance, divide your portfolio among gold and equities. Or you could divide your funds between gold, equity, bonds and currencies. How you divide those funds depends on your risk tolerance. If you want to be more conservative, put more money in gold.
Bottom line is you should not go all in one financial instrument, whether it is gold, stocks or bonds. Spread your money around so no matter where the markets you’ll still be able to profit.
Know the Risks
Gold may be a safe metal but that doesn’t mean it’s not without risks. Holding gold means you’re going to be exposed to the fluctuations of the US dollar. Gold also tends to move opposite the equities market so keep that in mind.
Look for a Reputable Dealer
If you’re going to buy and trade gold, make sure you do so from a reputable dealer. Look also at the charges and other miscellaneous fees and learn how much the transactions are going to cost you.
Security Issues
If you’re going to buy physical gold, make sure you’ve got security and insurance arrangements. How you prepare the security is up to you, but it must be sufficient not just for the current amount of gold you’re buying, but also for the amount you want to buy in the future.
Conclusion
Gold is more than just fancy jewelry, as it is a sound financial instrument. As a trader it gives you a lot of options for making money, and as an investor it gives you another way to diversify your portfolio and profit in the long term.