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The Advantages and Disadvantages of Investing in Gold

The advantages and disadvantages of investing in gold

Despite its exotic sound, gold bullion is in many ways an investment like any other. It is tradable for goods and services and can be used as a vehicle to grow profits as measured against fiat currencies.

Non-Financial Uses of Gold

However gold has a number of uses that mean it is desirable as an asset class in its own right, it means that unlike an investment in a business, that will decline if the right people are not employed or the products and services offered are not popular, gold has proved to be largely immune to these fads over millennia.

This means that gold can be used as a store of value. Whilst gold can rise and decline over the years, it always retains a value.  It cannot go into bankruptcy as an asset class like a company, and cannot be debased by government action in the manner of a fiat currency.

Stability of Gold Prices

Additional stability in gold prices can be assured by the face value of gold coins. Many coins, such as the British Sovereign and the Britannia have a price guaranteed by their legal tender status within the UK.  This is very much a backstop solution and accepting the face value of the coin at present prices would result in a significant loss.

The Disadvantages of Gold

Gold is an asset, not a currency. As such whilst market rates will fix its value against the fiat currency, this can vary by the hour, in a similar way to a foreign currency. As such, it is rare to see a volume of gold quoted as a price (at least in most western countries)

To realise the value of gold you need to find a way of accessing the rate of exchange. This is typically via a bullion dealer such as the Gold Bullion Company. You can cash in your bullion at any time.

Gold bullion can decrease in value, however throughout history, it is mostly subject to a slow appreciation as its non-investment uses lead to price stability.

Gold - An Inherent Lack of Portability

Gold also suffers most of the time by being a physical asset. It is not as portable as banking assets for example.  However, in a time of crisis, this lack of portability and sense of permanence is likely to be of greater comfort for the investor.