Gold Investment Risks: What You Should Know Before Investing

For centuries, gold has been considered the ultimate form of investment. Regardless of the market situation, be it inflation, global uncertainty, or other factors, gold remains the preferred option for investors due to its inherent safety attributes. But this doesn’t mean that it has no set of limitations. Although it has a timeless appeal, there are various gold investment risks that you should be aware of. It is necessary to understand the risks of investing in gold as these can significantly impact your returns, leaving you disappointed. This applies especially to new investors who believe gold is all about glitter.

But this doesn’t mean that investing in gold is a bad idea. If you are of the opinion, then that’s not true. Investing in gold seems meaningful only when your portfolio is diversified. If you see beyond its shine, it comes with a series of hidden expenses, volatility issues, and other risks that should not be overlooked. In this, we will discuss so you can make smart decisions with full confidence.

1.   Guaranteed safety is a lie

There is no denying that “gold is the best & safest investment option”, but it offers returns when invested for a long period. Talking about medium and short periods, its prices can change drastically.

The financial crisis in 2008 led to an increase in the price of gold, followed by a decline in the upcoming years. The investors who expected a good return at the time of price hike were disappointed due to an unexpected loss. This is why the time period during which you are investing in gold matters a lot, as poor timing can lead to unexpected losses.

2.   Price volatility is important

Factors like inflation patterns, global demand, geopolitical events, central bank policies, and sometimes even investor’s attitude impact the price of gold. Gold doesn’t generate cash flow or dividends like stocks do, which rise in tandem with business expansion. Almost all of its value is determined by supply and demand.

Gold is hence especially susceptible to speculation. Gold prices, for instance, may spike higher when investors are panicking, but they may also drop as quickly when confidence builds up again.

3.   Physical gold & its risks

Owning physical gold in the form of jewellery, coins, or bars may sound like the safest and ultimate investment, but it comes with a huge responsibility and risks.

1. Storage problems: Keeping gold at home makes it vulnerable to theft and robbery. While keeping it in banks, add other ongoing costs.
2. Liquidity issues: Sometimes, selling gold involves more than just pressing a button. There may be delays, dealer fees, or price differences.
3. Purity concerns: The risk of purchasing tainted or fake gold is always present unless you’re purchasing from a recognized, reliable source.

4.   Rise of Gold investment scams

For years, gold investment has been popular, and due to its popularity, there has been an increase in online fraud. The idea that gold is trustworthy and valuable is something that scammers take advantage of. Below is the list of gold investment scams:

1. Fraud websites: These websites show themselves as genuine and trusted gold dealers. They attract people using favorable prices, and once the money is transferred to their account, they disappear.
2. Ponzi schemes: With the promise of “guaranteed” profits from gold trading, these scams take funds from new investors to reimburse previous ones until the whole thing falls apart.
3. Fake gold: Purchasers who fail to confirm authenticity are duped by counterfeit coins or bars masquerading as the real thing.

5. The Hidden Expenses of Investing in Gold

The process of investing in gold is not confined only to buying and holding. It involves a series of hidden costs, such as:

1. Taxes: You may be subject to GST or capital gains tax, depending on where you reside.
2. Storage fees: When you keep gold in safe vaults, you are bound to pay storage fees.
3. Insurance cost: To have 100% peace of mind, you may have to invest some amount in paying insurance premiums.

Gold may not be as profitable as you had anticipated due to these expenses, which can reduce your overall profits.

6.  Buying gold online is convenient but risky

In this digital world, buying gold has become so easy that you can buy precious metals like gold online with just a few clicks. Online platforms do offer flexibility and convenience to buy gold easily, but aren’t risk-free.

Questions you should ask before buying gold from online platforms:

1. Is the platform trustworthy & reputable?
2. Is the gold merely a “paper promise,” or do you truly possess it?
3. Will the gold bought digitally be converted to physical gold easily, or are there any other redemption options?

Buying gold online is, no doubt, a good option, but careful research is necessary.

7. Hedge against inflation? Indeed, but not always

Ideally, gold is seen as a cushion against inflation. If we look at the previous times, it has preserved purchasing power in the event of price increases. While talking about shorter periods of time, it does not necessarily keep pace with inflation.

History shows that even during times of inflation, gold prices remained stagnant, leading to investors being disappointed and frustrated. This indicates that using gold alone as a hedge against inflation may not work.

8. How to reduce your gold investment scams?

This doesn’t mean that investing in gold is not a good option. No! Not at all! It should be invested in your diversified portfolio to minimize risks. Below are the key tips to follow:

• Avoid overallocating: It is advised that only 5-10% should be allocated to gold out of your total portfolio.
• Purchase from trusted dealers: Always cross-check a dealer’s authentication before buying, from certifications to reviews.
• Balance gold with other assets: Put gold with investments that will bring in money.
• Stay updated and informed: Keep an eye on geopolitical movements, central bank actions, and international markets.

Gold has always been everyone’s favorite when it comes to investing. It has emotional significance and is timeless. However, it is equally crucial to comprehend its reverse. Every type of investment has its own set of limitations, and the same holds true for gold as well. By understanding potential hazards such as price fluctuations, storage costs, physical gold risks, and the increase of gold investment scams, investors can adopt a more balanced approach to gold.

This is why awareness is pivotal. Spend time researching, diversifying, and ensuring that your investment choices align with your long-term objectives, rather than following trends or acting on impulse. The most important thing is to select reliable platforms and accredited suppliers that guarantee authenticity, security, and transparency, regardless of whether you prefer physical gold or investing in gold online. Select a digital platform with trustworthy options and full transparency that provides a safer, smarter method to investigate the gold market without losing sight of the associated hazards.

Kapil Kumar

Hello, I’m Kapil Kumar, a seasoned SEO expert and blogger at WinnersList.in. My mission is to spotlight exceptional individuals and organizations across various domains. Through curated lists, profiles, and inspiring stories, I aim to celebrate outstanding achievements and inspire the next generation of champions. Join me in this journey.