Investing - How to Invest in Gold - Now is a Good Time to Buy Gold

The Beginner's Guide to Investing in Gold

Due to the coronavirus pandemic, gold has surged and there are endless signs that it could even keep going; and here is what you need to know about investing now rather than later!

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There has never been a time such as now when we all have to open our eyes to global markets ticking further and further into uncharted territory. What is the best asset that has lately been catching every investor's eye? 

You guessed right, Gold.

Since 2011, a major psychological milestone has never been crossed; until earlier this month when gold prices inched higher to trade over $1800 an ounce. With all uncertainties surrounding this coronavirus pandemic, one can only be left with one question on their minds: Could gold prices hit the record highs? This is one of the many reasons why many people are wondering whether now is the best time to invest in gold, or not. CNBC Make It spoke to the experts to find out their advice is on the matter.

Why is gold rallying?

Gold is up about 19% so far this year, as lower interest rates and central bank stimulus have supercharged existing upward momentum for the precious metal. Gold is typically seen as a “safe haven” asset in times of uncertainty because it is less volatile than other investments, like stocks. What’s more, the metal moves inversely to the U.S. dollar, meaning that when the greenback moves lower — as it has done lately — gold moves higher.

The current coronavirus downturn is slightly different, however. Even as Covid-19 cases have risen and economic data worsened, equity markets have continued to rally. Cameron Alexander, director of metals demand at market data company Refinitiv, said that has caused gold to enter new trading territory. “Gold is being pulled in two directions: One is the uncertainty,” said Alexander, referring to the still-escalating pandemic. “But equities are still doing really well,” fueled by central bank stimulus, he noted. 

Prices set to rise

As the pandemic rattled markets in late-March, gold too suffered a sell-off as investors rushed to free up cash. Since then, however, buyers have returned to gold, seeing it as a safe store for their money. So far this year, inflows into physical gold exchange-traded funds (ETFs) globally is around $12 billion, according to BlackRock iShares data.

That has experts predicting higher swings ahead. “I wouldn’t be surprised to see gold test the all-time highs set in 2011 at around $1,900 per ounce,” Thomas Taw, head of APAC iShares investment strategy at BlackRock, told CNBC Make It.

Last month, Bank of America backed a similar “all-time high” prediction. In April, the bank said the precious metal could hit $3,000 per ounce. BofA Securities’ commodities strategist Michael Widmer said that surge would be fueled by continued global uncertainty — at least over the next few years.

“At the moment there’s an awful lot of concerns (keeping gold up),” Widmer told CNBC Make It. “We need a little bit more visibility before gold prices start peaking.”

Is now the best time to buy gold?

That bullish outlook suggests high potential returns ahead. Yet with prices already at multi-year highs, the entry costs are significant, too. That raises the question of when to buy. However, Albert Cheng, CEO of Singapore Bullion Market Association, said the question should be rephrased from “when” to “how much?”

There is no good time to buy gold ... every investor should have some.
Albert Cheng

“There is no good time to buy gold,” said Cheng, who said he sees the asset hitting $2,000 per ounce by the end of the year. “Every investor should have some gold in their portfolio.” Typically, financial advisors recommend a gold allocation of 1% to 5% of an individuals’ overall portfolio. Cheng said that could shift higher from 5% to 15%.  “Gold remains a very small proportion of most people’s portfolio. But even an increase of 1 to 2% can have a massive bearing,” said Refinitiv’s Alexander.

How to invest?

While gold is one of the world’s earliest forms of currency, there are now multiple ways to hold the precious metal for investment purposes.  “Investors should first decide why they want to own gold,” said BlackRock’s Taw. “Is it for return potential or portfolio diversification?” Then you should familiarize yourself with the various options and the risks involved, he said.

Here are few ways you can get started. 

Buy physical — Physical gold bars and coins is the most traditional way to own gold. “It is very liquid and easy to buy in one place and sell in another,” said Alexander. Physical gold assets can now be purchased at banks, among other places, but buyers should be aware of additional costs such as insurance and storage.

Buy ETFs/ETCs — Exchange-traded funds and exchange-traded commodities are vehicles that allow you to track the underlying price of gold without having to physically hold the asset. “If you just want to play the gold price, the ETF options have been popular,” said BofA’s Widmer.

Buy gold-related stocks — Companies directly linked to gold, such as gold miners or gold producers, are another way to hold gold, as they tend to mirror its performance. However, they are also susceptible to stock market swings. “In a bull rally they do very well, but they are susceptible to pull backs,” said Alexander.

Buy alternatives — Alternative vehicles such as gold-backed cryptocurrencies or foreign exchange trades offer another way to buy into gold, though these are typically for more experienced investors.

Original article posted on CNBC.com