Gold has been used for many different purposes over the past decades and centuries. It has been used as money, made into jewelry, and even to preserve generational wealth. But can you actually make a profit by investing in gold?
You can only profit from an investment in gold by selling your gold to a buyer who is willing to pay you a higher price for the gold you have bought at a lower price. This is why buying gold to make a profit cannot be considered an investment, but rather a speculation.
In this article, I will dive a bit deeper into whether it is profitable, whether it is profitable to invest in gold if you can make a profit at all by buying gold, what the best way would be to make money from gold and whether investing in gold is actually a good idea in 2022.
Is It profitable to invest in gold?
As mentioned before, buying gold, holding it, and selling it at a higher price is not actually an investment. If an investor treats gold this way, it can only be considered a speculative asset.
However, that does not mean that it is impossible to make a profit from gold. In general, gold has performed historically the best in times of instability and uncertainty. Thus, large quantities of gold reserves might become extremely valuable in times of economic decline and financial instability.
One way to profit from investing in gold would be then to bet on the decline of financial markets and the general instability of institutions and governments in order to hold on to an asset that will increase its relative value when these circumstances occur.
It is important to point out that in this case, a gold investor is not actually investing, but instead placing a bet.
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What is the best way to make money from gold?
While there is a way to profit from gold as described above by simply buying low and selling at a higher price point, there may be even more sound ways of profiting from gold.
As an investor, one of the ways to profit from gold is to not buy the asset itself but to invest in a branch of industry that is related to gold. Such a branch might be the manufacturing of gold jewelry or even the mining of gold itself. There are several ETFs on the market that allows you to get broad exposure to gold jewelry makers or gold miners worldwide.
And there are plenty of reasons why this type of investment is the best way to profit from gold. First of all, notice that owning shares in a gold-related company or industry actually is an income-producing asset and will be productive whether the price of gold goes up or not.
Of course, a gold miner will be more profitable if the price of gold rises, but will also keep making profits and releasing dividends to investors. Even if the price of gold does not change. Another benefit of investing in shares rather than in physical gold is liquidity.
Since ETFs are publicly traded, it is easy to sell and buy shares of these companies. As a result, you also have fewer storage and security concerns as opposed to owning physical gold.
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What is the return on gold investment?
As mentioned before, gold or owning physical gold is not actually an investment. But if you were to hold this asset anyway, it would have gone up around 10.61% from 1971 up to today. This means that the price of gold relative to the US dollar would have grown around 10% per year on average.
If we compare this to the average return of the stock market and take the S&P 500 as an index, we see that there is barely a difference in relative returns. The S&P 500 also would have returned around 10.5% on average over the same time period.
However, it is important to point out that the S&P 500 also would have paid out additional dividends along the way, which are not included in the aforementioned returns.
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Is investing in gold a good idea in 2022?
Whether you own physical gold or not, an investment in precious metals and other material goods is best done through the means of owning a part of that industry.
As financial markets become more unstable and more governments default on their debt, gold mining companies and other natural resources will become more and more valuable. Thus, there has never been a better time to be exposed to these traditionally stable industries.
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