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10 Common Gold Investment Mistakes and How to Avoid Them

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Investing in physical gold bullion is a great way to protect your financial future. Gold broke out in May 2019 after ten years of equity portfolio dominance. For that reason, investors became interested in the yellow metal once again.

It's worth investing in gold in today's turbulent global economic climate, but most people interested in gold have no idea where to begin. There are many gold investment mistakes beginners can make.

Investing in gold does have some inherent risks, but the decision to invest in gold depends on how cautious you are.

You may ask, ''What should I be aware of before investing in gold?'' Here are ten common gold investment mistakes and how to avoid them.


1. Not Doing Enough Research


Gold is not a one-size-fits-all type of investment. Like any other type of investment, it's crucial to do due diligence. Before investing in this precious metal, you need to be sure it's legit. Failure to do enough research about the individual or firm selling to you can lead to a costly mistake. There are plenty of reputable firms that sell gold to investors at reasonable prices. But for you to find the best seller, you must be diligent and shop around for someone you can trust.

If the deal sounds too good to be true, it probably is. This is especially true if you want to invest in gold coins. It's because there are many forgeries and fakes in circulation. Talk to several dealers and ask them plenty of questions. Choose one who values their merchandise and will not overcharge you.


2. No Clear Goal


There are different reasons for investing in gold. Some investors are motivated by profit. Others look at this precious metal as wealth insurance. And others trade in gold depending on the indicators in the market. It's essential to understand why you want to buy these precious metals upfront. Before investing in gold, check your long-term investment strategy. Confirm that the precious metal matches your portfolio.

Find out how gold works because there is the risk of loss just like any other investment. Not knowing the facts magnifies that risk. Most reputable dealers will want to know your goals for investing in precious metals. It's upon you to make your purpose clear to the dealer. Then they will advise you on the best option to meet your requirements. Once you identify your goal, it will be easy to identify the right product. Ensure you work with a dealer who has your best interest.


3. Considering Gold to Be a Short-Term Investment


The best gold investment strategy is to consider a long-term hold. Historically, the value of gold has continued to appreciate in value, making it very likely that it's value will continue to grow. But it also has a history of short-term fluctuation in price. Investors tend to invest in gold as a long-term investment, to hedge against inflation and safeguard their wealth. However, you can still sell your gold whenever you'd like.

It may take some time before you make profits.

Investing in gold for the short term should be avoided. Factor into account that the overall price will also include the pemium. Like most investments, you should not use funds that you're not willing to risk to invest in gold. But if you're prepared for long-term investment, the odds are in your favor. Gold is a safe investment as the price doesn't usually move with the stock market prices. Besides, it is not considered an income-generating asset. Unlike bonds and stocks, return on gold is entirely based on price appreciation.


4. Gold Exchange-Traded Funds or ETFs Is Not the Only Way to Get Exposed to Gold


ETFs are becoming a popular way for investors to get exposure in their portfolios. But depending on how the contracts are written, they have some increased risk:

  • When you read the small print carefully, you'll notice that the Trust has all the power.
  • If something goes wrong, there are many clauses written in their favor. This means that the Trust can bailout out of its obligations.
  • You'll be at an increased risk of potentially being left with nothing.

Direct ownership is the safest and purest form of ownership when you want to buy gold. So, instead of investing in a gold ETF, invest in physical gold. You will have a return on investment in your hand rather than a paper full of clauses and conditions. Remember, when talking about the gold investment, it's not about the gold in your jewelry. This refers to gold in bars, e-gold, or gold bonds. Gold is your ideal bet in turbulent times. Historically, it has survived the secondary market for the longest time. It does not go out of demand and is free from the risk of churn. Even after many years, you can be sure that gold will still have a robust secondary market.


5. Purchasing Gold at the Wrong Time


Gold prices are volatile and buying at the wrong time can cost investors' money. Timing is everything in any investment. The same applies to when purchasing gold:

  • Research to understand the market so that you can have an idea of when the prices are likely to fall or rise.
  • Make your purchase when the market is favourable for you to get a fair price on your investment.
  • Watch out for a financial crisis or market crash. If that's the case, there is no amount of official gold that can rescue your investment portfolio. So, you should not invest with complete faith in the government. That's why investors are encouraged to own physical gold. It offers more security even in a major economic crisis.

Don't panic if you buy gold and the price dips 3% a month later. This trend is expected and will most likely correct itself with time. The mini-increases and dips determine the gold price. But the rises are larger than the dips over the last decade. Recognize investments risks and rewards to spot new opportunities in the market.


6. Fear of Confiscation

Franklin Delano Roosevelt

In 1933, President Franklin Delano Roosevelt made it illegal to own gold. The Executive Order only allowed U.S. citizens to keep rare collectible coins. It was not until 1975 that gold was made legal again for U.S. Citizens to own. Many dealers sell rare coins due to fear of confiscation of gold again. Many people think it's not a good investment as confiscation happened once. So, they believe it can happen again. But this is far from the truth. The main reason why the U.S. government confiscated gold in 1933 was to devalue the dollar.

Back in those days, the U.S. dollar and gold were convertible. You could go to the bank and give the teller a $20 note and get an ounce of gold worth that money. So, the government confiscated gold to help revalue it to a higher price. That's why the government devalued the U.S. dollar. Nowadays, dollars and gold are not convertible. It means there is no more reason for the government to confiscate this precious metal. Don't be afraid of buying gold as a form of investment.


7. Explore Before You Store


Before storing gold from the dealer you bought from make sure you research all your options. There are different ways to invest in gold, like purchasing:

  1. Bars, coins or bullion.
  2. Buy ETFs (exchange-traded funds), which is not highly recommended.

Many investors spend large amounts of money on storage fees after buying physical gold. To avoid spending a lot on storage fees, make sure you do your research to find the right storage program for you. Some companies offer secure storage vaults and a competitive storage rate program. You can keep your investment there until the time you want to sell it. This eliminates worrying about the safety of your investment. So, there are two ways of storing physical gold. You can either buy and keep it yourself or have someone else do it for you. Each alternative has pros and cons. Weigh your options and choose the best choice. There are dangers of storing solid gold on your own. If it gets lost, it's gone for good. 


8. Owning Too Many or Too Few Gold Stocks


To get the best gold investment profits, you need to identify the right balance for your strategy:

  1. Owning too few gold stocks could decrease the value of your portfolio.
  2. Owning too many gold stocks could doom your investment. It may become hard to match indexes like the HIU or XAU. This often results from under-delivering or over-promising of gold newsletters.

Identify a financial adviser with a specialty in gold investments. They will identify investment risks and rewards to create an effective strategy. A professional will help you decide on the right amount of gold stocks to invest in. The first rule of thumb when buying gold is dollar-cost averaging. It means allocating a fixed amount of cash every month towards gold, no matter the price. Over time, this strategy spreads risk out for average investors. It helps to reduce the downside. Gold is protection for currency debasement, insurance against inflation, and against global uncertainty. Many money managers recommend anywhere from 3% to 10% in gold. Others suggest an allocation of up to 20%.


9. Letting Emotions Rule


The biggest mistake to avoid when investing in gold is letting your emotions rule. Buy or sell when your goals or allocations change. Or because you are in a financial crisis and do need money. Don't buy or sell gold because you are overly confident or are scared. That will not be investing but gambling. Don't let fear or greed affect your investment decisions. Letting your emotions rule could easily make you a victim of scams. Scams thrive on greedy people. It becomes easy for them to trick or cheat you out of your money.

When you buy gold for the right reasons, there is nothing like wrong time or wrong price. If you know what you're doing before doing it, you will make the right investment decision. Make sure you understand your investment beforehand. Be careful enough to ensure you're comfortable with the decision you are making. Don't move forward if you have doubts or questions.


10. Avoid Buying Small Bars


Small bars have added production costs which can cause up to a 10% reduction in your investment. The smaller the gold unit, the higher the cost of production. The same goes for new numismatic gold coins and jewelry. Give priority to the wholesale gold market. The most obvious tactic is purchasing gold bars of a substantial size. Watch out for gold trends and changes and take advantage as they occur in real-time. The gold market is a lot more stable compared to other investments. So, you can sell easily and quickly if the need arises.


Choose the Best Seller to Avoid Common Gold Investment Mistakes


You are now aware of the most common gold investment mistakes and how to avoid them. The next step is to choose a reputable dealer to ensure you get the purest gold. Explore quality certifications, awards, recognitions, and licenses from multiple dealers. Choose the right dealer to buy the products from.

Here at Sprott Money, we are trusted experts in precious metals. We offer invaluable insights into gold and silver. Our mission is to provide education and guidance to help you make smart investments. Contact us today for more information about our services.



Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.

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