The Pros and Cons of Trading Gold

August 1, 2022
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Investments are a crucial part of your financial life, but that does not necessarily mean it is easy to do or that it is not stressful. Even bonds and stocks experience value fluctuations from time to time. The value of paper securities can often be challenging to understand.

Purchasing precious metals, particularly gold, is an alternative to investing in stocks and bonds. Gold is universally regarded as valuable, so many investors see it as a means of protecting themselves from inflation, falling stock prices, and political instability.

Who produces gold?

The gold industry is more diversified than many other precious metals. China topped global production in 2020, with 11% coming from China. Now, 25 percent of total annual production comes from recycled gold rather than mining. The metal is therefore not dominated by one country.

The pros and cons of investing in gold

Investing in gold has its perks, but it also has its drawbacks. Pros include gold's reputation as a haven investment, low volatility over the long run, and simplicity. A negative is the possibility of high transaction costs, storage costs, and illiquidity.


The diversification that gold adds to a portfolio and the fact that it can be viewed as a hedge against market volatility are some reasons investors buy gold.

Inflation hedge

An investor's fear of inflation stems from the fact that it almost always affects the value of their money in the bank. Dollar purchasing power declines predictably over time.

If you ever come across an old magazine, you might be surprised to see how 'cheap' the prices are in the advertisements or the cost of the magazine itself.

Easy access

A new browser window opens with the trading platform when a visitor clicks the markets tab on the company's website. With its main features being visible without opening an account, you can take a look at them without having to open a trading account.

You can make the most out of it by opening a brokerage account, which comes at no cost - no deposit is required.

People perceive gold as a haven

In addition to being a haven, gold is also an excellent investment. Gold is one of the most stable investments because its value has always been there.

People from around the world accept gold as a form of currency. Although local currencies might depreciate over time, gold is a global alternative.

Gold protects wealth in financial turmoil

When faced with a financial crisis, gold can be used to protect your wealth. Since gold's correlation with stock prices and other financial instruments is relatively low, it can also be a significant investment in times of financial turmoil.

Gold may rise in value even if stock markets crash since people may sell their stocks quickly and want to invest in alternatives instead.

The price of gold has risen often in recessionary and financial crises in the past. It likely will continue to do so in the future as people constantly seek relatively safe investment options during times of trouble.


Before investing, understanding the disadvantages and difficulties of investing in precious metals is essential.

Not a passive income asset

Warren Buffet, among other financial experts, believes that investments should produce income. The gold you own produces nothing when you own it, so it doesn't meet this requirement.

Investing in assets that will make you richer is the best way to become rich. As a boy, Warren Buffet started buying land. The land would continue to increase in value, but he also realized he could earn money from it.

Several years ago, a local farm owner said he would give him an annual rent for his land. The money Warren received from renting out his land could be reinvested by buying more land after a few years.

This could be repeated many times over! Using this system, he could get appreciated assets and generate income while owning them.

Gold does not pay any dividends

Additionally, gold pays no dividends. Dividend stocks often pay you a nice income by the end of the year, but gold does not do this, and it is more of a store of value than a source of income.


Liquidity is another risk associated with gold investments. Finding someone or a company to trade with to purchase or sell the physical metal is necessary. Then you need to arrange the shipping of the gold and work out a deal with them.

The process can be time-consuming and complex compared to trading an electronic asset, such as a stock or bond. Gold that is particularly rare or collectible is even more inconvenient than regular gold.

A high transaction cost and pricing inefficiency are hallmarks of the precious metals markets, as they are with other illiquid asset classes, like real estate and collectibles. While gold ETFs can ameliorate its liquidity issues, they eliminate the benefits of owning physical gold.


Taxes are a part of every investment. However, investing in it can cause significant tax headaches regarding physical gold.

You should be aware of the capital gains tax if you are a gold investor. If you make a profit on an investment, you are taxed on that gain. Therefore, if you sell something for $150 and buy it for $100, you will pay taxes on your $50 profit.

Investing in stocks and bonds involves tracking the cost basis-the price you paid for a stock and the price you get for it when you sell it. That way, you can deal with taxes more efficiently.

Alternatives to physical gold

Gold can be bought in a variety of ways other than physically. A gold ETF, mutual fund, or bond can be used to invest in gold. Investors can access gold indirectly through these investment vehicles.

Investing in alternative gold can also yield dividends and provide investors with yields. Mining stocks can also provide investors with yields. Although you must perform due diligence before committing funds to digital gold, it's safer than owning physical gold.

Final thoughts

Gold has been used as a store of value across the globe for millennia, making it an ancient investment. Investors who want to hold their investments can have a physical representation of them, making it an attractive option.

Ultimately, it is a matter of preference whether to invest in gold. You may be able to reduce inflation or market volatility by including gold in your portfolio. However, physical assets can add complexity to your portfolio since transport and storage are involved.

Consider crypto-currencies and real estate alternatives to gold if you want to diversify or hedge your portfolio. There may be a place for gold in your portfolio along with these other assets.



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