As we have seen, Gold is a way to increase the value of your investment portfolio and your retirement IRA.
It is a hedge against inflation and should be a liquid asset in times of crisis.
Here are the ten most common and dangerous mistakes novice investors make when investing in gold.
1. Lack of Knowledge
It would help if you found out everything you need to know about gold investing. This is also applicable to online gold trading with CFD service providers like eToro since you are still placing your investment based on the price of this commodity.
Start with a glossary of gold investment terms.
Read articles in magazines and on the Internet, so you understand what experts in gold investing teach us. It is your primary responsibility to be well-informed.
2. Misunderstanding Gold's Value
Hand in hand with being poorly educated, mistaken beliefs about gold's value will trip you up.
Learn how gold, especially gold coins, derives value based on qualities like indestructibility, scarcity, rarity, historical conditions, and global recognition of gold's value as a desired commodity.
3. Indecision about the Amount of Your Investment in Gold
Generally, experts agree that the value of your gold coin holdings should equal five percent to 30 percent of your portfolio's combined value of all the mutual funds, stocks, and bonds already in it.
Novices typically order either too little or too much gold. Buying too many defeats your goal of diversifying your investment portfolio. Buying too little doesn't protect your other assets.
4. Buying Gold for Large Short-Term Gains
If you want to make short-term gains, gold is not for you. Investment-grade coins should be held for a long time so they appreciate you, making money for you.
5. Believing Gold Prices are linked to the Stock Market
These two markets are largely independent of each other. Purchasing decisions concerning gold should not be based on any assumed cause-and-effect relationship between market fluctuations causing a corresponding reaction in gold values and vice-versa.
6. Substituting ETFs or Gold Stock for Physical Bullion
If you purchase gold to protect your assets from inflation, unstable market conditions, and/or economic difficulties, you need to purchase physical gold. Gold stocks, exchange-traded funds, ETFs, and other substitutes won't accomplish your goal.
7. Overlooking Rare Certified Gold
Bullion is only worth what its commodities market dictates. It won't appreciate based on its rarity, age, and other factors.
On the other hand, holding Rare Certified Gold coins for many years may make their worth far more than their weight alone could command on the commodities market. That value is driven by demand and supply.
8. Looking for Bargain Prices
Usually, getting a bargain is a good thing. That is not how it works with purchasing gold. Beware of abnormally low prices.
They are usually an indicator of inferior gold quality. Pay attention to this red flag so you don't end up possessing gold you can't resell when cash is needed.
9. Working with More Than One Dealer
Choose one reputable and reliable dealer and build a relationship with that person through your history of transactions. You will learn and trust each other, which paves the way for future discounts on bulk purchases and other goodwill gesture gestures.
10. Failure to Learn what is Considered Fair Premiums over Spot Price
You will always pay a dealer premium (or markup) when buying gold.
You can expect to pay this amount over the spot price of the gold itself. These premiums vary from dealer to dealer. If you know the range of fair premiums over the spot, you will sort the bad deals from the good.
Other Gold Investing Mistakes
Other pitfalls to avoid are not thoroughly vetting your company, not buying according to your investment objectives, not buying the highest gold purity you can afford, purchasing highly speculative futures contracts, and buying ETFs to hedge against disaster.
Only physical gold is readily available in a disaster situation. Also, be aware that scrap metals are not investment-quality gold.
To successfully add gold to your investment portfolio, you must educate yourself first. Let the buyer beware of gold purchases when purchasing a car or a house.
Know your goals and objectives before purchasing gold, and make sure your purchases suit your investment needs.
I recommend you check our complete guide on how to invest in physical gold and silver.