What to Consider When Investing in Gold

Gold has been a cornerstone of wealth for thousands of years, evolving from ancient coins to complex financial instruments that are traded globally today. Even though modern currencies are no longer directly tied to gold, the precious metal remains a crucial portfolio diversifier for central banks and individual investors alike. As you consider adding gold to your investment portfolio, it's important to understand the key factors that can influence your decision.

1. Gold Stocks vs. Physical Gold

Investing in gold can take many forms, with one of the most common being through gold mining stocks. These stocks, such as those from major producers like Newmont Corp. (NEM), allow you to invest in companies that extract and produce gold. However, it's essential to remember that these stocks are not the same as owning physical gold. While gold mining stocks are influenced by the price of gold, they are also affected by other factors, such as corporate management and geopolitical risks in the countries where they operate.

Alternatively, exchange-traded funds (ETFs) like SPDR Gold Shares (GLD) offer a way to invest in gold that is backed by actual bullion stored in vaults. These funds provide a closer reflection of the spot price of gold, making them a hybrid between investing in gold stocks and physical gold.

2. The Different Forms of Physical Gold

For those interested in owning physical gold, it's important to know that gold comes in various forms beyond just bars. Physical gold, often referred to as bullion, includes bars, coins, and rounds. Coins, such as the American Gold Eagle, may have a face value as legal tender, but their actual worth is tied to the gold content, which is often significantly higher than the face value. Coins can also carry a collectible premium based on their rarity and condition.

Gold bars are another option and are generally less expensive per ounce than coins because they lack collectible value. Bars are available in various sizes, with larger bars typically offering lower markups.

3. Tax Implications of Owning Gold

Physical gold is classified as a collectible by the IRS, which means that profits from selling gold held for less than a year are taxed as regular income. If held for more than a year, the tax rate can be as high as 28%, which is higher than the long-term capital gains tax rate for most other investments.

Gold-backed ETFs that are structured as trusts are also considered collectibles for tax purposes, meaning they are subject to the same tax rules as physical gold. If you’re asking how much gold I should own, read our blog on this topic.

4. The U.S. Dollar's Impact on Gold

Gold often has an inverse relationship with the U.S. dollar. When the dollar strengthens, gold prices may decline, as gold becomes more expensive for holders of other currencies. Conversely, a weakening dollar can drive up gold prices. Gold is also valued for its role as an inflation hedge, as the metal's supply is limited compared to fiat currencies, which can be created in unlimited quantities by central banks.

Invest in Gold with SmartT

Investing in gold can offer diversification, protection against inflation, and a hedge against economic uncertainty. However, it's important to consider the form of gold you're investing in, the associated costs, and the potential risks involved. Whether you're looking to buy gold stocks, ETFs, or physical bullion, SmartT provides a user-friendly platform to help you incorporate gold into your investment strategy. Sign up with SmartT today and start diversifying your portfolio with this timeless asset.