Gold Investing Mistakes To Avoid

Investing always carries inherent risk so to a certain extent whether you should consider investing in gold or not depends on how risk averse you are.

Some would argue that it is safer to stick with more conventional types of investing such as stocks and shares whereas others might take the view that in today’s turbulent and uncertain global economic climate it’s risky NOT to invest in gold!

Why Should I Invest In Gold?

You can minimize some of the risks involved in gold investing by avoiding some of the common mistakes that inexperienced investors make. I am providing six examples here:

1. Don’t Invest In Gold Just For The Short Term

Take a long term view. There is much more likelihood of making a decent return if you do this. Even though gold has always gone up in value over time it has a history of short term price fluctuation. If you buy gold today and there is a chance may need to liquidate your investment in the short term, you may well find yourself selling it for less than you paid.

An important factor to take into account in this respect is the spread. The price when you buy will include dealers’ costs so you will immediately be ‘out of the money’ compared with what you could then sell it for. If gold happens to be going through a period of consolidation at the time you make your purchase, you may have to wait quite a while before you even get to a breakeven position.

So for that reason, I recommend that gold investing on a short term basis should be avoided. If you are prepared to make a medium to long term investment however, history demonstrates that the odds are stacked very much more in your favour. It stands to reason therefore that you should never invest in gold with funds that you cannot afford to risk or which you may need to call upon any time soon.

2. Don’t Rely On The Gold EFT ‘GLD’ – Physical Gold Offers More Protection

Invest in physical gold rather than a gold EFT. When you invest in physical gold you have something of value in your hand as opposed to a piece of paper full of conditions and clauses.

The GLD ETF carries with it quite a lot of counterparty risk because of the way the prospectus is written. The problem is that most people don’t read the small print. But if they did, they would realise that the Trust has all the power and in the event of things going wrong there are lots of clauses written completely in their favour.

These could entitle them to legally wriggle out of what you might assume to be their obligations, and leave you exposed and potentially with nothing. I have written more about this in depth here: Risks Associated with the GLD ETF

3. Forget About Gold Jewellery – Gold Coins Give a Better Return

I strongly recommend that you don’t rely on jewellery as your means of investing in physical gold. This will not give you the best return on investment because the value of gold jewellery is determined by factors other than the spot price of gold. Not everyone might fall in love with a particular piece just because you did. Gold coins will give you a better ROI.

4. Don’t Risk Numismatics – Standard Gold Coins Are Safer

Don’t buy rare numismatic gold coins without doing thorough research. There are a lot of bandits around looking to sell fakes and forgeries to inexperienced and uninformed investors. For that reason it is far safer to buy standard gold coins such as the American Eagle and the Canadian Maple Leaf.

>> More information about investing in gold coins

5. Don’t Be Tempted by ‘Too Good To Be True’ Offers

Investing in gold becomes risky when you don’t buy from a reliable, trustworthy and recommended source. Nowadays there are people who will cold call you with all sorts of tempting offers. Some might be legitimate but for sure some won’t be and you won’t know which are which until it’s too late. If it sounds too good to be true it probably is! This is particularly important if you choose to invest in numismatic gold coins because there are a lot of fakes and forgeries in circulation.

6. Don’t Fall For Scams – Do Your Due Diligence

As more and more individuals have discovered the benefits of investing in gold, more and more scammers have entered the fray trying to trick them out of their hard earned money. Unfortunately a lot of these tricksters are very plausible. This can give the industry as a whole a bad reputation and it’s for that reason that some of the more reputable and honorable Companies do their best to expose the fraudsters.

Conclusion

These are some of the most obvious examples of common gold investing mistakes. If you avoid these and do your research and due diligence thoroughly you should be much better prepared to make some sound and profitable gold investments.

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About the Author: Doug Young

Doug is a highly experienced professional and widely trusted authority in financial investing, commodity trading, and precious metals. With over 20 years of expertise, he helps others make informed decisions by sharing a combination of personal experience, extensive knowledge and meticulously researched information on gold IRAs, precious metals investing and retirement planning. He regularly writes and publishes news items on these topics. He has considerable experience of evaluating Gold IRA and Precious Metals Companies, gained over a period spanning more than a decade.

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