The 7 biggest mistakes about investing in gold

What gold is really good as an investment?

Gold has many fans. Among its supporters, it is considered the best resort par excellence. But the investment in the precious metal is an emotionally charged topic. Is it really as crisis-proof and stable as claimed? We clarify about the biggest mistakes gold ira companies review.

The Germans love gold. According to a recent study , 6.5 percent of global gold holdings are in German hands. The gold price recently moved clearly back into the focus of investors. Investors and speculators are increasingly buying in the precious metal. They value the investment in the physical commodity as supposedly crisis-proof.

Current political uncertainties such as Brexit or the trade dispute between the US and China fuel the trend. But how meaningful is investing in gold really? What are the disadvantages? We clarify the most important errors.

1. Error: Gold brings income

No, gold does not generate current income. Because: It is not productive. The precious metal is a commodity. He does not generate profits like a company in which shareholders invest.

There is only the price gain or loss. You only earn profits when the gold price rises and then you sell.

Other investments are different: if you have stocks, you receive dividends. With bonds there is interest, with real estate you get rent. In addition, a value gain or a loss of value may be added.

In the absence of dividends, as in the case of gold, dividends, this may adversely affect the performance of your assets.

2. Error: Only gold protects against inflation

It is true that gold has an interaction - a so-called correlation - with inflation. So it offers some protection against inflation.

How much the gold price is related to inflation, however, cannot be answered clearly. So rose from 2004 to the end of 2009, US consumer prices rose by only 14 percent - and by the end of 2010 had fallen to their lowest level since World War II. During this period, the gold price quadrupled.

Gold is not the only form of investment that can protect you against inflation. Real assets such as real estate or inflation-linked bonds are a good alternative.

Good to know: Equities also have a positive correlation with inflation. Because: Stock prices on the market take inflation into account automatically. The prices of physical assets of a company are relatively flexible and adapt to inflation. In any case, equities offer much better inflation protection than traditional forms of investment such as time deposits or overnight money.

3. Mistake: Gold has no currency risk

The opposite is the case. The reason: gold is traded in US dollars. Sell ​​your gold, you will first receive dollars and then exchange them in euros. Depending on the currency, this will affect your profit.

So it is detrimental for you if the dollar is devalued. Then you get fewer euros for the dollar. In this case, you can make losses even though the gold price has risen in dollars. Conversely, you have an advantage, if not only the price of gold has risen, but also the dollar has been revalued.

4. Mistake: The value of gold will always stay

Gold is one of the oldest forms of payment and is widely accepted around the world. That's an important advantage. Because the gold reserves are also limited worldwide, the precious metal will most likely always retain a certain asset.

Is it worth it to invest in gold? If you look at the development over a period of 30 years, the answer is no.

In recent years, global equity funds have beaten the gold price many times over. Although there was a veritable gold boom during the financial crisis, this performance was not enough to catch up with a global stock index like the MSCI World.

There is no guarantee that prices will continue to rise. The gold price can also fall very fast. Most recently this was the case in 2013. Investors must therefore hope that the demand for gold increases in the future. Should it fall, the course also falls?

5. Error: Gold is stable

Unfortunately, it is the other way around. The gold price has been very volatile over the past decades. In 2011, the peak was just under 1,900 euros per troy ounce. In 2013, the value fell below $ 1,200.

Gold fluctuates more than an investment in globally dispersed equities. In the long run it deliversnot even half as much return.

One positive feature of gold is that it has a low correlation with stocks. This means that the gold price often develops in opposition to stock prices. In the financial crisis, equity and gold prices moved in opposite directions. While stock prices have fallen, gold prices have gone up.

So if you want to lower the volatility of your stock portfolio, you can mix in some gold to link the two correlations together. This reduces the overall variability of your depot. Due to the fluctuation of the gold price, however, gold should always account for only a small amount of admixture in the portfolio.

6. Error: Gold is cheap

On the contrary. Gold is expensive. The demand is enormous, not only for private investors, but also for countries like China. That drives the price. The price of gold bars and gold coins is usually higher than the price of gold on the stock market.

When buying gold, you do not just have to pay the pure gold value. The surcharges and fees for buying and selling are relatively high, especially for small quantities. Even the running costs are not insignificant with gold: for example for a bank lock box or the dispatch.

Each dealer has his own margin, which he pitches to live off the sale of gold. So, if you want to make a profit, the price gain must be higher than your costs incurred. Otherwise you make losses.

7. Mistake: Gold is absolutely crisis-proof

Gold has already survived wars, depression and several currency reforms. Is it crisis-proof? The fact is that, unlike paper money, it cannot be increased in any way. In the past, gold prices have risen dramatically in times of crisis. Both on Black Monday, after the bursting of the New Economy bubble, after the 2008 financial crisis and the euro crisis, equities lost value, while the price of gold rose.

In the event of an economic crisis, it may be worthwhile to have small gold bars or gold coins at home or in a safe deposit box and use them as an alternative means of payment.

However, gold is not completely crisis-proof either: as more than half of the reserves are stored with the central banks, they can theoretically flood the market and thus lower the price.

There have also been isolated cases of so-called gold bans in connection with currency crises. In this case, individuals had to give their gold to the state and received compensation in the national currency. This was the case for example in the Weimar Republic or in the United States from 1933 to 1974.