Investing in gold is one of the safest investment methods for anyone, which is why many people turn to it. In this article, we will explain everything you need to know — big and small — about investing in gold.
The Economic Importance of Gold
Gold is one of the key economic elements for any country. Its importance lies in the fact that it is the main determinant of a country’s monetary reserves.
In other words, a country’s monetary reserve is determined by the amount of gold it owns in its central bank. Based on this amount, the country can decide how much currency to print.
This system was established to avoid both inflation and economic contraction in national economies.
Therefore, we can say that the amount of gold held by countries as monetary reserves determines the strength or weakness of their economies.
Some countries, such as Egypt, also possess a historical legacy of gold. We will address this in more detail in a future article about Pharaonic gold.
For now, let’s take a brief look at the concept of inflation, for example.
Inflation and Its Relationship with Gold
Simply put, what is inflation?
Financial inflation is the relationship between prices and the value of money. For example, 100 pounds might buy a kilogram of meat at one time, but at another time it might only buy a kilogram of oranges. This reveals a gap between the value of money and what it can actually purchase.
There are many causes of inflation, but what matters for this article is the relationship between gold reserves and inflation.
As mentioned earlier, financial systems use gold as a base for determining the amount of currency a country prints.
Therefore, the value of the country’s currency depends on the existence of gold reserves. As long as there is a gold reserve, the country can print money.
One of the causes of inflation is when a country prints money without sufficient gold backing. This creates a price gap because the value of the printed currency is lower than its real value.
As a result, the amount of money that once bought a kilogram of meat will only buy a kilogram of oranges.
The more money is printed without the required gold reserves, the more the currency’s value decreases.
This demonstrates the importance and value of gold for nations.
The Reason Behind Rising Gold Prices
Gold prices are influenced by surrounding economic conditions. During global crises — such as the outbreak of COVID-19, which caused entire economies to shut down and led to economic decline in almost all countries — many investors turned to buying large amounts of gold.
The sharp increase in gold prices came after the U.S. Federal Reserve announced an interest rate cut on the dollar.
This pushed investment banks and major capital holders to invest in gold.
Many of them saw that after the interest rate cut on the dollar, in which they used to invest, gold would provide higher returns over time.
Some investors also turned to gold out of fear of a potential dollar collapse.
Is Investing in Gold Still Safe Despite Rising Prices?
This is a question many people are currently asking.
To answer it, we must first address two other questions:
Is it possible for gold prices to fall again?
What is your investment duration? — Is your investment in gold short-term (a few months to a year) or medium to long-term (two years or more)?
1. Possibility of Gold Price Decline
Two factors affect gold prices:
First Factor: Economic and Trade Decisions
If governments encourage investment by lowering taxes, easing loans for projects, or making other decisions that stimulate capital inflow into markets, the demand for gold from investors decreases, leading to a drop in gold prices.
Second Factor: The U.S. Dollar and International Currencies
The interest rates on currencies also affect gold prices. As mentioned earlier, the U.S. Federal Reserve’s decision to cut interest rates on the dollar significantly increased gold prices. Conversely, if the dollar strengthens and interest rates rise again, many investors will shift toward currency investments, leading to a decrease in gold prices.
Some might think that because of these factors, investing in gold is not safe. However, the real answer depends mainly on the second question: your investment duration — short-term or medium/long-term.
2. Short-Term Gold Investment
No financial or investment expert would recommend investing in gold on a short-term basis.
In this case, you are at risk of losing money, or at best, not gaining any profit.
You would merely be preserving the value of your capital.
Therefore, if your goal is short-term investment, gold is not recommended.
3. Medium and Long-Term Gold Investment
Generally speaking, gold investment yields better returns in the medium and long term.
Gold prices historically perform well over longer periods. Since 1971, the global gold market has recorded an annual price increase of around 10%, while prices have risen by an average of 4.5% annually over the past decade.
This indicates that gold not only preserves your capital but also generates profits.
Many people have savings but are not actively investing. The main investment options for such individuals are gold, currency, or real estate. In a future article, we will explain in detail the differences and profitability of each.
For now, we can summarize:
If you have money and are comparing gold, currency, and real estate, many financial experts recommend gold — provided that your investment is medium to long-term, not short-term.
Ways to Invest in Gold
There are several ways and types of gold investment. You can buy gold bars, jewelry, gold coins, invest in the gold stock exchange, and more.
1. Buying Gold Bars
Compared to other commodities, gold bars are easy to buy and sell.
Individuals can easily purchase gold bars from jewelry shops and, in some cases, from banks.
Gold bars are highly pure — 99% gold content — which helps them maintain their value. This is unlike gold jewelry, where the value is reduced by manufacturing and stamping costs.
Gold bars are available in sizes ranging from a quarter ounce (about 8 grams) to 5 kilograms.
The larger the bar, the more important it is to store it in a secure safe to protect it from loss or theft.
For larger investments, it is advisable to rent a bank safe for storage. The annual rental fee for such safes is generally affordable.
2. Investing in Gold Jewelry
Many people prefer investing in gold jewelry because it allows them to enjoy wearing it while holding an asset.
However, as mentioned, the downside is that you lose the manufacturing and stamping costs upon resale.
If you enjoy wearing gold, this lost value may not be significant, especially over the long term.
There are different types of jewelry depending on gold content.
21-karat jewelry is the most commonly traded; it contains 875 parts pure gold per 1000.
It is also easier to shape compared to 24-karat gold, which is 99.9% pure but harder to craft into diverse designs.
21-karat gold is therefore more popular because it offers a wide variety of styles to suit almost all tastes.
3. Investing in Gold Coins
Some people invest in gold coins. Unlike bars, coins contain some copper, with about 91.67% pure gold.
Coins also incur manufacturing and stamping fees, so like jewelry, their resale value is reduced by these costs.
While not the most profitable investment type, some investors prefer this option.
4. Investing in the Gold Stock Exchange
This involves purchasing gold funds and is usually preferred by large investors.
It can be a highly profitable investment if you have a good understanding of how the gold market works. Gold stock prices rise and fall faster than physical gold prices.
Therefore, investing in the gold exchange requires careful study and understanding, as mistakes can lead to significant losses.
5. Gold Futures Contracts
Let’s first define futures contracts:
These are financial contracts through which commodities or financial instruments are bought or sold at a pre-agreed price, with delivery set for a future date agreed upon by both parties.
Gold futures investment involves buying a specific quantity and purity of gold at today’s price, with delivery scheduled for a future date.
For example, if you buy 1 kilogram of gold at today’s price and agree to receive it a year later, by the time of delivery, you own a kilogram of gold that you can sell at the current market price.
Gold futures contracts are traded on the exchange just like other futures contracts.
6. Gold Deposit Certificates
This is a way to invest in gold through gold deposit certificates.
It’s a simpler method for small investors compared to the risks of the gold stock market.
It allows investors to buy and sell gold at its daily price, without the need to store physical gold, as is the case with bars.
Investors can redeem the certificates either for their cash value or in the form of gold bars.
In conclusion: Gold remains a powerful tool for protecting and growing wealth — especially in uncertain economic times. While short-term fluctuations can occur, medium and long-term gold investment is generally considered a safe and profitable strategy, provided the investor understands the method they are using.
