Gold is usually promoted for its security when it comes to investments. However, gold can be unpredictable. Many investors hold a portion of gold in their portfolios but don’t depend on it for expected income.
Here are nine disadvantages you may face when investing in gold.
1. It’s difficult to determine the value of gold because it’s based on a variety of factors, such as supply and demand from worldwide interests. Stocks can be measured by performance and expectations of a company’s revenues.
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2. Stocks often pay dividends, and bonds pay interest. Gold investments have no such rewards.
3. Although gold is often touted as a hedge against inflation, it doesn’t necessarily have a relationship to inflation, explains
Christopher Philips, a senior analyst with the Vanguard Investment Strategy Group. Inflation remained stable in the United States between 2003 and 2013, yet gold prices jumped from $300 per ounce to $2,000 and then down to $1,200 during the period.
4. Gold can also be volatile for investments and go through long bearish periods, such as from the mid-1980s to 2001 when prices dropped from $670 per ounce to $258, Philips notes.
5. It takes cash to buy gold since it can’t be financed or leveraged. This limits the amount of
gold an investor can purchase, according to Financial Web.
6. Fear of gold confiscation by the government often occurs during uncertain economic times. President Franklin Roosevelt issued an executive order in 1933, forcing owners of
gold to turn it in to a Federal Reserve Bank, USAGold said. Ownership of gold wasn’t allowed again until 1973.
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7. There are no tax advantages to owning gold. The precious metal is considered a collectible and has a capital gains tax rate of up to 28 percent, which is higher than ordinary investments at 15 percent,
according to Kalen Smith in Money Crashers.
8. Gold prices are vulnerable to panic, which can hurt investors. For example, there might be a rush to buy gold during economic turmoil and the price becomes overvalued, only to return to its correct price. People could lose money on their investment.
9. Investors can buy gold stocks or funds, but they never actually see their real holdings. When they buy physical gold, it becomes an added cost to store it somewhere and insure it.
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