Looking to invest in gold? Here are five basic facts about gold that investors interested in the yellow metal should know about.
Gold has long been called a safe haven, a golden asset that many investors turn towards during tough political and economic times.
The precious metal has, and continues to be, widely used in art, gold coins and bars, jewelry and, more recently, technology. Not only that, but there are a number of ways to invest in physical gold, including through exchange-traded funds (ETFs), futures, options and gold producers’ stocks.
Gold bullion is arguably a solid long-term investment, so those new to the sector will be curious to know facts about the yellow metal before jumping into the market. There are many interesting facts about gold, but to start off, here’s a look at five key ideas you should know about.
1. Basic facts about gold: It is the only metal that’s yellow
While other metals may develop a yellowish hue or color, that typically only happens after they have reacted with other chemicals. Gold is the only naturally yellow metal on the market.
Pure gold is yellow in part because it absorbs blue light more than other visible wavelengths of light. A substance absorbing blue light will reflect the rest of the spectrum.
Gold is on the last row of the periodic table with an atomic number of 79 and the chemical symbol Au. With 79 protons in its nucleus, the electrons of a gold atom are subjected to a powerful electrostatic attraction.
2. Basic facts about gold: Investment comes in different forms
As touched on above, new investors have many different options when they are looking to garner money through investing in the yellow metal. In some parts of the world, buying gold in the form of jewelry remains the largest and most traditional method of obtaining gold supply, particularly in India.
For the most part, buying gold jewelry is done for sentimental value and is considered “decorative artwork.” It is more expensive to buy gold jewelry than to simply purchase a gold nugget. Should investors choose gold jewelry, it is important to keep in mind karat amounts and their relation to price.
Aside from jewelry, gold investing can be done in a number of other ways, including:
- Gold bars and coins: This includes coins, collectors’ coins and gold bullion bars. They can be stored at a financial institution or personally.
- ETFs: Most gold ETFs track the physical gold price. According to Gold.org, in terms of grams of gold mined, one gold-backed ETF unit typically represents 1 gram of the yellow metal; ETFs can be bought and traded on stock exchanges.
- Gold-focused stocks: When investing in gold mined from companies, investors should be aware of how volatile the market can be. Gold-mining stocks in particular can have a three to one leverage on the gold price.
- Gold futures: A future is an agreement to trade gold at a predetermined amount or price with a settlement day in the future. What this means is that the investor doesn’t have to pay for the gold at the time the agreement is made, nor does the seller have to provide the investor with the gold until the agreed-upon date.
3. Basic facts about gold: It is not consumed
Contrary to popular belief, gold isn’t consumed like many other commodities; edible gold does not exist, it isn’t burned like gas and coal and only about 12 percent is consumed for industrial purposes.
A small portion of gold is used in electronics, computers, the medical and dental fields and in the aerospace sector to lubricate mechanical pieces. The remaining 88 percent is used in jewelry and for investment purposes, such as gold coins and bars.
Unlike gas and coal or even copper, almost all of the gold that has been produced over time still exists and is held by institutions or by people.
4. Basic facts about gold: It is the most malleable metal
Malleability can be defined as how easily a metal can be hammered or pressed out of its shape without breaking or cracking. Gold is the most malleable of the metals — 1 ounce can be beaten into a sheet of roughly 5 meters on one side. The resulting sheet of gold can then be struck enough times that it becomes so thin it’s transparent.
Not only that, but the yellow metal can be rolled, twisted and squeezed into a variety of shapes, all while remaining intact; this is often done during jewelry making. Gold ranges between a two or a three out of 10 on the hardness scale. Only when the yellow metal reaches its melting point can its purity be dismantled due to temperature.
5. Basic facts about gold: It can be viewed as a currency
Last, but certainly not least, gold has interesting currency-like tendencies. BMG Bullion notes that gold retains its purchasing power yearly.
While gold works as a currency, many don’t see it as one, as you can’t exactly use it to buy food these days. But, similar to other currencies, it has a price that fluctuates — as seen in recorded history, it typically increases as the US dollar drops and falls as the dollar moves up. The yellow metal can also be bought and stored, and it has the ability to be converted into money in a variety of currencies.
Want more details? Check out these articles for more INNdepth coverage:
- A Guide to Physical Gold as an Investment
- Do You Need Gold for Retirement?
- 3 Ways to Invest in Gold for Retirement
- Should You Invest in Gold Stocks or Gold Bullion?
- How to Use Gold Investments as a Hedge
- Follow the Money: A Guide to Gold Technical Analysis
Want an overview of investing in gold? Check out An Overview of Gold Stocks and Price.
This is an updated version of an article first published by the Investing News Network in 2016.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.