Although gold is a great investment asset in the modern world, before you embark in the same, you must be aware of its limitations. Below are the drawbacks associated with trading in gold bullion or Gold coins over other assets and currencies.
(1) Since gold does not create value by itself, it does not have a specific intrinsic value.
(2) Just like other precious metals, gold does not have an income potential and even if its value increases, the gain is nominal but not an increased buying power.
(3) Unlike other assets like real estate and currencies investing in precious metals does not have a tax advantage.
(4) Gold prices are known to vary significantly hence the volatility involved is a drawback for investors.
(5) Unlike investment on other assets like property, gold bullion bars and coins cannot be used as leverage. Banks and other credit facilities do not accept them as security against loans.
(6) The precious metal is vulnerable to manipulation by dubious traders to boost the value of other currencies. This can result in enormous losses especially after a huge investment.
(7) The myth of gold liquidity is a fallacy. In the event of liquidation, penalties and high transaction fee are charged.
(8) The gold business has been invaded by counterfeiters. Worthless metals of tungsten and copper are being used to defraud unsuspecting investors. Although this risk can be averted by using rare earth magnets and a reliable scale, there is a risk involved.
Unlike the financial markets or stocks, gold can be bought at any time since it is wealth insurance. In the financial crisis of 2008 for example, a gold rush ensued and the prices rose drastically. However, the gold business is usually characterized by bottlenecks and shortages hence to be successful in the gold business, you ought to choose the right professional gold firm to help you avert the risk of losses during pitfalls.