How to reduce the risk when investing in gold

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Economic crises are not the only factors affecting gold prices, and you as an investor clearly want to know how to reduce the risk when investing in gold but there are a lot more factors that go into determining and lowering this metric.

So, in this article we will cover many ways in which investors can lower their exposure to risk when investing in either physical or digital gold.

Bullion coins as a hedge

The first great option we have on this article are bullion coins, specifically American Gold Eagle bullion coins in one-tenth ounce, one-quarter ounce, half-ounce and its one-ounce denominations.

Keep in mind that the U.S. mint creates the Gold Eagle Bullion coins but does not sell them directly to customers, instead you must buy them through authorized gold dealers.

The price you will pay will the current market price of gold plus a premium on the coin which typically is around 5-8 percent.

Tax benefits on American Gold Eagle Coins

One very important thing to keep in mind is that American Gold Eagle coins do not require filling form 1099-B which is a form you need to fill and turn in to the IRS when selling precious metals and gold bullion.

American Gold Eagle coins are exempt from this form which will save you time, money and energy when paying your tax on gold investment profits.

Avoid collectible Gold coins

This is a tip all gold investors wish we knew since day one and there are a couple of reasons why. If you’re planning on buying a rare gold coin, do it for its beauty but not for its potential sale value.

Why should I avoid buying collectible gold coins?

Only extremely knowledgeable collectors should invest in rare coins, since tiny differences in the condition of the coin can appreciate or depreciate its value by thousands if not tens of thousands of dollars.

For example

A 1909 “Double eagle” can be worth anywhere from $1,685 up to $90,000 dollars for a virtually untouched specimen, according to professional coin grading services.

Only expert collectors will know how to identify these little details and the chances of getting scammed for the price of a “rare” collectible coin are much higher than just simply investing in a standard gold bullion from a reputable gold broker.

Buy from reputable brokers

We got into this point in the last paragraph, but we cannot stress enough how important it is to buy physical gold or gold bullion only from certified gold dealers.

Why should I buy gold from certified gold dealers?

The premiums and spreads your local gold dealer will charge will more likely than not be a lot higher than the ones a certified online gold dealer will charge.

Also, by buying from a reputable and certified broker you reduce the risk of buying phony gold or gold that is not 99% pure as advertised.

We have created a detailed article on what the best online gold dealers are, if you want to check it out click on this link, otherwise we have summed up the information below:


We also advice to test gold for purity everytime you make a purchase, especially when buying from third parties that are not certified gold dealers. There are several ways to do so we created a highly detailed article that explains the best methods you can use to test gold for purity.

Look at Gold Funds

Another really great way to not only diversify but cut the cost and risk of storing gold completely is to look at gold funds and ETFs.

Exchange Trade Funds buy physical gold on behalf of the investor and are traded minute by minute on stock exchanges, just as shares of ordinary stocks do.

Why gold ETFs are a great alternative to gold bullion

Investing in gold funds or ETFs have the advantage of not only being gold-backed but also the fund’s buying power, lower markups than individual investors generally get as well as instant liquidity for your investment.

You can buy gold ETFs through a broker, but since we are talking about risks on this article, It is important to keep in mind that the best option is to open an account on a regulated broker.

Once again, we have a detailed article on what the best brokers are for commodity investments, if you want to check them out, you can do so here.

Otherwise, we have summed up the information on the best regulated brokers with the lowest fees and commissions (Some of them have 0 commission):


Plan for taxes on your Gold investments

It is crucial that in order to avoid trouble and fines with the IRS you plan for taxes when investing in gold.

Because the IRS treats gold and other precious metals as collectibles, not securities, profits on the sale of collectibles (in this case gold) are taxed at the rate of 28%, rather than the 20% cap applied to long-term capital gains on securities.

There are, however, ways to lower this tax rate that investors far too often overlook, and in this article, we will cover some of them.

  • When investing in physical gold or ETFs always hold your gold for a minimum period of 1 year (All sales done before the year mark are taxed at regular income).
  • Calculate your cost basis on your gold investment correctly (this can reduce the capital gains tax on gold).
  • Consider buying gold mining stocks which are considered securities but still hold a tight bond with gold and gold prices.

I you wan to know exactly how to do all of the above points mentioned then we suggest you take a look at this article on taxes on gold investments where we show cost basis calculations examples and how you can reduce your tax margin substantially and even outright avoid the capital gains tax on your gold.

Tips from professionals on How to reduce the risk of investing in Gold: Chirag Mehta

CIO of Quantum Mutual Fund Chirag Mehta has some advice we could use when investing in gold and especially, if we want to lower our exposure to risk when investing in this precious metal.

Limit your investment to 15 or 20% of your total portfolio

For investors with long-term goals and long investment horizons, equity would be the ideal asset class to grow wealth, Mehta explains.

But equity markets tend to go through ups and downs in the short term. That’s where asset allocation comes in. With its negative correlation to equities, gold has historically performed well in times of stock market stress.

Based on our analysis, a 15-20% exposure to gold can lower the risk for a portfolio without compromising on returns. Anything more than that, could be counterproductive.

Multi asset funds can be a better option to take exposure in gold

Multi asset funds dynamically allocate money between equities, debt and gold to optimize returns.

These funds also choose Gold ETFs for their gold exposure. Investors who a want a one-stop investment solution can opt for these funds.

Those who prefer to invest directly, can craft their own portfolio of equity mutual funds and Gold ETFs and meet their asset allocation needs. In the latter case, they will have to periodically rebalance their portfolios themselves.

Diversify your investments

 The numbers show that many young investors have started investing in the Covid era and parked their savings in mutual funds and equity assets, which is a great start.

But somehow most of them don’t find gold interesting enough. The asset class mostly attracts mature investors and is deemed “inefficient”, “traditional” or “boring” by the younger lot.

Maybe because they haven’t seen different economic cycles and market ups and downs and gold’s role as a portfolio diversifier in such times. Or maybe because they equate gold investing to purchasing pricey and bulky physical gold.

Chirag Mehta’s advice to young investors

My advice to them would be that they should learn from history and the experience of other seasoned investors instead of making their own mistakes and learning the hard way.

The current macroeconomic and geopolitical conditions are re-establishing gold’s relevance in investor portfolios.

They should use the recent price correction to build their exposure through financial and efficient vehicles like Gold ETFs and Gold Mutual Funds. (Full article here).

Factors that affect your exposure to risk

A major gold discovery can lower the price of gold because of the basic economic law of supply and demand, new supply can prop the price down but high demand seasons like wedding seasons or economic depressions can bring up the price.

Here are some of the major factors that will affect your exposure to risk when investing in Gold:

  • Global Gold Supply
  • Global Gold Demand
  • Economic recessions
  • FED’s Interest rates

Navigating the gold markets can be tricky sometimes but it can be highly profitable and a very good option especially when recessions hit the economy.

Bottom Line

All of the factors play an important role in the price action of gold, but the main point of this article was how to mitigate your risk as much as possible; from lowering tax margins to diversifying your portfolio and considering other financial instruments that make your investment more liquid and less costly.

We hope this article helped you, for more information on investing in gold, other precious metals, commodities, and jewelry we kindly ask you consider visiting our home page.

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