Gold Bug — is an individual that prefers to invest in gold. They think that the purchasing power of paper currency is weak and depends on inflation and other factors. Gold bugs believe that gold is a stable asset that will be profitable at all times. These investors become very active during the time of economic crisis.
Who Is Gold Bug
A gold bug is an investor that doesn’t believe in the banking system. They think that the price of gold increases while the price of fiat money goes down. That’s why the gold bugs buy up the gold. They obtain gold bars, collections of gold coins, or specific souvenirs offered by banks. Sometimes they use the family treasures as an investment.
Gold bugs are afraid that the growing national debt will force the government to announce the default and all savings and the costs of the national currency will decrease. But investing in gold will help them to save money. So gold bugs acquire gold to protect themselves from risks of potential currency devaluation.
It is necessary to indicate that gold bugs prefer to buy gold bars and not paper gold. Paper gold is a gold-related asset that reflects the wholesale price of gold but isn't gold itself. There are several types of paper gold: gold ETF, a gold certificate, and gold futures. This asset is quite risky. As the gold bugs are cautious and conservative, they avoid paper gold.
Characteristics of gold bugs:
- They don’t believe in the government and banking system.
- They are reticent about their investments.
- They don’t buy paper gold.
- They believe that gold will always be valuable.
The theory of gold bugs has some rational arguments. Historically gold has proven its right to exist in any system of financial values. The fiat currency system allows the government to be financially wasteful, because of government borrowing to finance a budget deficit.
However, the investment in gold has some disadvantages. The main disadvantage is a dependence on inflation because gold is good. The price of gold is influenced by many factors, including the balance of supply and demand. The larger the money supply in the world, the more an ounce of gold costs. At the time you will need money, its selling price may be lower than the buying price.
Pros and cons of investing in gold:
How to Be Gold Bug
The ideas of gold bugs may be controversial but some of their tactics can be used by individuals who want to try the investment in gold or other precious metals.
In exchange slang, metals are called protective assets due to their reliability. It is difficult to imagine a scenario in which gold or platinum suddenly depreciates. Whatever happens in the stock and currency markets, metal can always be sold quickly. The problems are usually related to regulation, which makes gold an effective tool only for very long-term investments.
There are several tactics an investor can apply to be a successful gold bug:
Don’t buy jewelry as an investment. From the constant contact with the human body, it wears out and loses its salable condition. The best option for the old jewelry is remelting it into a new item. The cost of remelting depends on the complexity of the work and auxiliary materials used.
Buy gold bars. This instrument is good for investment for three or two years. Short-term prices are quite difficult to predict. A gold bar needs to be stored somewhere to protect it from external influences. At the slightest damage or scratches, the bar loses its value sharply. If this is a safe deposit box, add additional costs. Don’t forget about spreads: banks don’t sell gold at the exchange price but pledge their interest.
Buy gold coins. They also need to be stored somewhere for a long time. Unless, this is a unique issue, which immediately rises sharply in price after the sale of the entire collection. Gold coins are easier to sell than bars as there is a large secondary collector market.
Open an unallocated metal account (UMA). This is an account with information about the precious metal owned by the client in grams without indicating its characteristics (number of bars, sample, manufacturer, serial number). The owners of UMA don’t pay the VAT during the financial operations. Also, they don’t pay for the opening and the usage of the account.
Buy the stocks of gold-mining companies. Gold is a demanding metal for various industries (electronics, medicine, stomatology). This metal is used in electronic components for computers and mobile phones. In the chemical industry, gold is used to make corrosion-resistant parts of chemical devices and as a catalyst. Besides, gold is applied in high-precision electronic, and instrument-making technologies, in the manufacture of parts and assemblies of jet engines, nuclear reactors, and spacecraft. This means that the gold-mining companies always have clients and their stocks will be profitable.