Basic strategies to profit with gold

The emergence of numerous gold investment get-rich-quick schemes has confused people in identifying the real way to profit with gold. They are looking for magic techniques to help them profit with gold.

Some look for monthly returns as offered by numerous get-rich-quick schemes that eventually bust. Some even think of buying gold to reach financial freedom quickly. Unfortunately, that is not how it works.

Gold savings or investment is not the magic pill to solve all our financial problems. It is instead a typical one, to be honest. The expected profit is approximately 10% per year, depending on the gold price moinvement. The profit potential is not that fantastic as compared to other tools. However, gold has many advantages that are not available on different tools.

Based on observations and my readings, there are essentially three strategies to generate profit with gold:

1. Buy and Save (Gold Saver)

The first strategy is directly buying gold for long-term savings. This is similar to real estate, where the capital gain is realized over the years. We buy and save, then when our target is achieved, we sell and realise the profit. Like real estate/property, the longer we hold, the higher the profit potential.

The big question is, is it true that gold prices would appreciate in the long run? Allow me to share these scenarios for us to think it through.

Scenario 1:

Firstly: If we compared the gold price five to 10 years ago, we can all agree that the gold price was lower back then. You could even ask your parents or grandparents about the gold price per gram during their younger days. I can assure you that the gold price was much lower back then. Surprisingly, the gold price back then was considered expensive, deterring many people from buying. The more straightforward thing to do was not to buy gold, and even to this day, the consensus is that gold is expensive.

Scenario 2:

Secondly: Have you noticed the price of grocery items kept increasing over the years? If this pattern is observed in grocery items, gold is also true. By the way, why do you think grocery items have gotten costlier over the years?

Simply because the purchasing power of money kept reducing due to inflation.

When this happens, the price of grocery items would eventually shoot up. The same is true with gold, and we have previously seen that gold would retain its purchasing power over the years (similar to 1 dinar gold coin value that is equivalent to one goat).

Based on this, it is clear that gold can serve as long-term savings. When we have extra money, we can consider converting it into gold, and when we need money, we could proceed to sell off the gold. While waiting to reach our target price, the acquired gold can be leveraged for other uses such as working capital thru pawning (if need be).

2. Buy, Sell, Buy, Sell (Gold Trader)

This strategy is more to trading where the mechanics are “Buy Low, Sell High,” which is done frequently. When the price is at the ‘support’ level, buying gold and holding is the way to go. When the price reaches the ‘resistance’ level, we can consider selling the gold and earn a profit. These steps are then repeated numerous times.

Note that this strategy is only suitable for real-time buying and selling platforms such as Public Gold, which revises the price every 20 minutes. Gold traders can take advantage of this behaviour of active gold price movement.

Though this method sounds easy to manoeuvre, it is challenging to succeed in physical gold trading in real life. The biggest challenge is that nobody knows when the gold price will reach the actual support level and the resistance level. Typically, one cycle from support level to resistance level takes about three months, not monthly or weekly basis.

Those interested in this method need to master technical analysis of gold price to identify the support and resistance levels. In fact, learning this technique does not necessarily guarantee a precise outcome as the prediction can sometimes be wrong.

3. Running a gold business (Gold Dealer)

This strategy is the easiest to begin as long as you have the capital. After being an agent of the gold company, we create awareness by sharing the benefits of gold savings. We shall guide those who wish to begin the gold savings for the mechanics for buying and selling. We shall get a commission or incentive from the gold company for everyone who buys from us.

Gold traders profit based on the gold price movement but gold business owners profit based on the number of transactions. The more transactions get completed, the more profit can be realised. The transaction volume increases when the gold price crashes as gold savers increase their gold savings. When the gold price appreciates, our holdings rise in value, and we still profit via the capital gain.

How do I Invest in gold?

I utilize gold as long-term savings. While doing this, I share the benefits of this asset class and guide individuals accordingly. When I first started purchasing gold in 2018, I aimed to buy gold consistently for long-term savings. I did not intend to sell unless I had emergency needs or found another opportunity to grow my money.

Fluctuations of gold prices in the short term do not matter to me as I intend to save for the long term. My aim is always to increase my grams of gold (quantity). If I have saved 100 grams of gold this year, I will continue to grow my savings to 150 grams of gold within the coming year. This is the mindset of a gold saver.

Though we might get tempted to grab the fantastic returns from get-rich-quick schemes under the disguise of gold investment, we must remind ourselves that gold is never an income-generating asset. Hence, the returns are just a gimmick to ‘trap’ more people into this scheme.

Two fundamental ways:

So, if we are interested in earning extra income, there are two fundamental ways (achievable by most of us): upgrading our career (our 9-5 work) or starting a business. And when we are keen to invest, the capital we inject must be the ones after setting aside emergency funds (approximately three months of our monthly salary). When we invest with additional money, the fluctuations in value will not trigger our emotions.

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Hope you find it useful.

Your buddy on gold investing,

Naresh G