How to Invest in Gold the Right Way | The Prudent Gold Investor
Reading time: 5 minutes. Worth reading for anyone considering a long-term investment. Over 15 years, we have been in contact with nearly ten thousand gold investment clients through Conclude and Goldtresor. Based on this experience, we have identified three entirely subjective categories of gold investor attitudes.
Goldtresor Team
· 3 min read
Reading time: 5 minutes. Worth reading for anyone considering a long-term investment.
Over 15 years, we have been in contact with nearly ten thousand gold investment clients through Conclude and Goldtresor. Based on this experience, we have identified three entirely subjective categories of gold investor attitudes.
I am writing exclusively about physical gold investment, not exchange-traded gold investment. Non-physical gold investment is not genuine gold investment — it is speculation.
So, here are the three physical gold investor attitudes:
- Panic buyer
- Trader
- Prudent gold investor
The panic buyer is self-explanatory: some event threatens total collapse, and they buy physical gold at that moment — typically at a very high price, which also marks the top of the cycle. There is no need to be embarrassed about it; I myself started physical gold investment this way in 2008.
The trader tries to predict the exchange-rate cycles of gold and aims to buy low and sell high within a short timeframe (targeting a horizon of 1–2 years). Sometimes this works, sometimes it does not. The typical mistakes of a trader are as follows:
The "missed-the-boat trader": some traders consider themselves smarter than the market and, hoping to squeeze out a few more basis points of profit on the way down, miss the entry point — and the market never returns to that level again (I have seen this happen many times, even with substantial clients who are otherwise successful businesspeople). Some of these missed-the-boat traders eventually become "abstaining" traders. Rather than overriding their own judgement, they take offence at the "gold market" and stop buying altogether.
The "happy trader":
They enter the trend nicely, and when the price moves higher, they enjoy their profit and happily realise it, thinking: "I am clever, I have won, let me step aside for a moment and get back in lower." The typical mistake of the happy trader is that they liquidate their entire gold position, lock in the proceeds, and then miss a sharp price move during the lock-in period. They may have gained 20%, only to miss a 30% rise that occurred over a relatively short period. A prolonged sideways phase may follow, but the price does not necessarily come back down to the exit level.
- The good news: panic buyers and happy traders frequently become prudent gold investors.
How does someone become a prudent gold investor?
Obviously nobody is born a prudent gold investor — they become one. First, they come into contact with physical gold investment somehow, either as a panic buyer or as a trader. Then, as they hold their first physical gold bar or gold coin in their hands for the first time, they sense that something entirely different is at play here — a fascination spanning several millennia of human history — which establishes the conviction that: "here is a physical asset that carries its value within itself, is independent of any state or other promissory obligation, is freely transferable, and can be passed on with ease."
They then begin reading about the history of gold, its mining, the facts about its production and distribution, the most liquid investment gold products — and become entirely convinced that this investment differs from every other investment instrument and "undoubtedly has a place in my investment portfolio."
When the investor ultimately understands that there is no point in investing in "paper gold" — that only physical gold will do — that is when they truly become a gold investor.
And where does the prudence come from?
The gold investor eventually realises that they should always maintain a certain quantity of physical gold in their portfolio. From the "surplus" gold above that baseline, it makes sense to sell some at the top of a cycle — that is, when panic arrives — and to accumulate during the intervening periods by steadily investing a portion of their income in physical gold. This is how someone becomes a prudent gold investor.
The process can take as long as 8 to 10 years.
In the next instalment, we will present the excellent returns achieved by prudent gold investors on the 20-year Hungarian gold market.
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