Precious Metals: How To Invest In Gold Markets
How To Invest In Gold Markets
Gold is the ultimate hedge for potential inflation in global currencies. It is, of course, possible to directly invest in gold by owning the metal itself or by investing in gold mining stocks or mutual funds. Gold markets see a rise in gold prices with the fall of the dollar so this automatically offsets losses incurred for the gold investor. Many investors are of the view that the world is in fact under a defacto gold standard even though central banks would not be willing to accept it as such. Let us see how the Gold markets work and how gold can be invested into in many ways:
Owning Physical Gold
Gold bullion is a great way to invest. Gold’s value depends on supply and demand and since there is a usually a wide spread between bid and ask prices, the profits cannot be expected in the short term. Gold bullion bars or coins (both ordinary and collector) are good to purchase and keep. The collector coins obviously have more value than the metal itself as they are specialized collector items.
Exchange Traded Funds trades on a stock exchange just like a mutual fund would. There are 2 established Gold ETFs trading in the United States are SPDR Gold Shares GLD and iShares Comex Gold Trust IAU and both have gold bullion in stock. A portfolio of gold investment can be created on either. A third one ETFS Gold Trust, SGOL was launched in 2009.
Gold Mutual Funds
There might be a hesitancy on part of an investor to invest in physical gold itself. Many issues arise; portability, safety, handling, etc. Many gold mining companies have stocks on the stock exchange and mutual funds buy these senior stocks. Stocks of mining companies depend on their experience and reputation and reliability. Long-term stability in profits in the way to go with investing in mutual funds that hold stocks of such reputable companies although, in short term, returns would be low as the risk is low as well. Risk takers can go for mutual funds taking more risks by investing in stocks of new companies.
Junior Gold Stocks
As compared to senior stocks described above, risk-takers looking for short term profits or even with eyes on long term can invest in junior stocks that are not reliable. They may end up giving very high profits or otherwise heavy losses.
Speculative Options and futures
Through ‘Call’ and ‘Buy’ options, one can invest or trade in gold but these are risky and require experience related gold price trends. These speculative bidding options usually leave more investors in the negative than positive. Investors can of course trade with little money but they are hard pressed for time as options expire after a certain period. Moreover, future of anything is hard to predict, even much more so for the gold prices as these are constantly under stress from the push and pull of demand and supply forces and to get a big picture of these forces and try to predict future trends is a very tricky task.
Many investment managers would recommend that a fixed dollar amount in the range of 3-10% be invested in gold to have a long term stable investment portfolio. The major advantages of Gold investments are to hedge against inflation, currency drops, and periods of uncertainty.