Introduction
In general, investors who want to invest directly in gold have three options available to them: they can either buy the real commodity, they may buy shares of a mutual fund or exchange-traded fund (ETF) that replicates the price of gold, or they can trade futures and options on the commodities market. All three of these investment strategies are generally considered to be safe bets. They have access to each and every one of these choices. For instance, investors with average means might buy gold coins, whereas investors with competent means might put ideas into action using options on gold futures.
Investing In Gold In Bullion
When compared to other commodities, gold is more freely available to the typical investor. This is due to the fact that an individual may easily purchase gold bullion (the real yellow metal, in coin or bar form) from a precious metals dealer or, in some instances, from a bank or brokerage firm.
Despite the fact that there are bullion bars available in sizes ranging from a quarter-ounce wafer all the way up to a 400-ounce brick, most first-time investors opt to purchase coins instead. These are new issues that are valued based on their gold content, in addition to a premium, and should not be mistaken for vintage numismatic coins.
The majority of buyers remain with the most commonly circulated gold coins, such as the South African Krugerrand, the American Eagle, and the Canadian Maple Leaf, since these coins offer the most potential for liquidity. Whether you choose to shop in person or conduct business exclusively online, you should make it a point to do business only with reliable vendors. Gold coins should always be stored in a secure location, such as a house safe or a safe deposit box at a bank. Be sure to get them covered as well.
The satisfaction of wearing gold can also be experienced by an investor in gold through the purchase of jewelry made of precious metal. In order to improve the overall value of the jewelry as well as it’s aesthetic, gold is frequently combined with many other precious jewels and metals. The fact that items are frequently handed down from one generation to the next as family heirlooms has additional sentimental value on top of the worth of the item itself. Due to the fact that the retail price of jewelry frequently significantly exceeds its real value, purchasing it only for the sake of making an investment is not typically the greatest choice. This is due to the amount of handiwork that was put into it as well as the retail markup. Always check the purity of the gold before purchasing jewelry, so that you don’t end up overpaying for a piece that is just 14 karats when you thought you were getting 18 karats.
Buying Gold Funds
Even while it’s easier to acquire than, say, a barrel of oil or a crate of soybeans, holding actual gold comes with a number of complications, including transaction fees, the cost of storage, and insurance premiums. Investors that are interested in a more liquid and low-cost entry into the gold market may choose to examine exchange-traded funds and mutual funds that imitate the movements of the commodity instead.
For instance, SPDR Gold Shares (GLD), which was established in 2004, makes it one of the ETFs that has been around the longest. Similar to stock, shares are traded on the New York Stock Exchange and can be purchased or disposed of at any moment during the course of the trading day. One-tenth of an ounce of gold is embodied in each share of the exchange-traded fund (ETF).
The price of gold stocks will typically increase or decline at a rate that is both more rapid and more dramatic than the price of gold itself. While operating independently, businesses run the risk of encountering problems that are unconnected to the price of bullion, like as political reasons or environmental concerns. Hence, investing in an exchange-traded fund (ETF) that includes gold stocks is a riskier way to play, but it does give the chance for gain, in contrast to purchasing bullion, which does not offer this possibility.
Purchasing Options On Gold Futures
Options on gold futures or options on a gold exchange-traded fund (ETF) may be an option for more experienced investors who do not wish to risk a significant amount of capital. These contracts denote the right, but not the responsibility, to purchase or sell an asset (gold in this case) at a predetermined price for a predetermined period of time. The time period is also specified. Options can be employed regardless of whether you believe the price of gold will rise or fall in the near future. Purchasing options exposes you to a maximum risk equal to the amount of the premium that you pay to enter the contract if your prediction is incorrect.
Put and call options on gold futures can be bought and sold through a futures broker in the United States through the Chicago Mercantile Exchange. These options are available in the U.S. Options on SPDR Gold Shares ETF are also available to investors and can be traded in a conventional brokerage account that has been approved for options trading. Investors can access these options by going to the SPDR website. To speculate on short-term price swings in gold, some investors buy and sell gold futures contracts, which trade on CME under the symbol GC. These contracts allow investors to guess whether the price of the yellow metal will rise or fall in the near future.
Investing In Stocks Of Gold Mining Companies
There is always the option of purchasing stocks in gold mining companies if you are unable to physically obtain any gold. Keep in mind, however, that the price of gold stocks does not always rise in tandem with the price of gold bullion. This is due to the fact that the success or failure of mining firms is determined by their individual operating performance as well as how they utilize their capital and make profits. In the event that the firms you buy are not successful, you will not have the assurance of having physical custody of the metal.
Conclusion
ETFs are the most advantageous investment vehicle to use when diversifying your holdings into gold as part of a portfolio strategy. If you want to be protected in the event of a catastrophe that affects the entire system, you should own the metal in its physical form.