Gold is cherished for its beauty and overtime has been viewed as a symbol of wealth. Investors today buy gold to diversify their portfolios, as a hedge against economic downturns, and for protection against currency devaluation.
It’s widely accepted that gold is a good investment. But have you ever wondered, ‘how do I invest in gold?’
First of all, let’s get to know How the Gold Market Works
It is expedient to note that, what is called “the gold market” is actually a network of exchanges around the world where gold is traded as a commodity. What is traded on these markets is not actual gold but contracts, or options to buy and sell specific amounts of precious metals.
The traders don’t take possession of the bullion(a quantity of gold) instead it remains safe in vaults. The movement is done purely on an electronic network the gold is measured in troy ounces. Only 24 karat or 100% pure bullion is traded which is why the price for most gold jewelry is much lower than that published in the newspaper. Most jewelry is made from less than 24 karat gold.
The gold market is a commodities market just like those for wheat, oil and other minerals. The market treats the metal like any other commodity despite its history and high price. You should remember that the gold market is a market subject to the same forces as other markets.
Despite what many people think the gold market is subject to bulls and bears just like any other market. It can also be affected by bubbles or huge irrational increases in price that can suddenly collapse. The difference is that gold often runs in the opposite direction of the stock market and the rest of the economy. When economic times are good optimistic, investors pull money out of precious metals and buy equities or securities. When times are bad panicky investors often put a large percentage of their money into gold. That means the market for precious metals is just as irrational as the stock or real estate market.
Haven gotten an overview of how the gold market work, let’s now with that understanding look at the various ways to invest in gold.
Gold Exchange Traded Funds (ETFs) is an option for investing in gold. According to ETF.com, there are 33 ETFs that invest in gold, including GLD, the first and largest, with an expense ratio of .4 percent. ETFs offer a middle ground between owning physical bullion and futures of the yellow metal,
The oldest and most popular gold ETF is the SPDR Gold Trust (ETF)
There are closed-end funds that invest in gold. These funds typically trade at a discount or premium to the underlying asset, depending on the market. So if you find one trading at a discount and you believe the price of gold will go higher, this could be an option. But fees in closed-end funds typically are 1 percent to 2 percent higher than in mutual funds or ETFs.
You can also invest in gold-mining companies (the small ones are known as junior gold stocks), but this strategy holds all the regular risks of single-stock investing, plus the added risk of investing in a highly volatile sector. As a rule of thumb, gold mining stocks can have as much as a 3-to-1 leverage to gold’s spot price to the upside up and down.
Picking these stocks takes smart due diligence. The best performers are companies with strong production and reserve growth. They must have good management and inventory supported by production.
In this method, you actually own your gold in a tangible form. If you want to bury the gold in your backyard or keep it in your safe, gold coins/bars may be the way to go. If you want to buy a gold coin/bar, you have to purchase it through a network of authorized dealers that include wholesalers, brokerage companies, precious metal firms, coin dealers and participating banks.
It is good you know that when buying jewelry as an investment, understand the karat amounts and how it affects the price and durability of each piece. Keep in mind: Gold jewelry is usually weighed in grams—the higher the gram weight, the more expensive the piece. Ask the retailer for certificate of authenticity to ensure you are buying a quality piece of solid gold jewelry.
Nevertheless, it’s best to buy jewelry with an eye to wearing it, not primarily as an investment; but it’s also good to wear what is of value so you can easily sell it if need be and make even higher returns from it. It is also good to note that, just like every other investment, you run the risk of losing money on your gold jewelry if you need to sell at an inappropriate time.
If you are motivated to buy gold, just be aware of what’s driving you; is it the desire for owning a precious commodity that can be a hedge against risk in a volatile marketplace?, is it as a safe place for saving your money against economic downturns?, is it just as an alternative addition to your investment portfolio?; whichever way, the good news is that investing in gold is a good step in the right direction.