From the time of ancient civilizations to the modern era, gold has been the world's preferred currency. Nowadays, investors buy gold mainly as protection against political unrest and inflation. In addition, many top investment advisors recommend portfolio allocation in commodities, including gold, to reduce overall portfolio risk. We will cover many of the opportunities to invest in gold, including bullion, exchange-traded funds (ETFs), futures options, and gold mining companies.This is perhaps the best-known form of direct ownership of gold.
Many people think that gold bars are the big gold bars found in Fort Kno. In reality, gold bars are any form of pure, or nearly pure, gold that has been certified for its weight and purity. This includes coins, bars, etc. A serial number is also often attached to gold bars, for security reasons.
The Eagle and the Canadian Maple Leaf are two popular examples of gold coins. The main problems with gold bars are that storage and insurance costs and the dealer's relatively large profit margin hinder profit potential. In addition, the purchase of gold bars is a direct investment in the value of gold, and each change in a dollar in the price of gold will change proportionally the value of the shares themselves.An alternative to buying gold bars directly is to invest in one of the gold-based exchange-traded funds (ETFs). Each share of these specialized instruments represents a fixed amount of gold, such as one-tenth of an ounce.
These funds can be bought or sold, just like stocks, in any brokerage account or IRA. Therefore, this method is easier and more profitable than owning bars or coins directly, especially for small investors, since the minimum investment is only the price of a single share of the ETF.The average annual expenditure ratios of these funds are usually around 0.65%, much less than the fees and expenses of many other investments, including most investment funds. Read your prospectuses for more information. Traditional mutual funds tend to be actively managed, while ETFs adhere to a passive index-tracking strategy and therefore have lower spending rates.
However, for the average gold investor, mutual funds and ETFs are now generally the easiest and safest way to invest in gold.Futures options are an alternative to buying a futures contract directly. These grant the option owner the right to purchase the futures contract within a specified period, at a pre-established price. One of the benefits of an option is that it leverages your original investment and limits losses to the price paid. Unlike a futures investment, which is based on the current value of gold, the disadvantage of an option is that the investor must pay a premium to the underlying value of gold to own the option.
Due to the volatile nature of futures and options, they may not be suitable for many investors. Even so, futures are still the cheapest way (fees and interest charges) to buy or sell gold by investing large sums.Companies specializing in mining and refining will also benefit from rising gold prices. Investing in these types of companies can be an effective way to make a profit from gold and can also carry a lower risk than other investment methods. The largest gold mining companies have extensive global operations; therefore, business factors common to many other large companies influence the success of such investment.
As a result, these companies can still show profits in times of stable or declining gold prices.About 49% of the world's gold production is used to make jewelry. On the other hand, it is shown that buyers of gold jewelry are somewhat price-sensitive, buying less if the price rises rapidly. Buying jewelry at retail prices implies a substantial margin of up to 400% on the underlying value of gold. You can find better jewelry bargains in real estate sales and auctions.The advantage of buying jewelry this way is that there is no retail profit margin; the downside is the time spent searching for valuable pieces.
However, jewelry ownership is the most pleasant way to own gold, even if it is not the most profitable from an investment point of view. As an art form, gold jewelry is beautiful. As an investment, it's mediocre unless you're the jeweler.Larger investors who wish to have direct exposure to the price of gold may prefer to invest in gold directly through bullion. There's also a level of comfort found in owning a physical asset rather than just a piece of paper.
The downside is the slight premium to the value of gold paid on the initial purchase, as well as storage costs.The idea that jewelry is an investment is historic but naive. There is too much room between the price of most jewels and their gold value to be considered a real investment. Instead, the average gold investor should consider gold-oriented mutual funds and ETFs, as these securities generally provide the easiest and safest way to invest in gold.There are many ways to invest in gold. You can buy physical gold in the form of jewelry, bullion, and coins; buy shares in a gold mining company; or invest in gold ETFs or futures options.No matter which method you choose for investing in gold, it's important that you do your research before making any decisions about where you should put your money.
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