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A Beginner’s Guide to Gold Investments
Gold has always been one of the best assets to invest in. Going back to about 5,000 years ago, gold provided a safe haven for those who were affected by war, devaluations, political unrest, and economic crises.
During these challenging times, investing in gold might be one of the best things you can do to secure your financial well-being. For one, gold prices surged last week with its value up by 0.1%, despite fears of a difficult recovery from the current health crisis. Furthermore, we’re entering the advent of gold’s bull market, so it’s best that you diversify your portfolio and look into gold investments while the price is still reasonable. If you don’t know where to start with gold investments, we’ve prepared a short guide on how you can invest in gold.
For many investors, physically owning gold is the most accessible and easiest way to start investing in this particular asset. Physical gold comes in three forms: jewelry, gold bullion or gold coins. By having direct ownership over their gold investments, an investor can retain its value. However, privately stored gold comes with low liquidity, and its costs can easily pile up due to the delivery, processing, and insurance fees. In the long run, owning gold bullion stored in professional bank vaults is the best way to physically own gold. Other than having high liquidity, it’s much safer to employ a bank’s vault service compared to devising a secure way to store your gold at your property.
Another way to invest in gold is by buying and selling gold mining stocks. In this case, you don’t actually get to own gold stocks, but instead, you purchase a share in gold mining companies. This is one of the most speculative ways to invest in gold. While gold prices can definitely affect your share prices, there are other factors that you also need to keep track of. This could be how well the management is performing, as well as the geologists, and auditors, not to mention the economic and environmental risk that the company carries.
Gold exchange-traded funds (ETFs) are a financial derivative product that tracks the stock gold price. Much like stocks, gold ETFs are funded on the stock exchange. The great thing with gold ETFs is that the dealing spreads are relatively lower compared to physical gold as they don’t come with gold custodial fees, insurance costs, and storage fees. Furthermore, trading gold ETFs is incredibly easy — simply create a Demat account and trading account that allows you to trade online. However, your broker or chosen stock exchange might impose trading fees on you — albeit at a reasonable value.
Another way to invest in gold is by trading gold contracts for differences (CFDs). In a nutshell, CFDs are a financial tool that allows traders and investors to gain profit from price movements without actually owning the underlying asset. This agreement between investors and brokers exchange the difference in the value of gold between the time the agreed upon contract opens and closes. In other words, when you trade gold CFDs, you don’t actually own the physical metal like you would with gold bullion or jewelry. Instead, you are trading on the expected price changes over a set amount of time. This makes trading gold CFDs incredibly flexible, and you get to enjoy high stability and liquidity, as well as low costs. On the other hand, gold CFDs are prone to premature liquidation due to high volatility — making them a high risk/high reward investment.
All in all, investing in gold is a must for anyone who’s looking to start securing their future financial well-being. To help you figure out which gold investment works best for you, be sure to do your research and read the latest commentaries on finance and investing.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes