An increasing number of investors are turning to gold as a safe haven and a way of diversifying risk. Even though the gold market is subject to volatility and speculation like other markets, it is a relatively safer investment especially when the markets are down and securities pay very little.
There are several options when it comes to investing in gold. To begin with, you can physically own gold bullion, which has its advantages even though storage and protection are major concerns. If you are an active trader then you may want to consider ETFs or exchange traded funds, where you can invest in ‘virtual gold’ options.
Buy Physical Gold Bullion
Before getting into the nitty-gritty of how to buy gold, the first question one must really have the answer to is the kind of gold to buy. For the most part, what you buy depends on your goals. If you wish to use it as a hedging tool in times of financial uncertainty or want to make the most of any price movement, then it would be prudent to invest in contemporary bullion coins.
You may want to add pre-1933 gold coins to your mix if you believe there could be a gold seizure or call-in. Both options offer liquidity in the global market, and carry a modest premium over their melt value.
Remember, timing is not really an issue when it comes to buying gold. You ought to purchase gold at any time you feel the need to since the ultimate goal is to make sure your investment portfolio is protected in situations of economic uncertainty like the recent 2008 financial crisis. Most financial experts believe that an investor ought to have around 10% to 30% of their portfolio consist of gold.
Gold Bullion Bars
One of the cost effective ways to own gold is to purchase gold bullion bars. They are available in various sizes a single troy ounce to ten troy ounce and 32.15 troy ounce or kilo-bar. Gold bars can also be purchased in 100-ounce and 400-ounce bars. For the smaller investor, there are gold bars weigh less than 1-troy ounce also available.
It is critical to remember that the price of gold bullion bars is slightly higher than the spot gold price in order to cover manufacturing costs where the premium on the spot gold price reduces with larger bars. It would be prudent to buy from established dealers in the professional market to avoid counterfeiting. The professional market only deals in Good Delivery Bars, which is a standard issued by the London Bullion Market Association (LBMA) that has a list of approved refineries. Dealers usually charge an assay fee that ensures purity and authenticity.
Gold Bullion Coins
Gold bullion coins are also an ideal investment issued by government mints. These coins ensure metal purity and metal content and have face value. They are issued in a number of sizes and weights from 1/10thoz to 1-oz and more. Older coins are most difficult to price since they contain other fractional amounts of pure gold. The American Buffalos, Canadian Maple Leaf, and Vienna Philharmonics, are among the popular pure gold bullion coins in 24 karat. Gold bullion coins in 22 karat contain 10% copper and are of .9167 fineness. These include the American Eagles and Krugerrands.
Trading gold futures can be profitable for short term speculators with a particular focus on the gold price. In gold futures trading you trade gold based on an amount and price decided now but with a settlement day in the future. You only have to pay a margin upfront while the seller is not obligated to deliver any gold just yet. The exchange takes place on the settlement day which is when the buyer pays and the seller delivers. Most futures contracts are up to 3 months. The margin that is payable depends on current market conditions and varies from 2% to 20% of the total value of the contract.
Gold futures offer leverage that is also known as gearing. For example, if you have $5,000 to invest you will have to buy that much worth in gold bullion. However, you could probably purchase gold futures worth $100,000 if the margin on gold futures is around 5%. If the gold price rises by 10% you will stand to gain $500 if you bought gold bullion but as much as $10,000 in gold futures.
Gold exchange traded funds or ETFs are also an investment option. The fund consists of gold derivative contracts or gold assets held in a trust. Investors do not physically own any gold but receive the cash equivalent when a gold ETF is redeemed.