5 Paths to Smarter Gold Investment

Published On: November 21, 2016

Below you’ll find five different, effective options for investing in gold. Take a look at each of them and ask yourself which one matches your investment needs.

1) Direct Ownership

Gold bullion has been universally recognized as a store of value for thousands of years. Gold’s use as a permanent value store actually predates written history. In Ancient Egypt, for example, the pharaohs were entombed with gold in ample quantities because they believed it would be valuable even after they died. Early wars were fought partially or entirely to pillage the wealth of nations which was stored in gold. Why has gold always held this magnetic attraction?


Ultimately, gold is consistently valued because its value exists independent of any government. It’s worth cannot be affected by governmental policies; this is why modern governments have, unfortunately, rejected gold as a standard for their currencies. The value of gold is dictated solely by market forces, and the edicts of the Federal Reserve in Washington have no effect on it.

There is a significant downside to owning gold directly: The distance between the bid and ask prices on the metal is usually quite large. That means earning a quick profit by purchasing gold directly is extremely difficult. You’re effectively buying at retail and selling at wholesale; this means you need to wait for a major rise in price in order to break even or turn a profit.

Gold isn’t an asset you use to speculate, though. It’s better seen as a defensive asset you can use to protect the value of your money. In financially uncertain times, dollars lose value but gold does not. Minted gold coins are the best way to start buying gold for this purpose and there are plenty of places with gold coins for sale. Popular choices include South African Krugerrands, American Eagles, and Canadian Maple Leafs – all of them minted in one-ounce sizes.

2) Exchange-Traded Funds In Gold

ETFs have become enormously popular in recent years, and today this represents a very interesting tool for gold investment. Basically, an ETF is traded on a mercantile exchange like any other listed mutual fund or stock. The portfolio of an ETF is fixed and cannot be modified over time. US investors currently have access to two gold ETFs, both of which hold only gold bullion as assets. They are the streetTRACKS Gold Trust (GLD) and the iShares COMEX Gold Trust (IAU). Purchasing shares in either fund allows you to easily integrate gold into your wider investment strategy.

3) Gold Mutual Funds

Gold mutual funds make a nice introductory investment vehicle for individuals who are somewhat hesitant to start off with direct physical purchases of the metal. The funds have portfolios made up of shares in companies whose value is more or less directly died to the price of gold. Newmont Mining is a perfect example of the sort of company that might be included in a gold mutual fund. These sorts of shares are referred to as “senior” gold stock. The companies involved here are large concerns with long, profitable histories and stable operations. Their annual production of gold is fairly predictable. Mutual funds that hold senior gold stock are a conservative tool for gold investment.

4) Junior Gold Stock

To continue the discussion of gold stock started above, you also have the option of investing in more speculative gold-mining concerns. Junior gold companies are typically more focused on speculation and exploration than industrial production. This produces an investment opportunity that features high potential profits but also high risks. Junior gold companies are not as well-capitalized as senior companies. Junior stocks (and funds that contain them) are best suited to investors who are extremely risk-tolerant and comfortable with the possibility of losing money on their gold-based investments.

5) Options And Futures On Gold

If you are already well-versed in financial matters, your preferred method of gold investment might be to speculate directly on the price of the asset.  Options are a viable tool for doing so. Buying gold options allows you to forecast a change in the price of the asset. If you expect a rise in the price of gold, you buy a call option. Put options are designed for the reverse situation; they’re what you buy if you anticipate a reduction in price. The options market is a very risky one, and losers outnumber winners by a significant margin.

There are two critical traits shared by all options: They allow a great deal of leverage, and they all expire after a set amount of time. The former trait is generally considered a positive one, but the latter trait is usually a drawback. As options grow closer and closer to expiration, they lose “time value” constantly.

The market for gold futures is even more complex, requiring a high degree of financial know-how to entertain any hope of turning consistent profits. Futures trading is widely recognized as one of the riskiest forms of investment out there, and the high potential profits to be made in gold futures are counterbalanced by enormous potential losses.


Source – http://www.blufftontoday.com/