Gold is an investment most people deal in, whenever there is a volatility seen in the stock market. The position of gold on the market front strengthens with the weakening of the dollar.
One can invest in gold in the following ways: Owning of the metal itself, Gold Mutual funds or Gold Mining Stocks.
How can you create a portfolio so as to profit from a bull market in gold? Let us presently believe that gold has a very bright future ahead as hope for latent profits in the coming years is not going to be found in the traditional American blue chip industry, which may be fast losing out to competition in the world market. Regardless of the ups and downs in the gold standard and whether or not the same is approved by central banks, the material worth of gold as carrying real, solid value will remain unchanged. History has always proved the same and will continue doing so. So, although the fiat currency may be prevalent, we will always be on a “gold standard”.
There are a number of preferences to choose from. The following information covers five ways to invest in gold and choosing the one that matches your level of market knowledge and familiarity with products can be well suited for your requirements.
5 Ways to Invest in Gold
Gold bullion beats all forms of gold, as it is the basic representation of purity of gold. In the ancient past, deceased pharaohs were buried along with extensive quantities of gold by the Egyptian civilizations, because they believed that they would be useful for these people in life after death. In order to plunder stores of gold, many a war was fought. This affinity for the yellow metal is due to the faith that gold is the only form of real money whose worth will remain unchanged by government fiat. It is inevitable that the prices of gold will rise due to the supply-demand ratio.
As the tendency of gold is to trade with a wide spread between the bid and the ask prices, it presents a drawback as far as owning gold is considered and hence, one ought not to anticipate the reaping of its speedy profits. A considerable price jump is necessary when one buys gold at retailers and sells it at wholesale rates in order to touch the break-even point. Even then, one ought to consider gold as a shielding asset for its preservative value and not as a speculative asset. One can choose from one-ounce South African Krugerrands, Canadian Maple Leafs, or American Eagles, for the ownership of gold minted coins.
Gold Exchange-Traded Funds or ETFs
This method of gold- investing is very exciting. The ETF is just like a mutual fund that trades on a stock exchange like an ordinary stock. As the exact portfolio of the ETF is fixed and unchangeable, gold bullion is the one and only asset of the two gold ETFs that trade in the U.S. and they provide for holding gold on one’s investment portfolio. These two ETFs bear the symbol “GLD” (for the Street TRACKS Gold Trust) and “IAU” (for the iShares COMEX Gold Trust) respectively.
Gold Mutual Fund
Investing in gold mutual funds is a beneficial option to that for gold in the physical form or to owning cheap shares in young companies. The reason is that one can build an investment portfolio of stocks of gold mining companies like Newmont Mining, which is a sizeable, resourceful company, with a history for delivering profits; in short, a Senior gold stock company.
Junior Gold Stocks
There is a certain level of risk associated with investing in this gold stock as there is only a small likelihood of these stocks owning their own productive mines, but at the same time the probable profits are high. With capitalization lower than that for senior stocks, generally the people that prefer to invest in Junior Gold Stocks are well- prepared to take high risks in order to receive profound gains.
Gold Options and Futures
The Options market is quite complicated. Speculation in gold prices is done by the experienced and clever investor through Options in the following ways:
· By hoping that the prices will rise when he buys a call. The call fixes the purchase price such that the margin between his fixed option price and current margin price widens when the purchase price goes higher.
· By expecting that the price will fall when he buys a put.
· A large investment can be controlled with relatively very less amount of money.
· Buying options is many a time quite risky, with the probability of losses being more than gains.
Options expire within a certain fixed time frame. Hence, as only the very -experienced in this field understand the futures market, for the average investor, it is quite challenging to make decisions quickly and in the event that such decisions are taken in haste, they might prove to be wrong, befalling the investor with heavy losses.
The U.S. monetary system was removed from the gold standard by Nixon as a means to solve the current economic problem, but this led to long-lasting effects like trade deficits, increase in the federal debt and the power to print money round the clock in order to build a new credit-based economy. It also led to other countries of the world to go off the gold standard. With the fear of the U.S. dollar crashing in the near future, it is too late to blame the Federal Reserve for its money- printing strategy over the past so many years. Thus it is always a worrying factor for the investor that the future economy looks very depressing indeed. China being a partner in the U.S. economic affliction, the inevitable is yet delayed.
The Chinese debt is growing on the pretentious credit-based U.S. economy with the other Asian countries too, having to carry on with the charade. Once the U.S. dollar falls, many other countries will crumple as well. Commodities offer the offset; for example investing in oil stocks will be profitable because with the rising oil prices and the diminishing sources of oil, only those few companies that have their own drilling and exploration operations will be in great demand. So also will some other commodities.
Investing in tangible assets will be beneficial as far as future planning is taken into consideration. There is high demand from China for coal, iron ore, tungsten, copper, oil, and other metals and hence a bright future for investing in stocks of the same; with gold stocks topping the list.
Paradoxically, the monetary policy follows a predictable pattern. History has shown us that whenever the U .S. government’s printing presses work overtime, the U.S. dollar crashes after a certain period. To combat the same, they have to return to gold, but after many monetary losses and lots of mental anguish caused to individuals. Presently we are going through this phase, thanks to the slipshod monetary policy. But do we have to wait for the final axe to fall? Can we not take appropriate action on an urgent basis in order to keep our investment portfolio secure with tangible assets; free of the meaningless fiat promises and the unstable principle of the U.S. monetary policy?
What is currency? It is only a promissory note; an IOU (I owe you) that is not assisted by any tangible value. We can pay for goods and services with only goods and services. After the limit of our national credit is reached, there will be no option but to withdraw the monetary policy. This will badly affect the savings of the traditional investors. The investors that stand to gain with the fall of the U.S. dollar are those who own portfolios of tangible goods, resources and precious metals.
‘One man’s food is another man’s poison’. This saying holds true in the present situation. You only have to conjure where you are placed. When the U.S. dollar suffers a collapse, it will badly hit those investors that have put their money in dollar-based investments. In contrast, those investors that have invested in tangible assets will most probably smile.