Gold Investment Guide

Financial assets and paper currency are fighting hard in this tough economy and there is no sight of positive change in the near future.  Although this is true, the weak U.S. dollar is causing the value of gold to skyrocket.  Gold has extensive functionality as an investment vehicle; there are many different ways to invest in it, and historically gold has held its value, making it a safer investment option.

Investing in gold comes with flexibility and security, making it a great investment strategy.  Compared to our paper money which is being printed everyday, gold is a scarce natural resource with no way to make more.  For every new dollar that is printed, our money decreases in value.  The security of the limited supply of gold versus the endless supply of paper money adds needed stability to a portfolio.

With investing in gold there is an option for everyone, the gold market offers a lot of opportunities.  The most common investment method is gold bars or coins, which is the direct ownership of the gold.  There are many reasons why physical gold is the most popular.  For one, gold is available in very small amounts and therefore anyone has an opportunity to invest in it.  One does not need to be wealthy to purchase gold; there is no minimum amount to start an investment.  Investors choose this option because they feel the most secure holding the gold themselves.  Also, the purity of the gold is strictly regulated by internationally-recognized refiners and mints so the risk of being “ripped off” is greatly reduced; the investor knows exactly what he/she is dealing with.  Buying and selling is very convenient and made easy for anyone to do, so cost is reduced by handling the transaction yourself.

Gold is traded in the form of securities on stock exchanges in many countries including the United Sates.  This is another popular gold investment alternative; often called gold exchange-traded funds (ETFs).  Exchange-Traded Funds are index funds that trade just like stocks on major stock exchanges.  An investor will receive a certificate with the purchase of a gold ETF, the certificate represents a portion of gold held in a vault.  The value of the gold ETF investment changes according to the shifting price of gold held in the vault.  Investors often feel comfortable with this option because gold ETFs are backed 100% by material gold.  ETFs are economical to buy; and particularly easy and efficient to maintain over the long-run.

The least known investment option is gold mining stocks. Investing in the stocks of gold mining companies is the most roundabout way to invest in gold and also the most risky of the three methods mentioned.  Choosing this option, the investor is “playing” this stock market rather than investing into gold itself.  While the success of these mining companies’ stocks are dependant on the supply and demand of gold, the risks run about the same as investing in any other stock in the stock market.

One ounce of gold purchased in 1973 for $64 is now worth more than $900. This is more than 1000% return on investment.  The price of gold does not work the same as stocks or other common securities and therefore investors who are unfamiliar with the idea of gold as an investment shy away from the idea altogether.  But what should be known is gold prices are generally immune to all the factors that can shake the stock market.  The price of gold is driven by supply and demand and is set by five members of the London Gold Fixing, who meet (via phone) twice a day.  Gold is itself independent.  It does not depend on any government and is not affected by any one country.  The economic forces that determine the price of gold are different opposed to the forces that determine other securities.  As a result gold prices move independently, and frequently move opposite those of other assets in a portfolio.  With gold’s historical stability, it is insurance for the unknown market future.

The past eighteen months have been volatile times in the world economy. With so many big firms falling apart, small businesses going under, and governments voicing concerns, the markets feel like a violent rollercoaster. With such an unstable environment, people look for something stable. Gold is an asset that has been reliable for ages. Whether markets are sky rocketing or plummeting, gold is a solid investment and its prices are not always directly affected by other larger markets.