Gold is the darling of smart investors right now, and for good reason, as its prospects have seldom looked this bright.
Here’s everything you need to know about investing in gold, in a nutshell. Pick a vehicle for once in a lifetime, they’re likely all winners soon enough.
For those unfamiliar with Basel III and its international ramifications, let’s just say the gold price just got hold of a bottle of steroids.
True to its formally volatile nature, it’s inspiring both camps of for and against, but oh boy it seems like the ayes have it this time!
Gold got a shot in the arm recently, and it’s going to make good use of it.
There is both investing in gold and actually buying the yellow metal, and when buying, some have coin preferences while others are bullion fanciers.
Many equate gold coins with pure gold bullion, but although of course coins have a gold value and collectability going for them, bullion is usually cheaper and, well, “purer” for many.
The purest exposure to gold for many others, however, is to simply position themselves using the markets’ vehicles to get into gold.
Investors looking to get on a train that’s sure to be a mid-term joyride turning into a longer-term sunset cruise would do well to look at the options below, and sense which structure resonates with their personal ambitions.
Gold’s annual and longer term return
One particular type of gold investment is not necessarily better than another.
The way this plays out in the gold market, is that individual time frames, personal circumstances, and other individualized criteria make one man’s meat another’s poison.
But if both succeed in their aims with their chosen vehicle, where’s the loser?
Numero uno, gold futures.
Gold futures are a reliable and solid route to speculating on the future gold price, and their greatest benefit is the huge leverage that investors can access.
This means you can own pots of gold for a nominal amount of money.
So, if gold rises, you can make a lot of money quickly.
Of course, if gold dips, you’ll need to still pay the piper, as futures cut both ways－hugely generous for a nominal outlay on the plus side, and massively demanding when things turn sour.
The futures market is considered the playground of more sophisticated investors, simply because the downsides need careful calculation and understanding.
That said, with gold glowing bright in human consciousness right now, it’s simplified a lot of the risk and needed maths.
In the unlikely event that gold flounders, most savvy investors will allow the contract to close, rather than keep pumping money in to maintain their position.
Even here, futures will be a smaller pain than, for example, someone cleaning the gold bars out of your vault!
Secondly, there are ETFs that own gold.
If owning the metal and storing it in your home doesn’t appeal, and neither does the risky futures market, you can buy into an exchange-traded fund (ETF) tracking gold.
These funds have a low expense ratio, which makes them attractive, and this kind of holding is also easier to trade for cash in daily trading.
Gold ETFs overall are more liquid than gold coins or bars, and there’s no need to leave your home to trade them.
Of course, the risks are that the gold price might fall and, as with any other vehicle tied to gold, ETFs like this will dip in value.
But you’ll avoid the big downsides of owning physical gold with an ETF, as well as derive maximum value from the metal’s performance with them.
Thirdly, there’s a relative direct route to gold by buying mining stocks.
It makes sense to associate with the producers, and investors who opt for mining stocks have a potentially bonus in their strategy too.
If gold goes up, so does the miner’s value, and thus your stock holding’s value. Moreover, mines can increase production over time, so providing an exponential value other stocks struggle to emulate so directly.
Stocks are stocks, and risk is part of their makeup.
With gold better than ever as a core business, there are a lot of hopefuls out there who may or may not make it to successful and profitable operation, so due diligence is essential.
Stick to already producing mines that have a legitimate ability to produce gold, not the wannabes who are often very attractive in a small cap way, but of course carry far greater small cap risks.
And finally… the last sensible option for gold investment
You can also buy into ETFs that own mining shares.
If you’re not interested in trying to calculate the future profitability of any particular mine, why not let someone else do that homework?
Gold mining ETFs give investors exposure to solidly performing big names in gold mining, and they eliminate the direct hit of buying any individual mining stock that might falter by building their value with a spread of shares.
Very reasonable expense ratios (costs) make these ETFs attractive too, while you’re getting the best of both worlds with selected miners in your corner, yet in a sufficiently diversified manner as to avoid heavy fallout from any one particular mine’s closure.
Some funds concentrate on blue-chip mining stocks, while others tout a more junior pack with greater risks and potential rewards.
What’s the big picture?
Gold is shining, all puns intended, and your personal preferences and appetites will determine how you feel most comfortable getting into the yellow metal, but get in you should.
Few other moments in history have collated so many positives for gold, so talk to people who are at the coalface right now, and get some of that glitter in your life!
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