There are many different ways to invest in gold
Among the most popular are the trading of physical gold and the trading of exchange traded funds (ETFs). Gold ETFs are probably the easiest to invest in as they require nothing more than a common brokerage account (which you may already have) to trade them. Gold ETFs are actually funds based on any particular gold index and will to whatever degree track the underlying index. The gold index which any given gold ETF uses can vary, but regardless, gold ETFs usually will try to mimic gold’s commodity price, or rather, the ‘spot price’ of gold.
Gold ETFs, while really easy to invest in, can be quite risky to trade. Because they are traded as securities they have a habit of either following with, or following against, the market as a whole. Gold may be up but your gold ETF may be down. There are many reasons that could cause a sell off of an ETF and many reasons to cause one to rally. What your gold ETF does may at times have no bearing on what gold itself is does and visa versa. This is one of the more pertinent reasons many people do not wish to trade Gold ETFs.
Because of the volatile nature of some gold ETFs, some people prefer to trade physical gold. Trading gold physically, however, presents challenges of its own. One of the biggest challenges of investing in physical gold are the hefty premiums that have to be paid when both buying and selling. These premiums can often times be as high as 5% or more. Paying an additional 5% of the value of the gold when you buy and another 5% premium when you sell, means that if you waited 2 months for the price of gold to increase by 10% means that you really didn’t make that much.
While investing in gold has its challenges, it also has its rewards. Gold can be an effective way to hedge against downturns in both the market and the US dollar. When the market goes down, most gold ETFs will go up and visa versa. This means that you may effectually hedge your positions in the market by purchasing gold during the times when you think it will be increasing in value. You can also use gold as a way to make your portfolio more ‘beta neutral’ while still maintaining a positive ROI. Beta neutrality basically means that your portfolio’s value doesn’t track the markets’ value, meaning the market could be down, but your portfolio’s value could still be up. It goes both ways, however, so make sure you are investing in stocks which are strongly trending.
How Gold Bullion Bars are Made
Regardless of the method you choose, investing in gold can be both fun and rewarding. Be sure to be careful when choosing a dealer when buying physical gold because there are in fact many scams out there. Always consider consulting with a financial professional before making an investment.
Author: David Kennedy Google+