Gold is always considered as a good investment instrument, especially against high inflation rates and economic problems. What make this precious metal a good investment instrument is its relative price stability and almost constant growth rate over time. More over allocating a portion of your portfolio to gold ensure diversity of your portfolio and a hedge against portfolio risks arising from price volatility.
There are many different ways, including both are direct and indirect, available for invest in gold. Every method have their own merits and demerits and there are many factors to be considered before adopting to any of the way, including your portfolio size, risk tolerance, risk capital involved, investment experience and active portfolio management strategies you are following. Some popular ways of investing in gold are mentioned here with there merits and demerits.
Include investing in certified and standardized gold coins and gold bars. The idea is simple, you will get the yellow metal worth the amount you paid and should offer you profit when you sell that after some time. You will have direct ownership of the precious metal. But demerits include insurance and storage costs. Inflation and price change can produce worse effects on your investments.
This is a very good way of investing in gold only if you are crazy about these art pieces. From an investor’s point of view, who wants portfolio growth, investing in gold jewelry is a costly option. Jewelry items are often far more priced than underlying metal value. But investing in jewelry is very popular in countries like India.
ETFs are becoming highly popular trading instruments. Gold ETFs, which hold bullion as their underlying asset, is an excellent indirect investment. ETFs are traded on exchanges in the same manner as stocks and their portfolio is fixed. They are cost-effective liquid trading instruments, meaning you can purchase or sell them when ever you want. Investing in gold ETFs do not require investment knowledge but you have to look for the fund management policies first to make yourself clear that ‘it is going to work for you’.
One another indirect way of investing. Mutual funds buy, hold and sell stocks of gold stocks – stocks of gold mining and trading companies. Investors can buy shares of these mutual funds for future gains. Not much investing knowledge required but the investor must choose from different mutual funds following different asset management strategies.
Futures on gold is perhaps the most cost-effective way of investing in gold. With a small capital investment you can control large sized futures contracts, by effectively utilizing trading margins. Trading futures also include low commissions. Gold options are also powerful and cost-effective investing instruments, which can be used to own desired quantity of yellow metal in future, and can also be used to hedge price changes of bullion/jewelry/share that you hold. But investing and profiting from both futures and options require good trading knowledge and experience.
Investing in stocks of gold mining and exploring companies is an indirect way of investing. But it requires good trading knowledge and stock screening skills.
These are accounts setup for investing a fixed amount of sum to buy the precious metal every month. When the accounts are closed, investors can own the gold as bar or coin. The advantage is that as fixed amount of money is allocated for each month, more metal can brought in price fall and less in price rise. But this is a long-term process (minimum one year) and you should have steady monthly income to feed these accounts.