Gold is a crisis asset. Whenever there is uncertainty in markets or in the economy, the price of gold rises. Hence, it is considered to be a safe haven for all types of investors. Gold is a part of most investor portfolios to diversify some of the risks that stock markets and bond markets bring to the table. There are several ways an investor can gain exposure to gold and it is important to know how each of them work in order to make a decision that best works for you.
Before we dwell into the various types of gold investments, it’s important to understand how gold derives its price. Gold, like every other commodity derives its price from supply and demand. Unlike equities, there is no underlying intrinsic value for the precious metal.
The buying of physical gold in the form of bars and coins is known as Gold Bullion. Investors can buy bullion from authorized dealers or banks at the spot price of gold. Gold bullion is also purchased in the form of jewelry, especially in Asia and the Middle East. However, the price of gold jewelry also includes the cost of craftsmanship in addition to the price of the precious metal.
Gold funds and gold ETFs (exchange traded funds) allow investors to invest in gold electronically. This is a lower-cost and higher liquidity option for investors looking for exposure to the precious metal. ETFs and funds that invest directly in gold bullion or have a combination of gold bullion and gold mining stocks can be found.
Gold ETFs offer greater liquidity than a fund since investors can buy and sell the asset anytime without paying a fee to exit the position – which is the case with gold funds.
Equity markets also offer a way into exposing your portfolio to gold. Shares of listed companies that mine and produce gold can be purchased. The profitability of these companies depend heavily on the price of gold. However, there is an added element of company risk when it comes to gold mining stocks compared to gold ETFs or gold bullion. Gold mining stocks come with firm specific risk that cannot be diversified away along with the market risk. Gold mining stocks expose an investor’s portfolio to gold partially, and the investor owns the stock of the gold mining firm and not the precious metal.
- How much to invest in Gold?
Firstly, you should go about establishing a risk profile in order to determine asset allocations for your portfolio. A financial planner should be able to assist you in creating that perfect portfolio for your long term goals and objectives.
- When to Invest?
The right time to invest in financial markets is always now. A specific good or bad time cannot be determined when investing to preserve and grow wealth.
- What are the top gold stocks?
Do check our previous blogs where we have talked about the top gold stocks to invest in. For additional assistance and more real time recommendations, do not hesitate to get in contact with Shares in Value.