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Top 7 Investment Strategies For Gold Investors
Gold has existed from ancient civilizations until modern times; it has always been a currency of preference and for large banks or governments, a significant investment to back their cash positions.
In modern times, more individuals are buying gold to hedge inflation. Concerns over the devaluation of the dollar and the potential of a market collapse have moved investors into physical gold.
But what other investment options are there for gold? In this blog, we will provide you with our seven most invested gold markets. Your investment dollar could be diversified into one or several of these options. Understanding the value of gold is important to understand the upside of your investments.
In general, physical gold in its most natural state is valued based on the Spot Price. When gold turned into physical bullion coins, bars, jewelry, or notes then the value could be higher than the spot price. The value might be higher due to the demands of production or the rarity of an item.
Investing in ETFs, Futures, and Gold Companies doesn't involve owning of physical gold products. You own paper or interest in a company and your future earnings or appreciation in value is based on the production or success of either the stock market or the company itself.
Gold has always been a source of wealth; many financial advisors suggest that investors should diversify their portfolios. Having a portfolio of allocated resources, including Gold; in so doing, you will have diversified your portfolio, and having the portfolio diversified will help reduce any negative returns over a period of time.
1. Gold Jewelry
Approximately 49 percent of gold globally produced is used to make jewelry. Gold jewelry is primarily the most frequently purchased and sold form of gold investment because it can be easily acquired. Generally, any piece of jewelry at 14k or higher is considered a gold investment. The demand for jewelry products will increase with time because of the growth of the population globally.
However, there are challenges when buying gold jewelry. The retail price markup over the spot price for gold is substantial. In addition, understanding the actual amount of gold within a piece of jewelry is not always clear. They may say the item has 14, 18, or 24-karat gold, but do you understand the actual amount of gold within the piece?
- 14-karat gold item is generally 58.3% gold and the remaining is different alloys.
- 18-karat gold item is 75% gold with 25% other alloys
- 24-karat gold item is 100% pure gold with no other metals
Besides the gold content, jewelry value is based on the rarity of an item. An item made by a known jewelry expert may fetch a higher value because there could be only one item made. The more universally found an item is, the less rare it becomes. When there are several thousand similar items you would look more at the value in gold over the value of a rare jewelry piece.
When looking to sell a piece of jewelry you have two options:
First, is there value as a jewelry piece? If there is value as jewelry you could sell it to a local jeweler or pawn shop, or if extremely rare have the item auctioned off.
Second, what is the melt value? When selling scrap jewelry the value is based on the gold content and the melt value is based on the unit of measure of gold, multiplied by the spot price of gold. The end paid price to you may be slightly less as there is a production process to melting the gold for a new life. Gold jewelers and pawn shops are good locations to move scrap gold jewelry. Understanding the process will help you understand the price offered by these sources.
2. Gold Futures
Gold futures means contracts for buying and selling Gold at a certain period. Each contract is represented by a certain amount of Gold; it is paid through several dollars or the physical Gold.
Gold futures are a good way of predicting Gold's value if it is rising or falling. However, physical delivery is not part of the gold futures process.
Most investors take leverage on gold futures because of their importance in the market. Gold futures ownership is also cheap, meaning you can own a lot of gold futures with a bit of cash. If you invest in gold futures and the curve moves in the direction you have predicted, you will gain huge profits quickly. However, sometime you may risk your money if the curve goes opposite against your prediction.
To avoid losing your money, you need to invest more money to maintain the trend, or the broker will close the trade because your fund is insufficient. You need to note that gold futures can generate a lot of money and can also lead to a loss of your sum amount quickly.
Investing in gold futures is not always essential; experienced traders need to invest. You also need a licensed broker certified for futures trading; not all brokers provide these services.
3. Investing in Physical Gold
Australian Striped Marlin
Gold Canadian Eagle
Canadian Silver Soaring Eagle
Canadian Silver Eagle with Nest
Physical Gold is worth investing in because it's universally accepted. When purchasing from sovereign nations you can purchase coins with a face value. Having these coins allows you to trade based on the value of the gold or the face value of the coin.
There are several sovereign government mints that produce products you can have confidence in and their process is backed by the government issuing the product.
In the United States, there are several private mints that produce gold and silver rounds and bars. These items will typically be stamped with the amount of gold per troy ounce. The value is still based on the Spot Price of Gold, however, when you purchase from a private mint your price may be less than if you purchase a coin from a sovereign government mint.
Physical Gold can be purchased with CASH or you can invest by opening a Gold IRA. When you buy with CASH you take possession personally and are responsible for the items. If you buy within your Gold IRA you will be required to house the gold in a depository.
By buying Gold in a self-directed IRA you get all the advantages of a typical IRA. Defer the gains and losses till you start taking your distributions. You own physical gold in the IRA, so when it's time for your distribution you have the choice of taking the physical gold or selling the gold and taking a cash equivalent.
How do you know what's best for your investment portfolio? Check out The Plug's 5 Best Gold IRA Companies review. We provide the best companies that can help you set up a Gold IRA but these companies are also the best to purchase with CASH.
The options for buying physical Gold are:
- Gold Bullion
- Gold Proofs
- Gold Bars
- Gold Rounds
4. Investing in Gold ETFs
With a gold Exchange Traded Fund (ETF), you can invest in Gold and you don't hold the Gold as a physical asset. Examples of the largest ETFs include SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and Aberdeen Standard Physical Gold Shares ETF (SGOL). Most ETFs mimic the trend the physical Gold holds; others are both as shares for gold miners.
Gold ETFs are traded on the stock market; they are in liquid form and can be sold off when required. Most new investors prefer trading gold ETFs because you don't need to purchase the actual physical Gold.
They can be bought by a certified broker. Always confirm the value of EFTs on your broker before purchasing. You can include Gold in your portfolio with a small amount of committed capital. ETFs have grown fast, with many investors choosing to invest in ETFs.
There are also investment apps where you can trade easily. However, it differs from stock in that it's like a basket of funds to be invested. The value of Gold ETFs is about one-tenth of an ounce. You need to find the appropriate broker account to purchase or sell your ETFs, just like the stock exchange market. It's more cost-effective than owning coins or bars directly.
Gold ETFs investment is the best way of investing Gold for newbies. The initial investment is almost the price of a single ETF share. The expense ratio of these funds is often approximately 0.65%, less than any other expense and investment fees such as mutual funds.
The other benefit ETFs hold over billions is that they can be exchanged for cash at the market price. You can trade your fund any day on the market when it's open for the prevailing price. They are also more liquid than physical Gold and can be traded in the comfort of your home.
While being a good option, gold is sometimes volatile, and investing in ETFs allows you to avoid the biggest physical risk of owning physical g. However, this option is influenced by the market and by the government's involvement in the dollar. Understanding how to trade ETFs will help you use this method as a viable option for your investment portfolio.
5. Invest in Gold Mining StocksYou can invest in companies that mine Gold rather than gold ETFs or bullion. You can purchase shares from a gold mining company; you will gain profit without physically buying or selling the Gold. The advantage of investing in gold mining stocks is that the shares go up as the gold prices increases. But the risk of investing in gold stocks includes; a company's volatility, the cost of production, and companies ability to mine and find gold.
A mining company has a risk of low return on investment; if the management is poor. Examples of mismanagement risk include companies falling into debt and environmental calamities or legal policies that affect mining operations.
Additionally, gold mining stands out more than gold ETFs or physical Gold; when the prices of Gold are falling, a gold mining company can impose and reduce expenses to maintain profit. If you are planning to invest in gold mining companies, consider the return from mining stock depends on the return generated by the company, not on gold prices. When investing in gold mining, consider the two aspects:
- Companies that mine in remote areas of the world increase expense on investors reducing profits.
- Geopolitical unrest in a location where the Gold is mined put a halt to the operation.
6. Gold Certificates
The Perth Mint Certificate Program is a document issued by the government to back up the precious metal credential program worldwide. Investors are allowed to own and invest in grade gold reserved in the vaults in the Perth Mint of Western Australia. The Gold is reserved and stored in a governmental mint; the Lloyds of London also protect it.
The Gold is not owned or located by the investor; this means you don't have the right to own the actual Gold, you are the legal owner, but the account provider is the custodian. Most investors prefer owning a gold certificate because there are no initial or ongoing shipment charges, custodian fees, and insurance interest.
This is the most effective way of investing because of the cost-effectiveness of gold ownership over longevity. Gold can be easily transferred to an allocated account by paying a small fabricated fee if the investor sees it necessary.
In the United States, there is no current or ongoing gold certificate program by the U.S. Government. Issuance as U.S. currency lasted until 1934. The certificates represented the amount of gold owned by the individual. Individuals purchased certificates ilo taking physical gold possession. Many chose this option over physical ownership as it was safer and more difficult in those days to transport coins or bullion safely.
The U.S. Gold certificates were backed by gold coins and bullion stored by the U.S. Treasury. Today, the certificates are no longer redeemable for gold coins or bullion. However, all certificates are considered legal tender and can be redeemed for their face value.
In 2019, Goldback company in Utah started producing Notes and selling them in the state. Initially planned for just Utah the company produces Goldbacks for four different states including; Wyoming, Utah, Nevada, and New Hampshire. Are you interested in more information regarding Goldbacks? Check out our review of Goldbacks here.
7. Investing in Paper Gold
Another way to invest in gold is through companies that mine Gold or explore new gold deposits. As an investor, you have the option to choose from both miners and explorers. You can decide to diversify your investment in numerous gold mining companies. However, investing in a miner exposes you to more risk than investing in Gold directly.
You can also invest in Gold via financial products such as spread betting, futures, and options. You will be able to bet on the future trends in the gold price with all these products. In these markets, you don't have ownership of any physical gold.
The advantage of the product is that it gives you the leverage power on your investment. You can borrow from your invested company to boost the bet possibility. If the price goes in the direction you predicted, it will boost your profits; if it goes against the direction, you bet you will lose your cash. You could lose the entire sum of the original investment.
Why is Gold So Valuable?
Gold has always been valuable since it was first mined for its luster. Uses for gold have been in currency and jewelry for thousands of years. Given the difficulty of mining, along with transforming the metal into an item of value, the process has made the product valuable.
Since the belief is that gold is a diminishing asset, the value for investors has increased over the last 100 years. When the U.S. Government took gold from individuals the gold had value. Initially Gold backed the U.S. Dollar and most recently it is used as an investment vehicle.
Gold backs governments and their currency around the world. Banks have millions of dollars worth of gold in their vaults backing the bank and its ability to cover the deposits in their banks.
The price of Gold has increased by 350% in the last 30 years. The ever-increasing uses, check out the top common uses of gold, of gold has stretched the metal thin for utility. That along with the demand from investors and the cost to recover gold from the earth increasing, these all influence the value of the physical gold bullion.
Why do Investors like Gold?Most investors choose Gold because of its security in their portfolio and as a form of diversification. It also gives investors leverage compared to stock or bonds. If you are looking for an investment opportunity with minimum risk, Gold's got you covered. Here are other reasons why investors prefer gold:
- Liquidity: it is easily converted to cash.
- Value Stores: Gold allows investors to measure the value of wealth or physical asset
- Returns: Gold is verified to have high returns historically.
- Security: Because Gold is unique, they don't perform the same as stock or bond; it is not affected in an economic downturn. Investors are attracted to Gold because their wealth is safe from risk.
Reasons You Should Invest in Gold
- Gold is in high Demand
Gold has always been highly prized in ownership or possession since ancient times. However, with the revolution and change, the mining industry is dwindling. Miners no longer gain huge profits like before; change in climate due to environmental factors, safety reasons, and political unrest has affected them. However, this challenge has not changed the fashion industry's Demand for Gold.
Many companies have invested in Gold more than before. They use it as a security for uncertainty they expect along with saving and investment financial transactions. Due to the rise in Demand, the prices and value of Gold have gone up in contemporary times.
- Inflation Proof
Compared to other investments which are vulnerable to inflation, Gold is used to hedge inflation. Whether the currency value drops in value or increases, Gold is not affected by the outcome of the uncertainty occurred in the country. According to historical data, precious metals are recognized for their stability even during economic drawbacks.
Unlike any other physical asset that depreciates or loses value over time, Gold has always appreciated or retained the same value.
- Universal Value
Gold does not lose its inherent value. Wherever you are located in the world, precious metals maintain their value as precious metals.
Gold is renowned and has value globally. For instance, a gold trinket would remain precious and valuable in Austria as it would in the USA. This is because it is universally accepted. Therefore, investing in Gold is a source of financial security and assurance in any location you move or choose to stay.
- Highly Valued Physical Possession
Gold protects you from investment fraud, internet blackout, and market crashes because it's a highly valued physical possession. Additionally, you can take your Gold to protect it during an emergency because of ownership. Always ensure your Gold is in a safe location or insured against the possibility of theft.
Most investments in the contemporary days need a third party, financial advisor, or financial institution. You will need to contact your advisor or financial institution before accessing your investment. Other external financial advisors can scam you into investing through them.
To avoid this, you can invest in Gold coins and bars personally. If you keep your transactions under the U.S. standards of $10,000 there is no reporting requirement. Therefore, you can invest and have privacy from others knowing your business. Note: this would indicate you are transacting in person and paying cash. Any form of payment or roll over from an existing IRA can be tracked.
- Generational Investment Option
If you are worried about your retirement age and wondering what you can leave behind for future generations, consider investing in Gold. This will act as a security asset for your children and great-grandchildren.
The price of Gold sometimes appreciates because of scarcity. Gold has increased in value over the past 50 years and there is no end in sight. The spot price will fluctuate and cannot be pre-determined. The unfortunate part of any investment is the potential for loss.
Knowing why you are investing in Gold is key to understanding the long play in gold investments.
Final ThoughtsNo matter your method of Gold investing the truth to this is Gold is a good investment vehicle. If you are one to be more methodical you might choose rare jewelry or coins. If you are looking to stabilize your portfolio you may choose various bullion, coins, rounds, or bars.
Having a choice is what we are trying to express. There is no one best way to invest in Gold. There are several methods that can make for great investment choices. Understanding those methods are your responsibility.
The Plug hopes that you have gained some additional insight into Gold Investing for you and your portfolio.