Investors, speculators and hedgers buy gold and the reasons are not difficult to guess. The precious metal has continued to draw investors since generations as a dependable source for fighting against economic recession that often causes depreciation of other traditional securities like bonds, stocks and commodities. Investors get many options for purchasing gold. Here is a gold investment guide for intended investors:
A very popular way of investing in this precious metal is to straightway buy it as coins or bars made from gold. The drawback of this kind of investment is that it has associated risks of loss or theft. Generally, most insurance plans that homeowners opt for have no provision of insuring gold, unless they are willing to pay unusually high premium. Financial institutions like banks offer to store the metal but they too ask for a very high fee. For these reasons a lot of investors get discouraged to invest in physical gold.
Gold Stocks, Funds and Futures
Much to the relief of investors, they get many other options for making investments in gold and feel secured. There are available quite a few financial instruments connected to price of the precious metal. For instance, they could invest in exchange-traded funds (ETFs) trading in gold. Public exchanges trade shares of ETFs as stocks. The other option comes by way of buying mutual funds focusing on gold holdings. Another popular choice of investors is to buy stocks of gold mining companies as the prices of such stocks are closely linked to the cost of metal. Moreover, a favorite of many derivative markets is trading of gold through future contracts.
The most frequent buyers of gold include jewelers, manufacturers of electronic equipment and dentists. However, the cost of gold gets largely influenced by people investing in the metal. Many buy gold for the purpose of earning profit by selling it when the prices go up. This category of people is called speculators. The more is the number of speculators investing in gold, the more is the fluctuation in its price. The world gold council started maintaining records and realized that in 2010 that over fifty percent of demand for gold was created by investors.
In comparison to other forms of investments like annuities, savings accounts and a lot of stock or bond funds, the price of this metal is exceptionally volatile. Its price tends to and does lose repeatedly. However, whenever there is any economic downtrend, an investment in gold is more likely to perform well. Under conditions of economic uncertainties, the performance of stocks and equity investments is usually poor. It is for this reason that gold investment guide like most portfolio advisors suggests including a small part of total investment as asset in gold to have a well-balanced investment portfolio.
This gold investment guide will be incomplete unless readers are informed of the fact that in the US, the profits made from buying and selling of gold coins and bars are taxed as capital gains from collectibles. Tax rates for capital gains are normally higher than the ones for investment securities. That is one good reason for investors in the US, looking for long term investment in gold, to prefer investing in gold funds and stocks. Usually, gains from such funds and stocks qualify for getting taxed at a rate lower than the rate of capital gain tax.
This gold investment guide should hopefully prove helpful to investors. Best of luck!