Investing in Gold: The Basics
Posted by Luis Marini on Wed, Dec 01, 2010 @ 03:21 PM
Considered perhaps the “most precious,” and certainly the most popular, of the precious metals, gold is also the precious metal most commonly used as an investment vehicle. Gold has played an important role throughout history, as both a form of currency and as an item to be admired. Still highly adored, gold also plays a key role for financial investors who view gold as a store of wealth during financial uncertainty.
According to the World Gold Council, demand for gold declined sharply in the 1980s and 1990s as other markets developed; however, gold has returned as a highly desired asset in recent years. In fact, “since 2003, investment has represented the strongest source of growth in demand, with an increase in the last five years in value terms to the end of 2008 of around 412 percent.”
Why Invest in Gold?
Research has shown that gold is negatively correlated with the US dollar. As a precious metal, gold is considered to be a strong hedge against fluctuations, both inflation and deflation, in the US dollar, as well as in foreign currency. While markets are cyclical in nature and experience highs and lows, gold has shown that it maintains purchasing power over an extended period of time, and acts as protection during economic instability.
Further, gold can also experience peaks of high growth, such as the present, resulting in significant returns for investors.
Investors also turn to gold for portfolio diversification. While many investors focus on stocks, bonds and cash, commodities such as gold can act as effective investments for diversification. Because gold is not affected by some of the same factors that influence other asset classes, gold can add a level of consistency to a portfolio that may otherwise be impacted by economic conditions.
How to Invest in Gold
There are a number of different investment vehicles both private and institutional investors can use to participate in the gold market, including:
- Bullion gold bars
- Gold coins
- Exchange-traded products
- Gold certificates
- Gold accounts
- Derivatives
Depending on the level of flexibility and diversification desired by the individual investor, Investors may choose to invest in one or several of the options listed above.
Today’s Market
With gold prices at an all-time high, investors are rapidly buying gold. This is a testament to the strength of and demand for gold today, with high hopes that the precious metal will continue to perform at unprecedented levels.
Thinking about investing in gold? Be sure to do your research of all investment asset classes available to you, and develop a strategy that you are comfortable with.
What do you think the future holds for gold? Are you currently investing or considering investing? Tell us about it below.
Related Blog Posts:
Connect with Metallix Direct Gold on Facebook and Twitter.
Subscribe to the Metallix Direct Gold Blog via email or RSS.
Sources: