West planning gives you the best advice regarding gold as an investment.
These see the current market trend and give the possible solution to your gold investment. They advise you based on the kind of the goals you would have and kind of returns you are expecting for the future.
Gold is considered a precious metal from thousands of years.
Some of the famous personalities consider gold to be inferior for investment whereas some others consider that value of gold has increased considerably over time and is a safe investment option when other finance system fails.
If you are thinking of using gold as a part of your current investment than there are various options available with different characteristics of these investments for different portfolios.
Here are a few things you need to know before you buy an ounce of Gold.
There is a limited amount of silver and gold in the world and they act as a store of value.
However, value and investing in gold are two different things.
It should be noted that gold does not produce wealth, its value is decided by the market. Stocks produce returns which in turn can be reinvested.
So, bonds and stocks are valuable because of the returns you get. Gold backed cryptocurrency is also one of the options available, but you need to research and invest with caution.
Gold Bull is a trader or investor who is overly optimistic about increase in the gold futures, Gold Bullion, and other related assets. So, it is advisable to take their suggestion for the best investment.
However, westplanning is currently the number source for advice on gold as an investment.
Which is the better option to invest, Gold or Silver?
Gold or Silver, both are precious metals. So, which is a better option for investment? Sometimes, it is good to invest in Gold and sometimes on Silver. However, silver is 70% more volatile than that of gold.
Gold will be a better investment considering the risk involved with silver over the next 3 years.
Also, the other argument put forward that of gold is it acts as a source of alternate currency. Many banks are more likely to buy gold than silver. Investors are interested in buying gold than silver.
What are the various ways to possess gold?
There are more options for investing in gold today than several hundreds of years ago.
- Gold coins
- Gold Futures
- Gold ETFs
- Gold companies
- Gold mutual funds
- Gold Bullion
- Gold jewelry
Below are some of the ways to invest in gold with all the needed information for you to choose the best:
Exchange of Gold Traded Funds:
Gold ETFs gives more liquidity than others for those who do not want to hold their gold directly.
For example, SPDR Gold trust has a share value that is less than a tenth of one ounce of gold. These ETFs holds and stores a physical gold and acts as a supporting value for ETF shares.
The advantage if using these ETFs is that you can sell or buy shares whenever the stock market is open.
The costs of the transaction are much lower than a live physical bullion sales and purchases.
However, some the investors do not adore using ETFs.
Because even if they are considered as an asset you cannot claim the physical gold which the ETFs possess.
What is a physical gold bullion?
There is no alternative for many of the gold investors for possessing actual physical gold.
A wide variety of bars and coins are available from private sellers and government mints and you can normally purchase them from specialists’ dealers in other metal and coin dealers.
The greatest advantage of having physical gold is that you possess it directly without any mediator between your asset and yourself. But gold has its own set of challenges.
It should be stored in a secure place which is quite costly at times.
Furthermore, many dealers add premium charges to the existing bullion value when you purchase gold coin or bars, so when you sell you may receive less than the prevailing value.
Gold futures contracts:
Futures contracts are an alternative low cost if you like to have control over a high proportion of gold.
At New York Mercantile exchange these gold futures contracts come in 100 ounces unit which is $130,000 at present prices in the year 2018.
You need a slight minimum level of marginal investment to open position.
You are also required to maintain a minimum level of margin. Presently the margin of maintenance of the NYMEX is just 3% of contract margin or $4,200.
Considerable leverage is offered by these margins for the investors. You are equally responsible for the losses of the futures contracts full value and you will have to bear the additional losses by depositing the cash.
The possible rewards offered compensate the risks for some.
Companies for gold streaming:
Buying shares of these companies is one of the best ways to invest in gold.
Financing is provided by these to the mining companies in exchange for part of a production of gold.
The advantage of these companies is that they are exposed to prices of gold and can get a steady stream of revenue from their arrangement of finance.
One of the gold streaming company has increased its dividend steadily for nearly a decade and it is quite better than other mining company’s stocks payment, even if it is below 1.3% of the market average.
Likewise, this company has another competitor which has made an own smarter deal.
Share prices fall when the gold falls.
But low conditions of these industries can also bring other lucrative potential financial deals that an prove to be more advantageous for these and other gold streaming companies.
Stocks of gold mining:
Investing directly in gold does not produce any kind of income.
These stocks are active businesses.
Even though they are related to gold prices, these companies rise when they have primary success in their respective business operations. When the prices rise, most of the mining companies go more sharply than actual gold.
However, these stocks have more added risks than bullion investments.
These stocks can drop drastically if a disastrous event happen to the company’s business like an accident in the mine or failure of promise of efforts of exploratory, even if the gold rises.
Some of the mining stocks have even greater downward plunge when the gold prices fall.
Gold as privet against rising inflation and declining U.S dollars.
The impression that gold keeps wealth is even more important for investors for rising inflation and decline of U.S dollars. In either of these situations, the gold has served as privet.
When the money is losing value, the investors start investing in their hard asset which maintains its value.
Gold is priced in US dollars worldwide so when the US dollars declines the gold is benefitted.
This relationship has two reasons.
Firstly, the US investors must sell out their US dollars to buy this precious metal. This makes the US dollars to go down as investors search for diversifying their dollars.
The metal gold is made cheaper with a weakening dollar who are keeping other currencies. As a result, there is a bigger demand for investors holding other currencies which are quite comparable to the US dollars.
Gold is considered as a safe haven for investing
During the times of economic and political uncertainty, the investors view up on gold as safe haven.
This is because the investors were able to guard the wealth and also escape from some of the political turmoil. So, during any hint of uncertainty, the investors buy gold as a means of safe haven.
Gold can also be used as a diversifying investment. Whether you are worried about uncertainty or inflation or protecting your wealth, gold has always served as a diversifying component for the portfolio.
Gold can be used as an asset for paying dividend.
Growth investors find gold stocks more appealing than investors on income.
As gold price changes, the gold stocks also fall and rise but some of the mining companies manage to make a profit even when the gold prices slash.
A slight increase in gold price can increase gold stock prices significantly.
The gold stock owners get a significantly higher investment return than the physical gold owners.
The investors who is focused on growth rather than steady income can also get benefited from selecting gold stocks that ensure higher dividend return.
Gold stocks that are paying dividends show more profits when it is rising and do better than the non-dividend paying stocks.
The gold extracting companies experience high volatility, we have to evaluate the company’s performance in evaluating the dividends.
Any company which goes through expansive growth cycle and has low cash level in hand and takes more debts, it is necessary to consider figures on long-term than short picture timeframe.
Does gold price rise when the stock market crashes?
The answer is yes regardless of whether the crash lasted a long time or short-lived.
A total of 56% decline was seen in the past 2 full years of 2000. Hence it should not be thought that gold prices will fall down, an exact opposite had happened many times.
The reason for gold to remain strong during the crash is because the two are correlated negatively.
When either of them goes down, the other one comes up.
Stocks are dependent on stability and economic growth whereas gold is benefited from economic crisis and distress. Usually, investors take shelter of gold when the stock markets fall. If the stock markets are high, then the perceived benefit from gold is often exceptionally low.
There are historical data proves this negative correlation between stocks and gold.
Shown below is a link to a graph and what each line mean.
The Line Zero in the link means gold is doing mostly opposite most the time for the investment.
The line below Zero indicates that Gold is moving reverse to that of investment most of the time than go with it. If the line is above Zero than it means that it is moving along with the investment most of the time than contrary to it.
We can understand from the above chart that gold has climbed more when the stock market crashed.
Gold is valued even by real estate more than half of the time.
So, if you need an asset which rise when all the other assets fall then most probably gold is likely to be one. If you feel that the economy is going to be weaker, then you may own more gold.
On the other hand, if you feel that the economy is heading an upheaval than you may want to own less gold.
When the stock markets where flat for a longer time than the gold had its biggest bullion market.
The gold catalyst was rather unrelated to the stock market.
What about Cryptocurrency?
Cryptocurrency is compared to economic mechanics of the gold.
They are fungible, scarce and are not attached to any debt. A digital currency called “bit gold” was created by Nick Szabo that contained some characteristic of the gold.
Even this is also one of the options available for investing.
The Bottom line for Gold Investment
Every investment has both advantages and disadvantages.
If you do not like to keep physical gold than investing in stock market can be a good idea.
If you are confident that gold is the safest option then investing in bullion, coins or jewelry can take you to the prosperity’s path.
However, if you are primarily interested in using the profits from gold price rising then the answer to them might be the future markets.
There is a reasonable amount of risk involved based on this kind of leverage holdings.
If a dollar is invested in stock in the year 1801 then it would be half million dollars by 1998, while investing in bonds would yield only a few thousand dollars for the same period. While investing a dollar in gold would be just 78 cents by 1998.