The increasing volatility in the equity markets have made equity investors nervous and they are leaving the equity markets to enter gold investment markets. The asset allocation perspective has played a very little role in this investment decision of these investors who are thinking gold investments to be a more profitable decision at present.
Let’s see how gold is different from other asset classes and the best ways to invest in gold. Gold, through the ages have proved to be an effective hedge against inflation. Investors are always worried about the erosion in the value of currency and an effective way by which they can guard their wealth is by holding it in an avenue that would preserve the wealth’s worth. Nothing can be as good as investing in gold to satisfy this objective. Secondly, gold can bring about stability in your investment portfolio especially when the equity market becomes volatile.
Prudent investors who bother to invest in gold before the crash of the equity markets acquire stabilization. The reason of asset allocation also plays a vital role to induce investors in gold investment. This is the process, by which investors can diversify their investments in various classes of assets like real- estate, debt, cash, equities and gold. Investing in these categories would help to decrease risk in the overall investment portfolio which means that the entire portfolio do not get affected by the poor performance of any one investment.
Direct ownership is the primary way of gold investment. With gold bullions, you are conserving pure value. Even the ancient Egyptian civilization realized the true value of gold when they made it a custom to bury gold with the deceased pharaohs with the belief that these valuable metal would be of great use to the pharaoh in his life after death. Gold, being a defensive asset for preserving value would prove to be a valuable asset during the fall in value of the dollar. You can choose to own gold in some preferred forms like Canadian Maple Leafs and American eagles.
The popularity of the Exchange Traded Funds or ETFs have made it a more meaningful and profitable option to invest in gold. We call recall two ETFs in the United States which hold gold bullion as their only asset. These two gold ETFs can be known from the symbols “GLD” and “IAU”. The former ETF is from Street TRACKS Gold trust and the latter from iShares COMEX Gold Trust. You can expect to invest in gold without even physically possessing the metal. This becomes possible when you buy gold mutual funds. You can buy stocks from reputed gold mining companies like Newmont that produce promising quantities of gold each year.
Newmont represents a senior gold stock that has been promisingly productive through the years. But if you are ready to take a chance you can also invest in the junior gold stocks which are from the less- productive mines. These stocks are characterized by higher potential of profits and higher potential for losses too. You can think of buying this level of stocks if you can accept losses while aiming to achieve a great gain!
If you are an experienced investor then the options market is open for you where you can speculate in gold prices. The positive side of investing in the options market is the investor’s ability to control a large investment with limited money. But the options expire after a fixed time period which means option’s time-value disappears as the expiry date approaches. In fact, majority of the investors have suffered losses while investing in the options market. The futures market is even more complex and it has been found that the investors who have made profits in the options market have faced severe losses in the futures market.
While you decide to invest in gold, you must remember certain facts about the investment. For example, gold investment is not like an investment in the debentures of a company that give regular income Secondly, you won’t get nay tax benefit when you invest in gold, but on the contrary, you are subjected to a tax liability when you sell gold. You also have to incur some extra costs while preserving gold.
For example, you need a bank locker for keeping physical gold secured and if you have bought gold over the stock exchange then maintaining a demat account is a must for you. Whenever you buy gold you must ask the seller to provide you with an authentication certificate that proves the purity of the metal, else, you might get cheated and in the future you have to sell the substandard gold at cheap rates.
Gold investment 
