Category: Investing

Dec 01 2011

Investment Opportunities: Making the Gold Market Work For You

Thanks to the a volatile stock market and certificates of deposits (CDs) and money market accounts paying their lowest interest in 5 or more years, good investors are eagerly looking for other opportunities to make their money work for them and keep on earning. Many are turning to other markets, and one of the most attractive for those who can afford it can be the gold market.

Although investing in gold might not be your first idea when thinking about starting a new investment, in these precarious financial times it is actually rather steady compared with other investments. Of course its value fluctuates, but it behaves more like a currency, in smaller increments up and down, rather than going into free fall like certain stocks.

Gold is a commodity, and you can usually spot trends and jump in and out of the market more readily than you can with certain stocks. Gold has reached all-time highs consistently in the past three years, so if you can afford to enter the market, investment experts suggest holding 5 to 25% percent of your portfolio in gold.

Methods to invest in gold include actually physically purchasing gold bullion in the form of coins or bars, buying gold bullion as a member of a group of individuals who invest together in a special fund, and investing in gold equities, such as gold stocks and gold mining companies.

Let’s look at each of these in turn to see if they are a good choice for your portfolio,

GOLD BULLION
Gold bullion can actually protect you in a volatile market. If the currency of your country loses value, inflation occurs, or the country’s economy can go into decline. When you invest in gold bullion that you store yourself, you keep the gold in your own home or perhaps in your safety deposit box at your bank. You are responsible for keeping your gold secure from theft. But you will pay no monthly or yearly fees to anyone for storing your gold investment. The not so good news is you might want to obtain insurance on the gold so, in the event of theft, you won’t lose your investment. Keeping the gold secure is important to eventually profiting from your investment.
Another factor to consider when storing the gold bullion at home is liquidity issues. In the event you need cash quickly, you would have to sell your gold bullion yourself. Doing so means you have to find a buyer and make the exchange to get the cash. This process could take a few days or even longer, so it is not a practical way to tie up all of your wealth.

Another method of investing in gold bullion is purchasing gold coins. They’re easier to store and can also become worth more than their face value and gold value to coin collectors. However, selling your coins, if you need to liquidated your assests, can also take a few days and not always be that easy in terms of finding a buyer.

For those who fear the U.S. financial market is going to implode, buying gold bullion and coins might be a wise way to go. If, however, you want quick, convenient investments which do not carry such a high insurance risk and risk of being stolen, purchasing gold bullion in this way might not be the best way to invest in the gold market. However, traditional investors and those saving for a long-term financial goal at least 5 years in the future find gold a good option.

INVESTING IN GOLD AS PART OF A GROUP

This method of gold-investing is different from buying gold bullion because you don’t have to take physical possession of the gold you’ve purchased. Instead, your gold is kept in a warehouse of sorts called a “gold bank,” along with the gold purchased by the other members of your fund group. Instead of storing it in your home or a safe deposit box, you will mke your purchase and then get a receipt that states that you own “X” bullions of gold and tells you where it is being stored.

In the event you wish to sell your gold, you would let the gold bank know. They would sell your gold and send you the value of the gold at current levels, minus a small fee. If seeing is believing and you prefer to have it in your possession, you can ask the gold bank to ship your gold to you. The responsibility for storing the gold will then be yours and you will have to find a buyer and sell it on yourself just as you would with gold bullion.

INVESTING IN GOLD MINING AND GOLD EXCHANGE TRADED FUNDS (ETFs)

Investing in mining and stocks which are related to the gold mining industry can be quite convenient for those who do not want to have gold bullion or gold coins sitting in their home or safe deposit box. Rather than receiving the gold physically, you will receive stock certificates.
These are easy investments you can make online or through your stock broker. Do your research on the top companies in the world and which ones are showing steady performance and a good return on investment.

Whether you put your money in gold mining or gold stocks, you will be charged a fee, but the opportunity for making more money can more than offset the cost. As with all stocks, there is a risk that the stock may lose value. However, they are also an easy investment to sell compared with coins or bullion.

Gold ETFs can be purchased through major stock exchanges in the U.S. and around the world, so if you are interested in the steadiness of gold as an investment, stocks related to the gold mining industry can be an easy way to grow your money without huge volatile swings.

Investing in gold might seem beyond your means, but with the stock exchange having lost 40% of its value in 2008 and about 25% of its value in August 2011, gold may start looking like more and more of a reasonable investment choice for you to make in these times of economic uncertainty.

Whether you opt for buying gold bullion and storing it, purchasing gold through a fund group or obtaining gold mining stocks and gold ETFs through your broker, take the time to study the market and see if any of the various choices available are right for you.

Jim Franklin is the co-author of several guides to smart investing, including Name Your Link, The Essential Guide to College Saving Plans, and A Beginner’s Guide to Buying Life Insurance.