I was searching the web to get information on how to successfully invest your funds in cryptocurrencies when I got the information you are about to read now. However, it may not be cryptos, but it is something worth reading. Everyone knows gold is always on board, and other asset may fail in time, but not gold.
So, take your time to read and assimilate this post to help you invest without unnecessary loss. If you do not know anything about gold or investment, you do not have to worry about it. This article is tailored to meet your needs.
This article has explicitly outlined steps on how to invest in gold as a beginner. There are different investment options out there for both experienced and inexperienced investors.
Why do you need to invest in gold? Experts have ranked gold as one of the best investment. When we talk about gold investment, it simply means buying gold metal in different forms.
The price of gold has been on a steady rise for a very long time, and it serves as insurance for other risky investments because the price of gold works with the dollar; gold rises as the price of dollar falls.
What are the different Ways to Invest in Gold?
There are four different ways you can invest in gold; you can invest in gold bars, gold mutual funds, gold exchange-traded fund and gold future & options.
Gold Bar investment
Gold bars investment can also be referred to as gold bullions. Gold bars involves purchasing the physical gold coins or bars.
The gold bars investment has been controlling two-third of gold investment for the past ten years. As you know, the demand for gold bars is always on the increase because of the consistent demands from old markets and new markets. The gold coin is the best gold bar to invest.
There several valuable gold coins and some of them include;
- The American Eagle
- Canada’s Maple Leaf
- The South African Krugerrands
The benefit of investing in gold bars is that the government does not have control and cannot influence the rise and fall of the value of pure gold.
The rise and fall of pure gold can only be affected by the demand and supply. In addition, the gold bar serves as a hedge to other high-risk investments like currency trades. However, the disadvantage of this kind of investment is the low-profit-margin.
If you want to invest in gold bars, make sure you do not buy the gold bars at a high premium, it is difficult to get your profit when you purchase at a high premium; buying at a high price eats into your profit margin.
How to calculate the premium of a gold bar?
The formula to calculate the premium of gold bars is easy;
Quoted Price – Spot Price x 100 = Premium Price.
Spot Price- the current price per ounce exchanged on global commodity market
Invest in Gold Mutual Fund
Investment in gold mutual fund refers to the buying gold stocks from companies that trade in gold. For a simpler definition or explanation, this type of investment means you are investing in gold mining companies.
These companies deal only with gold, and they share profits with investors at the end of a specific period. Furthermore, two types of companies deal in gold; Senior Gold Stock Companies, and Junior Gold Stock Companies.
Senior Gold Stock Companies
Just as the name implies, these types of companies have been in existence for a long time, and they are known to have their own gold mines where they mine good quality gold.
It is preferable to invest in senior gold stocks companies who also have good management; if you are thinking of investing in gold mutual funds.
Junior Gold Stock Companies
The difference between the senior and the junior gold stock companies is, the junior does not have their gold mines, and they do not have access to a large capital base like the senior gold stock companies.
If you are new to gold investment, it is safer to go for the senior gold stock companies, because the junior gold stock may not become profitable in the long run.
Moreover, a gold mutual fund is a risky type of investment because you are not paid based on the market value; your profit is determined by the profit the company has made after the cost of production has been deducted. Because of this, investors may not enjoy the gain by the rise of the market value.
Furthermore, you need to consider the cash flow of the company, and how fast the company benefits when there is a rise in the value of gold before you invest in a company.
Gold Exchange Traded Fund (ETF)
The Exchange Traded Fund started in the year 2003; the ETF is physically backed exchange-traded funds, which means you can purchase shares and then convert it to the old value. You get 0.010 ounces of old for every ETF you buy.
The Exchange Traded Fund is similar to the mutual fund and is traded on the stock exchange. As an investor, you have access to purchase different types of gold, which are stored in gold bullions located in Switzerland. Nonetheless, there is a challenge in this type of investment; more than one person can own a particular gold- the investor and the rightful owner.
There are two types of gold stored in ETF; the allocated and the unallocated. The unallocated gold is controlled by authorized companies such as JPMorgan. The allocated gold is controlled by custodians and larger banks.
Gold Futures & Options
Gold Futures & Options is the riskiest old investment; it is technical and required advanced knowledge of the financial markets.
This type of gold investment is not advisable for inexperienced investors. The Gold Futures & options have to do with speculations and predictions of the price movement of gold in no distant future.
It makes the market confusing and complicated for beginners. You can place in gold options in two types of places; buy a call- it simply means you are predicting the price of golf to go higher within a given period.
The next is to buy a put; this means you are predicting the price of gold to drop lower than the current price. The benefit of trading gold options is that you have access to more than one fund.
Investment generally involves risk, to avoid unnecessary loss, do not invest in what you do not fully understand.