Candlestick Trading Blog
February 12, 2008
Gold Investment
Gold Investment 101 Many investors are interested in investing in gold again as it has shown strong return over recent years. For thousands of years, gold has been valued as a commodity, a global currency, and as an object of admiration due to its beauty. During 1980 through the 1990’s the use of gold investment methods declined in popularity and were seen as an asset of last resort. Gold investing is now coming back into the picture as it offers enhanced portfolio diversification in comparison to other assets. Past performance for gold investment methods has shown that a small allocation to gold can significantly improve the consistency of portfolio performance while alternative asset allocation and the traditional diversifiers often fail during times of market instability. Many investors seek gold investment opportunities due to the consistency of performance during both stable and unstable financial periods. The usual point of reference for the price of gold is the London Gold Fixing. This is a meeting that takes place two times each day that includes representatives from five bullion-trading firms. There are numerous gold investment methods available to investors. These may include investment in gold bars, coins, certificates, accounts, exchange-traded funds, through spread betting and derivates, and lastly through becoming a shareholder in gold mining companies. Gold investment through buying bullion gold bars is the most traditional method for investing in gold. They are available in various sizes and in some countries you are able to buy them “over the counter” at major banks. Gold certificates allow investors to buy and sell the security without the hassle of transferring physical gold, and gold accounts typically include the ability for investors to instantly buy or sell gold in a way similar to foreign currency trading. Gold exchange-traded funds are traded like shares on the major stock exchanges including the London Stock Exchange, the New York Stock Exchange, and the Sydney Stock Exchange. This type of gold investment is fully backed by gold that is both deposited and insured. The inventory is managed by buying and selling gold on the open market. Some firms offer the ability to take a bet on the price of gold through what is known as a spread bet. Possible gains or losses are dependent upon when the seller closes the bet and no commission or taxes are levied. Another gold investment method is known as gold derivates. These include gold forwards, gold futures, and gold options and they are currently traded on various exchanges around the world and are traded over-the-counter directly in the private market. The last investment method to discuss is actually not an actual gold investment itself but is actually and investment in gold stocks in mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise causing the share price to rise. However, this does not necessarily mean that the share price will rise when the gold prices increases due to the many factors that affect the share price. The practice of gold investment methods is more desirable during certain economic times. In times of war, or other national crisis, people fear that their assets could be seized and that currency may become worthless. Gold is seen as offering solid asset protection and as a commodity that will always have value. Bank failures of course, as witnessed during the Great Depression, are also seen as a time when gold is more desirable. Lastly, gold investment methods are popular when the economy is suffering from low or negative real interest rates. If the return on investment for other asset classes such as bonds, equities, and real estate are not compensating for risk and inflation then the demand for gold increases. Gold investment is unique in that it does not carry a credit risk and the value of gold cannot be affected by the economic policies of the issuing country or undermined by inflation in a country. It is for this reason and many others that successful traders chose to invest in gold. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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