Gold has been a valuable commodity for centuries. If history is revisited, we get to know that gold has been used as a currency as well as a symbol of wealth and power. The long-standing value demonstrates the stability of gold and its attractiveness. It wouldn’t be wrong if I say that gold is one of the safest investments offering quick returns.
Investing in Gold
One of the major differences of investing in gold in the past and present is that there are many more investment options such as-
- Gold Jewellery
- Gold Bullion
- Gold Coins
- Gold Companies
- Gold ETFs
- Gold Mutual Funds
- Gold Futures
Choosing the Right Investment
As various options for investments are available, choosing the right investment would be confusing. One basic rule to decide on the type of investment is based on your investment strategy.
If your investment strategy is to maintain liquidity, then, investing in physical gold i.e in gold jewelry or coins would be a better option as these can be readily sold and converted into cash.
If your investment strategy is growth investment, then, investing in gold stocks would be the right choice. Gold stocks refer to the stocks issued by gold companies. Gold stocks generally rise and fall with the price of gold, but there are well-managed mining companies that are profitable even when the price of gold is down.
Increases in the price of gold are often magnified in gold-stock prices. A relatively small increase in the price of gold can lead to significant gains in the best gold stocks and owners of gold stocks typically obtain a much higher return on investment (ROI) than owners of physical gold.
Gold as a Hedge
Gold can be a hedge during the time of inflation because gold keeps its value when the dollar falls. The reason gold benefits from a declining U.S. dollar is because gold is priced in U.S. dollars globally.
There are two reasons for this relationship. First, investors who are looking at buying gold (i.e., central banks) must sell their U.S. dollars to make this transaction. This ultimately drives the U.S. dollar lower as global investors seek to diversify out of the dollar.
The second reason has to do with the fact that a weakening dollar makes gold cheaper for investors who hold other currencies. This results in greater demand from investors who hold currencies that have appreciated relative to the U.S. dollar.
Many people invest in gold simply as a hedge against stock losses. Research by Trinity College in Dublin revealed that, on average, gold prices rise for 15 days after stock market crashes.
When Should You Buy Gold?
In times of crisis, gold prices tend to rise. But that is not necessarily the case during periods of high inflation. If there's a financial crisis or recession on the horizon, it may be wise to buy gold. However, if the economy is in a period of high inflation, it may be wise to pass.
Is It Wise to Invest in Gold?
There are both advantages and disadvantages to every investment. If you are opposed to holding physical gold, buying shares in a gold mining company may be a safer alternative.
If you believe gold could be a safe bet against inflation, investing in coins, bullion, or jewelry are paths that you can take to gold-based prosperity.
Lastly, if your primary interest is in using leverage to profit from rising gold prices, the futures market might be your answer, but note that there is a fair amount of risk associated with any leverage-based holdings.
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