Gold casts a magical spell the world over. Since time immemorial, gold has been passionately coveted and traded for its singular mix of grandeur and exclusivity.
Investors desire gold as a means to safeguard their wealth and provide refuge in fickle times.
Investor interest in gold has been rekindled due to the following reasons:
In unstable times, investors look to safeguard their capital by shifting it into assets deemed to be a reliable depository of value. Gold provides a security against the capricious nature of paper currency.
A portfolio that holds widely varied investments is protected against market decline. Portfolios comprising gold are reliable and secure.
Although the purchasing capability of various currencies has largely fallen due to price hikes that of gold has stayed amazingly steady. So, gold is purchased to offset the consequences of price increases and currency instability.
Gold is frequently used as a convenient flight against dollar fluctuations. A rise in dollar value leads to a drop in the dollar gold price and a decrease in the dollar value results in an increase in the gold price. Therefore, gold is considered useful in guarding against dollar instability.
A portfolio containing assets with minimal instability reduces risk and has a positive bearing on anticipated returns. Gold is less susceptible to change and is hence a good investment.
The demand for gold has constantly exceeded supply mainly due to extended lead times that occur in gold mining and growing income levels in major gold markets. The future gold scenario looks bright and positive.
Investors can pick from a number of available choices.
Coins and small bars provide a smart means of investing in modest amounts of gold. Most nations do not levy Value Added Tax gold bought for investment purposes.
In many exchanges, gold is bought and sold in the form of securities that are shored up by physical gold.
Gold futures contracts are agreements to deliver or receive a standard amount of gold on a given date at a settled price. A margin has to be paid as an assurance of taking on risk. Investors can handle huge amounts of the commodity by placing a modest sum. Futures contracts can result in substantial profits or substantial losses.
Gold options give the investor the privilege to buy or sell a definite amount of gold at an agreed price by an approved date. The buyer pays a premium to the seller for giving the option. The buyer's risk is limited to the premium paid and transaction costs.
Warrants entitle the purchaser to buy gold at a particular price on a fixed future day. The purchaser makes a premium payment for this right.
Allocated accounts allot distinct bars identified by number, weight, and fineness to every investor. The investor, who is the rightful owner, pays insurance and storage charges. The bank where the investor's gold is deposited cannot trade the bars without orders from the account holder.
Unallocated accounts do not allocate definite bars and investors have a general claim to the gold. No storage or insurance costs are levied and the bank holds the right to lease out the gold. Dealings are completed by crediting or debiting the account and the balance denotes the indebtedness of the concerned parties.
Gold pool accounts provide an opportunity to investors to operate gold accounts storing under 1000 ounces.
Electronic currencies facilitate resourceful gold trading and utilize gold purchased as money to effect payments online.
Gold Accumulation Plans involve investing a certain monthly amount of money in gold. The amount is debited every month from the investor's account and is utilized to make gold purchases in that month. The investors get gold bars or coins and can sell them for cash.
Gold certificates carrying ownership rights are issued by banks to clients. The gold is stored in the bank and the investor trades in gold without transfer of actual gold.
Several financial products such as mutual funds and unit trusts, focus on investing in the shares of gold mining companies and are dependent on their anticipated earnings and growth prospects.
Forward contracts are contracts to trade assets like gold at an approved price at certain future date and are used to handle risk or for speculation.
The secret to success in gold trading lies in scanning the gold markets and making knowledgeable investment decisions.