Investing in Gold

With the poor performance of the stock market and the declining value of the U.S. dollar, many investors are interested in investing in gold. There are a number of good reasons many people give for why they are investing in gold, but each person needs to decide what their own personal reasons are before deciding what type of gold to invest in.

First, let’s cover the big three categories of gold investing.

Gold Investment Philosophies

Speculative gold investing
Mid- to long-term gold investing
Hedge against inflation

Then you can read further on this site to find a technique for investing in Gold that works for your own personal objectives.

Gold Investment Strategies

Trading gold on the Forex market
Trading gold on the futures market
Trading gold index securities
Buying gold coins
Buying gold bullion or gold bars

Trading gold on the Forex market

Many people don’t realize that you can trade gold on the Forex currency market. The Forex market is where banks, investors, and traders engage in foreign exchange currency trading. This is a highly speculative way of investing in gold. With small movements in price dramatically impacting the account value due to leverage (margin), it can be either a path to quick profits or quick losses. Nevertheless, it is the preferred choice of many gold investors, particularly technical traders.

Trading gold on the futures market

Gold can be traded in a highly leveraged account using the futures market. This type of trading requires a special futures account to be opened (much like a Forex account–often they can be with the same brokerage). Like Forex trading, these accounts are highly leveraged, and while small moves can results in large profits, normal volatility is often enough to stop traders out of their positions. Gold futures trading tends to be more for technical traders than investors.

Trading gold index securities

This method of investing in gold is for those who are comfortable with stock trading as an investment vehicle. All trades are placed on the regular stock markets, and can be purchased with no special account. It is very much like a stock index–the value of the security is designed to closely track the value of gold on the spot market.

Buying gold coins

Buying gold coins as a means of investing in gold has been around a long time. While you pay a bit of a premium to own something of a collector’s item, you usually get back that premium at the time of sale. The value closely follows the actual market value of gold, but has the premium added on. When buying gold coins or bullion, there is a spread that represents the profit of the dealer, much like the “bid” and “ask” prices of stocks. You will buy at one price and sell at another, even if you bought and sold within minutes of each other with no move in the spot price of gold. This is because the dealer needs to make a profit, which can range from a few pennies (in the case of small silver coins, for example) to 5% or more.

Buying gold bullion or gold bars

Gold bullion, by definition, is designed to be valued by weight, not the item itself. The South African Krugerrand is probably the most popular gold bullion, followed by the Canadian Gold Maple Leaf, and the American Eagle. Although coins, they are not designed to be “legal tender” but to be a way for the private citizen to own gold. The Krugerrand, for instance, is only 91.67% pure, but it weighs in at 1.0909 troy ounces, so it contains exactly 1 troy ounce of pure gold.

Gold bars are no different–they can be purchased much like other bullion, with little or no premium based purely on the weight of the gold contained in them.

Read more on investing in gold:

Share and Enjoy: