How Do You Invest in Gold?

Several major currencies, such as the U.S. Dollar, Euro and Pound Sterling, continue to be undermined by the use of stimulating monetary policies like quantitative easing, which tend to expand a country's money supply and hence have a negative impact on its currency's value.

One notable consequence of this contemporary trend toward looser monetary policies that typically depreciate the value of a country's currency is that the prices of hard currencies like gold have moved steadily higher over recent years.

This helps account for the ongoing expansion in the supply of these paper currencies that are not backed by anything other than the credit standing of the issuing country's government.

Furthermore, inflation in the form of an overall rising price trend is another persistent factor that typically eats away at the purchasing power of a paper currency. As a result, many investors have turned to hard currencies like gold and other precious metals to provide both a reputable store of value and a safe haven just in case people lose faith in government backed paper and the present system of fiat currencies melts down.

For those new to the precious metals market, numerous ways exist to invest in gold. The following sections will introduce how investing in various types of gold related assets works.

Investing in Physical Gold

Certainly the oldest way to invest in gold involves buying physical gold, typically in the form of gold bars, coins or jewelry. At first glance, investing in physical gold obtained from a reputable source might appear to be more secure in the sense that a person will actually own something of real value that they can even keep in their possession.

Nevertheless, the risk of theft or loss if the precious metal is kept at home, on their person, or in a safe deposit box — as well as the high cost of insuring a substantial physical gold stash against such unwelcome losses — can make the physical option seem less attractive for many investors.

Investing in Gold Backed Paper Assets

Another prevalent method of investing in gold for those actively engaged in equity trading involves purchasing gold backed paper assets like gold trusts and gold linked exchange traded funds or ETFs that place a substantial amount of their funds under management in gold related assets.

A less direct gold related investment technique involves buying the stock of gold mining companies. Such stocks can be more stable investment vehicles than the metal itself since their value is also based on the assets of the issuing corporation.

Trading Spot Gold and Gold Futures Contracts

For those interested in becoming more active gold traders and speculators, some online forex brokers offer even retail customers with a small amount of trading capital a margin trading facility based on the spot price of gold, generally without providing an option for physical delivery.

Larger traders who can access major commodity futures exchanges can take advantage of the highly liquid markets and the margin trading facility in gold futures contracts that these organized marketplaces provide. Such contracts usually have circumstances in which physical delivery can occur, although typically only at the contract seller's option.
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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