Gold Investing, Gold Investments

By: EconomyWatch   Date: 23 November 2010

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Gold investing involves the buying and selling of gold mainly for the purpose of hedging against any economic, political, social or currency related crisis. Such crises may include a stock market crash, high inflation, war or any social unrest. Moreover, since gold is the most popular precious metal, gold investments are made for financial gains when the market is bullish.

How is Gold Investing Done?

The two main methods of gold investing are:

  • Direct investment: One can directly invest in gold by owning bullion or coins.
  • Indirect investment: This method of gold investing includes gold certificates, spread betting, accounts and derivatives.

Gold exchange traded funds (ETFs) and shares of companies that are engaged in the mining of gold are some of the other gold investment options.

The two main techniques of identifying good gold investments are:

  • Fundamental analysis: Investment managers study macroeconomic conditions. This study includes international economic indicators, such as GDP growth rates, inflation, interest rates and productivity. An important aspect of gold fundamentals is the assessment of total gold supply and gold demand.
  • Technical analysis: This includes the analysis of chart patterns, market trends and moving averages. Through such analysis, investors will be equipped to speculate in the gold futures market.

 

Gold Investing: Benefits

One can benefit in the following ways by opting for gold investments:

  • Gold investing helps bullish investors leverage their position as they have the option to borrow money against their existing gold assets.

  • Investors can preserve their assets during tough economic periods through gold investing. Investing in gold is generally considered to be a hedge against inflation and against the devaluing of paper-based currencies when national debt and deficit levels expand.
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      • Gold investing via leverage may increase the risk associated with the investment if there is a decline in gold prices. Investors may face a margin call.

      • If the investment in gold does not match the investor’s investment objectives, it may prove counterproductive.

        • Traditionally, gold investing was exclusively done by wealthy families. High net worth individuals would protect their position by maintaining a large percentage of their assets as gold. More recently, all classes of investors have been attracted to gold and its derivatives.

    Find out more about how to invest in gold.


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