Gold 101: How to Invest in the Gold Market & Options

Investing in Gold Market

You know you agreed when Destiny’s Child sang “I buy my diamonds and I buy my rings.” And while diamonds are forever, however when it comes to investing, gold is the better choice. You’ve heard about the price of gold in the news, and it concerns more than just the pawnshop owner. Truth be told – it is not so complicated to use your money to invest in gold and generate a nice return for you.

You can invest in gold in some different ways – each is quite simple and straightforward so no need to get nervous that you’re about to get lost.

What are gold investments?

One way you can invest in gold is with physical gold. Yes, you read correctly – physical gold.  Many central banks hold physical gold as part of their asset base because gold is gold wherever you are in the world and holds the same value wherever you are in the world. In this sense, gold is like a global, universal currency. It is a good choice for “rainy day” saving or as a financial backup.

You can buy bullion coins, and this lets investors own investment-grade gold legal tender coins at a small premium to the price of gold as quoted on the markets. The value of bullion coins and bars is determined almost entirely by the market price of gold, and thus tracks the bullion price consistently and in a way that is easy for you to follow.

Many investors find it is a more practical choice to get your broker to buy, sell and hold the physical gold for you in specially set up accounts so that you do not have the hassle of worrying about where and how your bullion is stored securely, etc.

Apart from buying physical gold the other most popular choice for investors who want to invest in gold is buy shares in companies related to gold mining and exploring. Remember than investing in these companies is riskier than investing in physical gold – you may get a better return for your money, but this comes at a greater risk of losing the entire amount invested.

Gold ETFs for simplicity

Finally, gold ETFs are growing in popularity when it comes to investing in this area. These are funds that track the price of gold. You get all the benefits of buying an ETF – such as lower costs, less hassle, experienced managers looking after your investment – in addition to exposure to the gold market price.

Where to buy gold?

Physical gold is available in the form of bullion coins, minted (which means created) in the UK, the US, in Canada, South Africa, Austria, Australia, China and many other countries – including Singapore. Bullion coins come in different weights – such as 1/10oz, 1/4oz, 1/2oz and 1oz.  The one-ounce gold bullion coins are by far the most popular for both small investors and high net worth investors.

For products like gold ETFs and shares in gold mining companies you can research these and place your orders online or speak to your broker on the phone – it is just as easy as buying any other share.

Why gold – what are the benefits?

The biggest benefit to investing in gold is that it can add variety and diversification to your portfolio of investments. You may have some money in bonds and some in stocks, and by adding gold to your list of investments, you are creating diversification benefits that lead to lower risks and better returns on your money over the long term horizon.

What are the risks?

Another great feature of investing in gold is that the price of gold will not plummet when the entire stock and bond markets are crashing.  This means that if your other investments suffer from significant downturns in price, some of your investments are still protected and keeping up good levels of value.

Next Steps? – When to invest in gold?

It is a good idea to invest in gold at any time because of the insurance it provides on your portfolio of investments. You will see the biggest benefit of owning gold if and when the economy takes a turn for the worst. All of your other investments may be suffering, but the price of gold will typically hold firm. In some cases, the value will go up as more investors seek protection in a down market – as they buy gold the price will go up and the value of your investment will rise.

Most experienced investment managers would recommend that you allocate about 10% to 15% of your total portfolio of investments to gold – this gives you a nice cushion of protection against market downturns and a decent source of diversification when it comes to creating good returns on your money.

For more information, read how in Invest in Structured Products.