The economic outlook appears to be gloomy in the United States, Europe, Asia-Pacific, and in the rest of the world. The uncertainties surrounding the 2016 elections in the U.S. and the fears that UK might leave the European Union in a Brexit are not exactly reassuring for investors. The U.S. Federal Reserve also seems to be confused about the next policy move on interest rates – one moment, the fed indicates that it is ready to raise interest rates, the next minute; you'll hear the fed chair preaching caution.
Gold tends to enjoy bullish tailwinds during periods of economic uncertainty and increased volatility in the financial markets. Gold has been on a winning streak since the markets opened for trading the year. In fact, looking at the price of gold in the chart below, you'll observe that the yellow metal has gained more than 16% in the year-to-date period. In contrast, the S&P 500 and Dow Jones have recorded less than 1.5% gains and the NASDAQ Composite is down more than 2% in the year-to-date.
From the foregoing, it is apparent that smart investors are already moving their money into the safe-haven and stability that gold provides. However, if you are new to the world of gold investments, you might not find it easy to make heads or tail of the different avenues through which you can invest in gold. This piece seeks to present you with a basic guide on the different types of gold investments.
Buying Physical Gold
The most-popular idea that people have heard about gold investments is the buying up of physical gold. Physical gold serves as a liquid form of savings (safe from inflation) because gold is a finite universally accepted form of currency. You can keep your wealth as physical gold to ensure that the value of your wealth remains fairly unchanged and to ensure that you have tangible wealth that you can pass down to the next generation.
If you are buying physical gold, you should treat it more like financial insurance than as an investment that should be traded for price gains. Physical gold comes in forms of gold bar, gold cubes, and gold nuggets. Buyers of physical gold should be ready to invest in a secure safe or be ready to pay storage and insurance costs for the safekeeping of their bullion.
Buying Modern Bullion coins
If you want to buy gold more for speculative reasons than for wealth storage, you should consider buying modern gold coins. The gold bars and coins are investment-grade gold legal tender coins that are minted and sold at a minor premium to the spot price of gold. The price of modern gold coins trades in consonance with the spot price of gold. You can buy these coins from U.S., Canada, UK, Austria, China, and South African mints among others.
The modern bullion coins are minted in 1/10oz, 1/4oz, 1/2oz & 1oz form (and some can be bought in 2oz, 10oz & 1 kilo). One of the advantages of modern bullion coins is their legal tender status and the fact that they are offered in measurably small denominations for easier divisibility. Many of the buyers of one-ounce modern gold coins tend to favor Krugerrands or Britannias over other coins.
Numismatic gold coins
Older and rare gold coins (known as numismatic coins) are another type of speculative gold investment that you can make. Numismatic gold coins are valuable first for the gold from which they are made, secondly for their historical value, and thirdly for their rarity and aesthetic appeal. When gold is in a bull market, numismatic gold coins tend to record bigger and faster increase in their value in relation to spot gold price in the general market. However, when gold is in a bear market, numismatic gold coins can see their value fall faster than the price of spot gold.
If you want to invest in these rare coins, you might want to start with British gold sovereign or the original one pound and original one dollar coins. However, you need to invest a great deal of resources in knowing how to identify the original coins so that you don't end up paying an exorbitant amount for worthless junk coins.
Buying paper gold
You can also buy and invest in paper gold especially if you have limited investment capital and you have a fixation to include gold in your portfolio. A great way to start investing in paper gold is to invest in the stock of companies that are exploring for gold deposits or companies that mine gold. You should note that investing in firms that operate in the gold industry might be cheaper than buying physical gold, but such investments might be riskier than buying physical gold.
Another way to limit your exposure but still have gold in your portfolio is to buy ETFs that backed by gold or ETFs that track gold. Some people also take up positions in gold by buying futures, options, or taking up spread betting on gold. You should note that buying paper gold should be used more for trading purposes than for investment purposes.