Investors like gold for many reasons, and it has attributes that make the commodity a good counterpoint to traditional securities, such as stocks and bonds. They perceive gold as a store of value, even though it is an asset that does not produce cash flow. Investors can invest in gold through exchange-traded funds (ETFs), buy shares in gold miners and partner companies, and purchase a physical product. These investors have as many reasons to invest in metal as there are methods to make those investments.
Is gold a good investment? Why should it be yours? There are many ways to invest in gold. You can buy physical gold in the form of jewelry, bullion, and coins; buy shares in a gold mining company or other gold-related investment; or buy something that derives its value from gold. Each method has its advantages and disadvantages. This can make it overwhelming for beginner investors to know the best way to expose themselves to this precious metal.
As gold is an alternative commodity, it helps to diversify your investment portfolio and, in doing so, provides a strong hedge against inflation. You can also choose to buy gold that you can wear or that someone has ever worn but has suffered damage in the form of gold jewelry. GLD shares will replicate exposure to gold prices, less expenses related to gold storage and trading GLD shares. Cost overruns, mismanagement and excessive debt can cause gold mining stocks to outperform the price of gold.
Expensive gold jewelry can retain its value, although it is often due more to its value as a collector's item than to its gold content. You're not speculating on a numismatic currency that will one day get a higher premium than you paid; you're investing in gold bars to protect yourself from the crisis and protect yourself from a loss of purchasing power. Like any investment or financial asset, gold is subject to supply and demand pressures that cause the price to fluctuate. There is no centralized list of gold traders approved by regulators, but, like other companies, you can find some gold traders accredited by the Better Business Bureau.
The SPDR Gold Shares ETF (GLD), for example, holds physical gold and deposit receipts, and its price follows the price of physical bullion. Collector coins, such as South African Krugerrands, Canadian Maple Leaves and American Gold Eagles, are the most widely available gold coins. Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. You can also buy shares in gold mining companies, gold futures contracts, gold-focused exchange-traded funds (ETFs), and other regular financial instruments.
Option contracts also allow the holder to buy or sell shares of a gold ETF or gold mining stock at a specified price and date. However, keep in mind that the shares of gold companies are correlated with gold prices, but they are also based on the fundamentals related to the current profitability and expenses of each company.