The main question for an investor has always been as to what measures can be adopted to overcome the macroeconomic and geopolitical uncertainties of present time and still come out as a winner and reap healthy growth as an investor.
Risk Management has by far been an integral element for strong portfolio and successful investing. It has always been advised to go for diversification of your investment portfolio to gain good returns on your invested money and moreover as a protection measure against the fluctuating stock market and risk of depreciating value of paper money.
Gold investment is the right tool and method of diversification that can give you protection and growth as well.
Investment in Gold is the answer that you were looking for as the best risk management and diversification tool.
Why Invest in Gold
As an investor, you should know how to leverage the power of gold to your advantage. Throughout the globe, gold has maintained its status as a universal currency and as a method of international exchange. Possessing gold means having a store of wealth. Gold gives you and maintains your purchasing power.
With gold, you can protect the value of your hard-earned money for the future. It has an inverse correlation with other types of assets. The economic conditions and market forces which determine the price of gold are very often in direct opposition to those which affect most other financial stocks of the money market.
This is the reason which makes gold help to reduce your portfolio risk and is known as an effective diversification tool.
Another advantage of gold is its easy liquidity. It can be readily converted to cash. All in all, Gold can become your hedging instrument against the social, political and economic crisis.
Apart from the above reasons, there are many other reasons which make gold a well reputed, safe and preferred investment option. Let us look at some of the important reasons to own gold.
Weakness of the US Dollar
The past decade or so has seen a significant drop in the value of the dollar against other currencies. However, the gold prices have risen considerably during the same period. It has led people to flock to the security of gold. Let us just look how the price of gold has changed over the years. During the period 1998 to 2008, the price of gold nearly tripled to reach a figure of $1000 an ounce. By the year 2012, it had nearly doubled with prices hitting an all-time high of $1800-$1900. So, the price of gold has maintained a steady growth while the value of the dollar has fallen considerably.
Hedge against Inflation
Gold has been used as a hedging instrument against inflation. It is because the gold prices rise when the cost of living increases. During the high inflation years, the gold prices rise while the stock market takes a plunge.
Gold retains its value even in times of geopolitical uncertainty. It is termed as a “crisis commodity” due to its relative safety. Gold prices experience a sharp rise when the confidence in governments is low.
As a general rule, a reduced supply of gold results in an increase in gold prices. Supply of gold comes from the sale of gold bullion by global central banks. The selling of gold by global central banks is slowed from 2008. Also, there is a decline in the production of gold from gold mines. These supply constraints have led to the rise in gold prices.
Gold as a Safe Haven
Gold proves to be a safe haven in times of economic crisis. There were many investors who bought gold during the 2008 financial crisis. The gold prices continued to rise due to the eurozone crisis, the impact of Obamacare, and the 2011 debt ceiling crisis. The extreme economic uncertainty saw gold prices to double reaching a record high of $1895 on September 5, 2011.
Direct Investment Resource
Many investors buy gold as a direct investment in anticipation of an increase in the price of gold in the near future. It is a finite valuable substance which is held by many wealthy individuals as well as governments.
What it means to you
Thus we can come to a conclusion that exposure to gold is a must in all types of portfolio management if you want protection, security, and growth of your money, all at the same time. You should have at least some gold in your portfolio. It is an important part of a diversified portfolio.
So a fine portfolio means having a wide range of assets.
This would include a variety of equities from different market sectors, a variety of bonds of different durations, a well-diversified property portfolio, good cash component and investment in gold.
The percentage of allocation to gold depends on many factors but primarily on the present market conditions, the rate of ongoing inflation, deflation, and stagflation and more importantly on your risk bearing capacity.
But on an average, a ten to twenty percent allocation towards gold would be a smart choice in all circumstances. It has been recognized that as a rule of thumb a minimum of ten percent of gold and gold-related investments is required.
Different Ways of Investment in Gold
Now having recognized the power of gold and after deciding the amount of gold-related investment you require to safeguard your monetary interest, the next big thing is to decide in which form you should buy gold or rather the ways in which you can invest in gold.
You can choose any method of investing in gold, but first, you have to decide upon your investing goals. The goals can be different for different people.
The main reasons can be that you can want to invest in gold for short, medium or long term. Do you want to use gold for diversifying, saving or as a means to financial insurance? Want to buy gold as a saver, investor or as a speculator?
There are many ways in which you can invest in gold and secure your financial power.
Here we provide you with the major methods and means of investing in gold. All of these are very popular and successful ways of investing in gold.
Buying the physical Gold or Coins or Bars
Gold can be purchased in different physical forms such as jewelry, coins, and bars. Gold is a form of money, and physical gold gives the buyer a financial insurance plus it has an ornamental value which can become a wealth preservation medium. The disadvantage in this form is the fact that you have to take adequate security measures to safeguard your gold wealth; this form of gold cannot be traded over the stock market. Also, liquidity is not as easy as you have to move to sell the physical gold personally.
Popularly known as Digital Gold Currency, it provides an effective medium for saving and investment as well. There are DGC providers who operate as mediators for this type of trading in gold. They offer allocated accounts to investors from where gold can be instantly bought or sold just like any foreign currency. This is an emerging sector and DGC providers still operate under self-regulations, so the challenge in this type of gold investment is to find the right kind and respected DGC providers.
Gold Certificates provide you with one of the most cost effective ways to have bullion over a long period. It has no initial, holding, shipping, insurance and custodial fees linked to it. You can hold bullion in allocated or unallocated accounts. Gold Certificates have great liquidity and can be sold up easily. Usually, investors own their bullion in unallocated accounts as there is no insurance or holding fee linked to it. It is considered as a safe way to invest in bullion as every gold bar is audited and accounted.
Gold ETFs The exchange traded funds (ETFS)
Gold ETFs are derivates that keep track of the prices of silver and gold. There is an annual administration fee linked to these derivatives. They can be owned through stockbrokers. One does not hold the title to the underlying gold asset. They are mainly held by day traders, institutional players and for those who wish to speculate on short-term movements in the prices of gold.
With Allocated accounts you can buy gold coins and bars from a bullion brokerage company which transfers the bullion to your allocated account in a depository or bank. The buyer or the owner of the bullion has the title to the individual coins or bars. The adequate study should be done on the performance of the Allocated Gold accounts provider before making a selection of the same.
Gold stocks are shares in the gold mining companies. The underlying logic of these gold stocks is the fact that when gold prices rise, the profit of the gold mining companies should rise and as an effect the share prices of the gold stocks should rise. But this is not always the case as lots of other factors are involved in raising the share prices of the gold stocks. So, one must have a proper study of the performance and management abilities of these mining companies before investing in these gold stocks.
Other popular gold related instruments include gold futures, Gold stock options, Precious metal mutual funds, Gold futures options, Spread-betting, Investing in paper gold, Gold bullion in SIPPs, etc.
Thus we can conclude that investment in gold and gold related instruments can become your preferred investment options. Gold investment provides you hedging capacity against speculative market conditions and uncertain social, economic and political environment. Gold provides you with various investment options according to your short, medium or long-term needs. Gold helps to keep your purchasing power intact and even increase it with passing time.
Gold has easy liquidity which again makes it a preferred choice among the investors. And most importantly gold is a premium diversification medium for reducing and managing risks involved in investing. So investment in Gold has many positives in it, and you should surely take the benefit of putting your money in gold.