Investing in gold has become a passion for many people. The question, however, is whether gold is still a good investment. I think to really answer that question, investors need to look at their strategy of buying gold as well as their ability to buy gold consistently. The odds, and investing in anything is really about risk or odds, of investing in gold and making a profit is still quite good. How you choose to invest in gold, is going to have an impact on the results of your investment. How you handle your gold investment is also going to have an impact on the result of your investment. This article is primarily geared toward the first time gold investor or the newer investing person.
Investing In Gold – How To Buy Gold:
It may seem kind of like an odd paragraph, but learning how to buy gold is important. Gold can be purchased in many different forms, and not all gold forms are going to make the best investment. In fact, depending on how much gold you buy, the outside costs may make gold investing more of a loss then a profit. One of the considerations for gold investments is the outside costs, such as, shipping, storage and insurance.
Gold can be bought in bullion form which is bars, ingots, or coins. It can also be bought as stocks. Gold investments should not include rare coins or jewellery because the mark up on jewellery is going to make it difficult to make a profit. Rare coins are avoided because their value is not placed in the weight of the coin but in its rarity which is subjective. What people should look for in terms of gold investing is the weight of the gold as a means of determining value, not the rarity nor the inflated price that is seen with jewellery investments. Gold is bought and sold based on the daily spot price of gold and the value of gold is determined by multiplying the daily spot price of gold by the weight of the gold. Together, those two figures amount to the worth of your investment.
Gold can be purchased from a Mint, online broker, online auction, or privately. What is important to consider when purchasing gold is the certified weight of the gold. It becomes hard sometimes, to trade gold that is not in specific weight or purity. Purity of gold should be in Troy Ounces and should stamped 999.9 fine gold.
Investing In Gold – Gold As An Investment:
Investing in gold should begin with a strategy. There should be some rational why you want to add gold investing to your portfolio. There is a lot of hype right now that surrounds the gold investing market and that is all the more reason to make a plan.
One of the more common investment strategies for gold investing is called the average cost method and it makes a lot of sense as an investment strategy for gold. The investment strategy is to purchase gold each month by spending the exact same dollar amount. It does not matter what the cost of the gold is so long as you are spending the same amount of money. What happens over time is that when the price of gold goes up you are buying less gold. When the price of gold goes down you are buying more gold. Over time, the value of your gold becomes an average price and the average price is what you watch in terms of knowing when to sell and when to hang on to your investment. With this investment strategy, the price of gold is not really an issue. The high prices and low prices balance each other out, but what is important is that you purchase gold each month. This makes for a great long term strategy for investing in gold because the risk is spread out over the entire investment and not isolated into each transaction.
Investing in gold stocks can be a little more tricky, but the average cost method works well for stocks too. Gold stocks like physical gold rise in price when inflation begins and fall in price when inflation decreases. The tricky part about gold stocks is that there value is dependant upon the cost of mining. Mines have a certain amount of gold that is in the ground. It is this in-ground gold that causes the value of gold stocks to rise with inflation and fall when the dollar is strengthened. There are obstacles to getting the gold out of the ground and some of those obstacles are outside of the mines control. Natural disaster, civil war, etc. are examples of events that can impact production at a mine. If investing in a gold stock, pay specific attention to where the mine is located. Ask yourself is this an area that has a lot of natural disasters? Is there political unrest? If not then consider the cost of operating the mine. Lower operational costs means more profits and higher profits are good when you buy stocks.
Investing In Gold – How To Buy Gold Online:
The best advice that can be given to anyone who wants to try online gold investments is to only buy from a reputable broker. The best way to tell if a broker is reputable is to check with the mint that they are connected to. Every broker must have a source of buying gold and most brokers have a contract with one or more Mints. Mints, however, are government owned (usually) and as such they will not deal with unscrupulous brokers.
If you find a broker that you like and are ready to begin investments in gold, then the next step is to look at the costs involved. Earlier we mentioned the spot price of gold, but when you buy gold you will rarely be offered the spot price and if you are then be wary. Brokers need to make money off of their gold sales, and they inflated the price of gold slightly. The daily price of gold + mark up is = premium price of gold. To find the amount of the mark up follow this formula. (Selling price of gold/spot price of gold) X 100 = premium. This will be a percentage, and it will tell you how many percentage points the gold is inflated. Anything over 4% is too high. The higher the premium the higher the risk because the gold must rise higher in price before a profit can be made. It is always best to buy as close to the daily spot price as possible. This is because the gold has to rise in value far less than if the premium is high.
Investing In Gold – Conclusion:
The best way to learn about investments in gold is to start with a plan and strategy. Determine the type of gold that you want to invest in and then research the market. Look for issues that may cause the cost of investing to go up. These will be things like storage cost, shipping, insurance cost, etc. The less additional cost incurred the easier it is to make profits. If buying online then buy from a reputable dealer. Use the formulas to determine the premium price of gold and stick with brokers who are offering prices that are close to the daily spot price of gold. A good online place to start is bullionvalut.com. The site has a great deal of information and a quality reputation.