Investing in Gold

Investing in gold is one of those investment activities that has always been widespread and well researched by those with savings looking for a safe and profitable way to make them grow. In fact, this commodity has always been considered a safe haven asset and it is for this reason that traders take advantage of it.

Gold is known as being the major safe haven asset, being sought after by investors during periods of economic and financial instability, just like those that have been experienced over the last years.

Gold, by what we can learn from the real time prices, is also considered the best investment for protection against inflation and price rises, as it helps in preserving and not denting the value of the savings over time.

There are several possibilities for investing in gold; through financial instruments like ETCs, ETFs, futures, options and shares or the direct purchase of physical gold.

We will now take a closer and more complete look at the different ways to invest in gold.

Investing In Gold Through ETFs or ETCs

ETFs (Exchange Traded Funds) and ETCs (Exchange Traded Commodities) are passively managed financial instruments that replicate the performance of a benchmark or rather an underlying reference point.

By buying ETFs, investors can trade on the financial market as though they are in possession of the physical good. In fact, these instruments function much like a loan, of which they must then pay the interest on.

Investing in ETFs or ETCs on gold means purchasing a financial instrument whose value replicates the movement of gold itself. In this way, without having to actually possess it in any quantity, it is possible to earn money based on the performance of its price.

ETFs and ETCs represent the simplest and most efficient way to invest in gold on the financial markets. To get a better idea of the nature and characteristics of the instrument, here is our research on ETFs and ETCs.

It is worth remembering however, that gold, like most other commodities, is quoted in dollars. As a result, its prices will suffer the effects of the exchange rate.

This means that the result of the investment in an ETF or ETC will depend, to a small extent, on the performance of the Euro-Dollar exchange rate, according to the following correlations:

  • When the American Dollar appreciates against the Euro, the Euro-Dollar exchange rate falls and the investment in gold increases in value.
  • When the American Dollar depreciates against the Euro, the Euro-Dollar exchange rate rises and the investment in gold decreases in value.

Therefore, before investing in gold, it is important to take into account the current cycle. Analysing the performance of the Dollar could indeed be a good way to understand (in part) the movement of Gold.

Investing In Gold Through Futures and Options

Futures and Options are financial derivatives, whose value depends on that of the underlying asset, or rather, the asset on which the contracts are made.

Gold Futures or Gold Options are simply tools that replicate the gold trend, allowing the trader to profit on a rise in the asset when they purchase one of the two instruments.

To gain a better idea on how they function, here are the detailed descriptions of Futures and Options:

Gold is the underlying asset of these derivative instruments, which, compared to ETFs and ETCs, have greater risk.

With derivatives, it is in fact possible to make use of leverage, increasing the possibilities for gain or loss beyond the means granted by the actual capital invested.

Financial leverage is both an opportunity and a risk, a factor which makes futures and options the more extreme solutions and therefore recommended only for experienced investors who are perfectly aware of the risk involved.

Investing In Gold Through Shares

Obviously, it is not possible to purchase shares in gold. It is however possible to invest your savings in mining company shares, or rather any company whose performance is closely correlated with that of the commodity.

It is not at all uncommon to trade with this type of indirect investment, betting on the price movement of a commodity without having to deal directly with it, but rather with shares of a company that works primarily with this commodity.

Investing in gold through shares in mining companies is therefore not only possible but often more prudent a choice than investing directly in the actual commodity or through the other financial instruments listed above.

The risks of an investment of this nature are tied to the fact that the financial performance of the company in which the investment is made and therefore of its shares, does not depend exclusively on the performance of gold.

There will certainly be other factors that could influence the performance, however in the long term it will be aligned with the performance of gold, acting as a benchmark.

Investing In Physical Gold

Investing in physical gold means to purchase and take possession of gold in one of its two forms for investment: coins and ingots.

In both cases, we are actually speaking of pure gold, or rather gold with 999.9 parts per thousand.

Naturally, there are many objects made from gold, including coins, but when they are not pure, it means that they are alloyed with other metals, which contaminates the purity of the good.

Years ago, gold coins had value as a means of payment. Today, with the presence of banknotes, the value of gold coins basically corresponds to their intrinsic value, relative to the actual gold content.

This depends on three factors:

  • The current price of gold;
  • How many grams of gold content;
  • The spread, or rather the difference in price, applied by the vendor.

In the same way, gold bullion represents another classic form with which to invest in gold.

The ingots are of pure gold and they come in all sizes, starting from just a few grams.

An investment in coins or gold bullion is now within the reach of all budget levels, even for just a few hundred dollars, and is confined to the performance and financial market costs, as there are obviously costs and risks related to possession.

Investing In Gold: Advantages & Disadvantages

The quintessential safe haven asset, obviously does not have only positive aspects, but also many downsides. For a clearer picture on the situation, we have listed the advantages and disadvantages of this form of investment.

Let’s start with the benefits of investing in gold:

  • Keeping your capital secure: gold has always been considered a prized asset, as its extraction is rather complex. Titles relating to gold have, for this very reason, small shifts over the course of time and low volatility.
  • Long term returns: The best returns on gold are obtained through investments of long duration, because since it is held in high esteem, it tends to always be a title that increases in value. This increase in the value of gold is especially present during times of economic insecurity, as many will choose it above other investments due to its stability.
  • Stability in the event of default: gold is a physical asset which is not subject to default.

Let’s take a look now at the criticality of this type of investment:

The major disadvantage of investing in gold is the long timeframe. It is really not possible to gain good returns if not investing for long periods.

The low volatility of the asset assures that the price remains stable. This then brings another disadvantage: if the price, for whatever reason, falls, it becomes difficult to curb the damage.

In fact, when the price attests to lower levels, it could actually keep going that way for a long time.


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