When gold investors start their business, they are always cautious on particular issues. The small investors prefer to have all their gold in physical form. Additionally, there are mutual funds, gold futures, gold stocks and traded funds. Physical gold The first type is referred to as physical gold, which consists of gold bullion rounds, gold coins, and gold bars. These are very easy to sell, and their value is linked to the gold prices (Ninomiya, 2010). Gold coins are usually minted in gold by the different governments of the world; In the U. S. , the federal government is responsible for this task.
They are traded mostly on their gold content value. The most popular gold bullion coins include the Canadian Maple, South African Kruggerand, Australian Kangaroo and the American eagle. There are other coins which are referred to as the numismatic coins. They are minted in a very limited quantity and usually trade on a purely aesthetic value (Elliot & Dones, 2003). According to Get Money Energy, (2009), an investor can either invest directly in physical gold where one does not need to store it, and also in pooled accounts. There are advantages of buying and storing physical gold.
This is because the investor will always be secure any time the banking system of the world collapses. However, there are some disadvantages. These include liquidity and theft. Additionally, if an investor requires the money urgently, it would take very many days to process it. There are also added expenses related to insuring the gold. Investing gold through the pooled accounts involves purchasing gold through dealers. Good examples of dealers include the Perth mint and Kitco. Here, there is no gold which has the name of the investor on it (Get Money Energy, 2009).
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There are cases where investors buy gold through dealers in a direct manner. In this way, all the gold bars of investors have names on them. These dealers often audit their vaults frequently. Any time an investor buys half an ounce of gold, they add it for them. This process is advantageous, because they are responsible for paying the insurance and storage costs. However, there is a disadvantage in this process. This is because the investors have to pay a monthly fee for holding the gold. The total amount is usually deducted from all the balance of the gold grams (Get Money Energy, 2009).
Gold bullion refers to gold in its purest forms. This metal may be smelt into bars or coins of gold. In this case, the price of gold is set by the forces in the market relating to demand and supply. In London, the prices of gold are set twice per day. It is usually traded in its physical form. There are also some mutual funds which are gold oriented. These funds have little amounts of gold bullion (Elliot & Dones, 2003). According to Get Money Energy, (2009); there are few advantages of owning gold bullion. However, it is a very liquid and insecure form of investment.
An investor is also required to pay a fee to cater for the insurance charges. This is the best way in which a person can invest in the metal as a commodity. When the futures and gold commodities rise, the gold bullion is better placed. Gold Stocks An investor can also use the gold stocks. These are either in mining, sales or refining. These stocks are very risky but have got very good returns. They are only fit for those people who can bear the disadvantages of gold investment. According to Get Money Energy (2009), there are many advantages of investing in gold stocks. One of them is market diversification.
There are very many places where the invested gold can sell. Additionally, there are asset diversifications, where several gold producers create a great number of common and precious metals. This provides a protection to the hedge and stock against the prices of gold. The stocks have a great degree of liquidity. This means that it is easy for one to get out of and into them. It is also easy to sell on the market instead of having to involve local dealers (Get Money Energy, 2009). Owning the gold stocks has also got its disadvantages. This is because it is a process which involves broad market cycles.
It becomes very difficult to predict whether it will fair well in the market compared to bullions. Additionally, the companies the investors deal with present them with risks. This is because the management of the individual companies that the investor deals in might change at any time. There can also be political risks, lawsuits and risks associated with the local currency (Get Money Energy, 2009). Mutual funds One can also invest in gold mutual funds, which is a broader way of obtaining gold stocks ownership. They invest in speculative stocks, bullion and established companies.
There are also the ETFs, or the Exchange Traded Funds that trade on exchange like stock. The two traded in America purely in bullion. These are very convenient ways of gold investment since the investor does not have to physically possess the gold (Ninomiya, 2010). There are several advantages associated with holding the ETF. Depending on the ETF type, one gets a benefit of liquidity, having one’s personal metal and storing it safely. There are no additional account and insurance fees. The investor has also got access to the commodity if the ETF holds the bullions in vaults.
On the other hand, the investor may own equities if he prefers getting some dividends. It is very good as it has a maximum diversification plus some additional income (Get Money Energy, 2009). There are still disadvantages that are associated with it. There are several types of fees that eat up on the costs. These includes the ETF management fee, and all the fees which are paid as commission each time the investor sells or buys gold. The underlying companies also present some market risks, depending on whether the ETF is properly managed or not.
Even though most of the companies have a good management, there are always turnover and management risks (Get Money Energy, 2010). Gold Futures The most dangerous way of investing in gold is known as the gold futures. This is because the investor relies on speculations, whether the prices of gold will fall or rise. Any investor who makes the correct guesses can make so much money. However, if a wrong speculation is made, the opposite takes place (Ninomiya, 2010). Gold futures are ways which show exposure to the gold price. It is also easy for all people to invest in a futures account.
Additionally, with influence employed on a little amount of the prices of gold lead to an increase in the profits of investors. Unlike company stocks and physical gold, the futures have a limited life p. It is very easy for one to lose the investments one has (Hub Pages, 2010). Jewelry One can also invest in jewelry. However, this is not popular in America. It is considered as an essential way of storing wealth. Jewelry plays a very important role in the culture of India. India is the biggest market for jewelry in the world. It is always attributed to the wedding seasons in India.
The Indians value it as it is something which is tangible. It is also important for fashion as well as a very good way of investment. For instance, a famous stock speculator known as Jesse Livermore would enough times borrow the jewelry of the wife so as to get a cash stake. However, it has a disadvantage, as those who own gold are always threatened with theft (Hub Pages, 2010). The determining factors of the gold prices Gold has always had a major position as far as the global economy is concerned. The price of gold is always rated as a great determining factor of the global economy.
Generally, there are five major factors that affect the gold prices. The first one is the U. S. dollar value. If the U. S. dollar is strong, the price of gold is always low and controlled. A weak dollar means that the gold prices will increase to very high prices. The economy of the U. S. has a very major role in determining the trend that the global macroeconomics takes. Every time the U. S. dollar is strong, people trade and invest in dollars (Wogan, 2010). Recently, the economy of U. S. has suffered greatly. The dollar is not very promising and powerful.
The reason why nations and people invest in bullion is that there are high gold reserves which strengthen the economy of the nation. They act as the hedge against inflation. Every time people realize that there are signs of the dollar performing poorly in the stock market and the world, they often invest in gold coins and gold funds. They get more value from bullion, which leads to an increase in the demand of gold. Gold also depends on the supply and demand of gold (Wogan, 2010). India and China are the biggest purchasers of bullion for their jewelry market.
In 2004, the citizens of China invested so much in gold jewelry. They were given the ownership for the first time and this led to a high bullion demand in history. In turn, the price of bullion in the world was affected. In 2009, there was a thirty two percent decrease in the gold jewelry demand. Due to the economic crisis of the world, there was a decline in the prices of gold. As a result, the investors received a set back in their investments (Wogan, 2010). The Central Bank is responsible for keeping the reserves as an inflation hedge. There are other monetary policies in the central bank which affect the gold prices.
These include the interest rates which are discouragements of paper money investments. The people turn towards the golden metal so as to get better returns. If the central bank gets high interest rates, there are possibilities that the price of the ingot will fall (Wogan, 2010). There is a rise in the gold mining cost production. Additionally, there are also strikes by the gold miners and worsening political situations. For instance, after the war in Iraq, there was an increase in the prices of oil. There were also attacks by terrorists which have led to great reduction of gold mines in the last five years.
The population of the world is rising every time, which is affecting the demand for investments. Man has always believed in bullion investments; therefore, the price of gold has always been affected by the desire of man to store gold (Wogan, 2010). Gold: A good investment The choice of an investment depends on the kind of investment that the investor is looking for. If the intentions of an investor is to multiply their investments in six months, and is not cautious about the initial investments of achieving the goal, then it is not advisable to invest in physical gold.
Like all the other investments, gold has a trend that it should follow. The probability of gold doubling within six months is low. Gold has the characteristic of storing wealth overtime. In addition, it can build a numismatic value. This means that the older coins fetch more prices. It is easy to maintain physical gold as the prices are low. This depends on whether it is stored in a safe place where there is protection from theft or damage (Article Base, 2010). Gold will never tarnish or rust, and it maintains its value even under extreme economic circumstances.
Physical gold is different from the other types of investments. Gold can maintain its value if at all the institution that manufactured it has shifted from the business field. Investments like bonds and stocks do not depend on the body that issued it for value maintenance. Therefore, because of the ability of gold to hold some value, it has an ability of being independent of the organizations. Additionally, it has low costs associated with it as far as maintenance is concerned. Therefore; it is a very good investment (Article Base, 2010).
A long term type of investment: A discussion of 2009 In 2009, the supply of gold started declining. The metal started becoming rare each day. Since 1950, the gold mines in Canada, United States and Australia changed from the gold production trend. It shifted from twelve grams to three grams per tone. The gold miners have tried to rectify the situation by mining more gold. However, the prices have not been fairing on well. As a result, many companies involved in gold investment closed because the mining operations were becoming more expensive.
Additionally, the companies paid off the futures bets it had in the delivery of gold, where they had been bought as early as 1990. They however got into huge losses. This implied that the supply of gold would be very low, from the one that was expected. For the miners of gold, things are even worse. The prices of excavating the gold from the earth have risen sharply. Therefore, they are required to use so much money as the gold is only found after a long mining period (Jordan, 2009). An example of a mining company referred to as Barrick Gold had its gold production decline to $456 in every gold ounce .
One of the underlying factors in this decline is the expensive energy prices. This is because energy is very important, and it affects the supply of gold once its prices escalate. The rate of production therefore decreased, and the prices of the existing gold became very rare. The cheap gold was no longer in the market. The mining companies that persisted in their work continued to mine but with very many difficulties. This is because their work had very thin profit margins (Jordan, 2009). Gold investment in 2010 The trend in the prices of gold in 2009 continued to affect 2010 prices.
In the beginning of 2010, there was a decline in the price of gold from $1250 to $1,226. This condition made the analysts think that the gold market was over. However, to the optimists, it has been a good period of buying gold, as the prices are affordable. Gold prices have been declining by $200 every two years. However, every time this happens, the people hesitate in buying it. Earlier on, gold had cleared $1000 per hurdle. The prices then shot to $1200. With the present situation, it will take a long time before the prices go back to $1200. The investors ought to look at the positive side of this situation.
If they buy gold at $ 1,100, or wait for the prices to drop to $1,050, they would get over ten per cent profit. This is because the price is estimated to pass the $1,226 target. Some experts claim that the prices of gold will not increase unless the paper currencies are affected by devaluation, or inflation. It is believed that governments are responsible for printing money (Arabian Money, 2009). Action taken to solve the grave situation Due to the problems associated with the investment of gold, there are very many forums which have been organized so as to discuss on the way forward.
The most recent one was held in Europe, and it was referred to as the World Gold Investment Congress Europe 2010. It ran for two days, with the agenda having been to make a critical analysis of the gold investment business. It comprised of institutional investors, asset and fund executives, and experts from consultancies in the world, mining and gold exploration companies, investment and central banks. This is the only investment meeting that was aimed at looking at the precious metal, gold, and the role it played in the portfolio of investment.
The investors were guided on the future predictions and market conditions. They were also able to understand the risks that they would be subjected to as investors, as well as how they would shield their investments from being affected. They were also advised to network with other investors, economists and fund managers for the smooth running of their investment business. The business people were from all over the world. This has given the investors an opportunity to exchange ideas, therefore learning from each other (Terrapinn, 2010). Benefits of being a gold investor
It is a good investment as the other assets value can easily erode. However, the worth of gold is different, as it is rarely affected by inflation, like the case of paper money. It can only be affected by its scarcity or high prices. Nowadays, there are very many social problems that are in the world. These include the various types of social chaos, such as civil wars, governments being overthrown or occurrence of terrorist attacks. It is also a good way to diversify a country’s investments, other than rely on investments based on the dollar.
It is considered as the purest currency that a country can use, and is accepted in the whole world. This is unlike the paper currencies, where the printing depends entirely on the governments of a country. Paper money loses its value at a very fast rate, unlike gold which maintains its value over a long period of time. Additionally, there are very many countries which deliberately make sure that there currencies are weak so that the exports can find easy market in other markets. This is because any country that has a weak currency attracts the buyers from other countries to purchase their products.
This is unlike gold, which cannot be weakened by anything as it is universally accepted as currency, unlike paper money (Massre Sources, 2010). It was valuable over two thousand years ago and its worth will never change. This is because the storage of gold is a very good way of wealth preservation. Gold has the ability of protecting the U. S. dollar. This is because every time the U. S. dollar declines the price of gold increases. Therefore, any country that strongly relies on gold investment is protected. When there is inflation, any gold investor is always lucky.
The gold owned is a good source of preserving one’s assets. The demand of gold will never cease at any time. The jewelry made of gold is always said to be on a very high demand. There are even some societies which value it highly, like the Indians. The gold available in the world is very limited, as it is only mined. It is not possible to print gold in the banks, like the process of minting coins and printing money. Therefore, an investor cannot in any way be controlled by the federal government (Massre Sources, 2010). Disadvantages of owning gold
The value of gold can decline in relation to the paper currencies. An investor can buy gold when the prices are high. Severally, the investors buy gold with very high expectations. However, the prices of the gold can fluctuate, which may lead to the investor making losses. Additionally, it is not possible to exchange services and goods with gold. It is important for a person to possess paper money so as to purchase the desired items. Unlike bonds, savings and money markets accounts, gold cannot pay any interest. It does not also pay dividends like the other stocks (Massre Sources, 2010).
The only way the investors benefit from it is a rise in value any time its demand is lower than the supply. It is also very risky to invest in gold because it can be stolen easily. Therefore, there are increased costs incurred by the investor so as to protect the gold from such risks, which include the maintenances costs paid to companies and also the additional costs. It is also expensive as those investors who store it in banks will always be required to pay costs in the bank (Massre Sources, 2010). Current dollar/gold exchange rate There has been a constant market structure as far as gold is concerned.
The current price of gold in relation to the dollar price is $280 per ounce. This has been seen as disadvantageous because it lacks the ability to maintain the mine output in the mining industry. Additionally, there are continued poor returns on investments, as well as the inability of the investors attracting new capital. It is predicted that the situation will only change if at all there are higher gold prices set. This will be a great encouragement to the investors and all people who are related to the gold investment business (Amer Gold, 2010). Conclusion
Gold is a very good way of investment. It has proved to be of worth since time immemorial. Despite the recent investment problems that have been associated with it in the recent days, investors are still hopeful, as it is a good way of investment compared to all the other forms. It is the role of the federal government in the U. S. and the other governments in the References Amer Gold. (2010). American gold exchange. Retrieved from http://www. amergold. com/library/InvestmentCaseForGold. shtml Arabian Money (2010). Gold is the top investment tip for 2010. Retrieved from http://arabianmoney.
net/2009/12/21/gold-is-the-top-investment-tip-for-2010/ Article Base (2010). Is gold a good investment? Retrieved from http://www. articlesbase. com/investing-articles/is-gold-a-good-investment-1482498. html Elliot, J. & Downes, J. (2003). Barron’s finance and investments handbook. New York: Wireless Boulevard. Get Money Energy. (2009). Advantages and disadvantages of investing in gold bullion vs. gold stocks vs. gold ETFs. Retrieved from http://www. getmoneyenergy. com/2009/09/advantages-disadvantages-investing- gold-bullion-gold-stocks-gold-etfs/ Hub Pages (2010). Investing in gold.
Retrieved from http://hubpages. com/hub/InvestinginGold Jordan. (2009). The case of long term gold investment. Retrieved from http://www. investingblog. org/archives/565/long-term-gold-investment/ Lankow, J. (2009). Going for the world’s gold. Retrieved from http://www. mint. com/blog/finance-core/going-for-the-worlds-gold/ Light, J. , Greene, B. , Blanchard, N. , Steinberg, L. , & Edwards, J. (1987). Gold. The Orange Coast Magazine, 13, 8, +226. Massre Sources. (2010). Basics about gold. Retrieved from http://www. massresources. org/infopages. cfm? ABPageID=75&MainParentID=35&subpages=yes
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