Since the beginning of time, this precious metal has been considered valuable. In fact, this tradition can still be seen to this day; it is often part of the savvy investor’s portfolio.
Because global financial markets have been experiencing increased volatility and other crises over the past decade, gold stocks have seen a significant increase in popularity. However, many beginning investors have no idea why this precious metal is such an excellent investment and they have no knowledge of the best ways to go about purchasing this asset.
Keep reading in order to get an understanding of gold stock investments, as well as how to invest it so that you can make purchases that are in alignment with your specific wants and needs. This comprehensive information will provide you a good basis of knowledge about this precious metal.
A Brief History of Gold as a Currency
Gold has a long history as currency and has been used in this manner longer than any other monetary unit. In fact, the gold standard was the de-facto world currency during the 19th and in the early 20th century. It is because of this auspicious past that many people believe that this precious metal should be the basis for currency once again.
It was during the Great Depression that the majority of the major financial courtiers of the world cut their ties to this precious metal and stopped using the gold standard. Although, the US started this process during the presidency of Franklin Roosevelt, it wasn’t until Richard Nixon came to power that the United States completely abandoned the popular standard.
Is Gold Worth the Investment?
Traditionally, this precious metal has been considered to be an excellent “hedge”. In other words, it is known as an excellent safety net; even when the bottom drops out of the market or under the threat of inflation. Because of gold’s physicality, it remains in place even when the normal currencies become devalued or if the market suffers dramatic losses. Some even say that if the major world currencies should collapse, it should be used as an alternative currency.
What Are The Factors That Affect The Value of Gold?
No matter what naysayers spew, gold and gold-related stocks have been a standard tool for savvy investors for many years. This is because of its consistent performance in the market. However, there are times that dramatic fluctuations in the gold price per ounce occur. Some of the factors that affect it include:
- The Washington Agreement on Gold (WAG): This agreement sets a limit for the amount of this precious metal that can be purchased and sold by individual countries.
- The countries that are looking to expand their reserves of gold tend to experience increased demand; this increases the value of gold stock in that county.
- The state of a country’s economy directly affects the value of gold. For example, if a country’s economy is experiencing a downturn, its residents will begin to cash in their gold stores for cash that can purchase much need supplies.
- War or other types of national crises can increase the demand for gold because of the fear of currency depreciation. In order to protect themselves against economic crisis, many will purchase gold stock commodities.
Buying Gold and Gold-Related Stocks and Futures
One of the easiest ways to invest in the precious metal is by buying gold ETFs. An ETF, or exchange traded fund or security, has the ability to track the value of a commodity, exchange, or basket of assets. Some are used to purchases and store the precious metal, but others are used primarily to trade in the futures of those assets. It is important to note that, because this precious metal doesn’t burn up like other commodities (take oil for example) or spoils (like crops), the difference in value between the two options is typically minimal.
Gold ETFs are purchased in a manner similar to other securities. For example, if you normally utilize an professional adviser to handle your trades, you would simply inform him or her that you are interested in investing in gold stocks and/or futures; one of the most popular is NYSE:GLD.
Likewise, if you are in direct control of your investments and spend time trading on the internet, you would simply log into your account and utilize your search tool to find gold ETFs. The only downside to this (dependent on how you look at it) is that you will not be the recipient of any physical gold. On the other hand, since the company holds the gold, you are not responsible for insuring or storing it; which will save you money that would otherwise cut into your profit from your investment.
Investing in Mining Stocks
When it comes to investing in mining stocks, there are huge benefits and disadvantages. For example, there is tremendous potential for mining companies to post great profits, however there is also the chance that they may be besieged by substantial losses. In fact, the probability is higher than with other forms of precious metal investment. This is because it takes a substantial amount of money to run these types of companies; expenses include equipment, insurance, etc. On the other hand, when the gold price per ounce is in a bull market, they are basically printing money.
A gold mining firm’s stock is purchased in the same way as the stocks of any other publicly traded company i.e. directly through your trading account or your broker.
The Bottom Line
If you are interested in diversifying your portfolio, gold or gold-related stocks can be invaluable because they provide insurance during times of inflation or when the bottom of the market drops out. In other words, not only is this precious metal relatively rare, but its value typically does well in turbulent times. It is because of this historical hedging ability that it is recommended that most people should allocate approximately 5-15% of their portfolios to gold or gold-related investments. A great place to get valuable information concerning the different gold prices per ounces as well as other precious metal prices is CNN Money.