Stocks, bonds or cash are the main assets people choose to invest in. These asset classes can also be linked to mutual funds. Where does gold fit in all of this? Inflation or economic crisis, gold was traditionally used as a hedge. The 1970’s saw gold prices rise sharply. This period was marked in high inflation and high debt. To find out about gold IRA reviews, you can see here
The majority of gold is considered a metal that can be used to make jewelry and ornaments. But this is only one part. These uses attempt to categorize gold according to its physical characteristics and not its symbolic meaning. It is gold that is used as money to hedge against economic and inflation events. The central banks are the biggest purchasers of gold. They aren’t using gold to make jewellery, but to support their respective currencies. After years of being net seller, they have become net buyers in recent months. If gold as a currency is obsolete, central bankers won’t be interested today in it.
Gold is one of history’s longest-running currencies. It was used throughout many cultures to indicate wealth. The concept of the “gold standard” is valid today. However, the US dollar has become a representative currency and reserve currency for this wealth. You’re probably familiar with the “gold standard”. It was once that all currencies were exchanged at a fixed gold rate. In essence, gold was the world’s currency. After that, all the currencies (yen, dollar, franc) were compared with the gold value. The US dollar has been used only recently as a proxy for the value of gold. Because the US government already had sufficient gold to support its representative value, it was able to do this at first. This is like saying the US dollar was an actual receipt of real gold that was stored in a government vault. The receipt that was stripped of the gold standard had no gold backing. Instead, the US Treasury’s power to tax people or create value is what gives dollars their worth. This notion implied that the government, or anyone who issued the currency, would always create value equal to the unit it represented. The deficit and national debt at the time of the demise of the gold-standard were not nearly as high as they are today. The current situation is one in which the debt has risen to such an extent that it is being considered for government bankruptcy.
What does this all have to do with investing? This should be viewed as currency and not an industrial metal. The value of what gold can be bought in dollars will change each day just like the number of Euros that you can buy with your $1. This is why gold investment is volatile. How would this affect the gold price? There are many factors. However, when it comes to gold prices, the purchasing power of a currency is the most important. The currency is relative to other currencies. Therefore, it makes sense to consider how much gold you have compared to other currencies. The trust that all currencies are built on, and the fact that currency can be issued at any moment, is a clue to where to look. While gold production is on the rise every year, its growth is slow relative to other currencies. These currencies are actually issuing new loans.
I understand the story. How do I invest in this?
The gold I have been referring to up until now is actually the metal itself. There are many ways you can invest in gold. These include gold stocks and gold indices. Or, you can buy gold directly. This could be in bars or wafers, coins, or by buying physical metals via gold dealers or funds. To capture this trend, you can buy gold as a material if your understanding of gold as a currency.
Funds should track the gold price as closely as possible if you plan to acquire access to gold metal. Although there will likely be slight differences between the fund price and the gold price due in part to fees, issuing funds units, or short-term trading patterns, they usually balance out in long-term. An exchange traded gold fund could be one that imitates gold or a trust that holds the gold for you. An alternative way to buy physical gold is to go directly to the dealer. If the dealer deals in physical gold, they will be a coin dealer, bullion dealer or currency dealer. In the last few decades, many dealers have emerged. It is important to ensure that you choose a dealer with a proven track record and reputable reputation. The location of gold bullion and the possibility for theft are what can put you at risk. You can either store your gold at your bank in a safe deposit or have it stored by someone else for a fee. But, you need to be sure that you trust the person who holds it. Gold can come with high costs so make sure to shop around.
If you’re looking to invest in shares of gold, look for companies that can actually produce it. If you are also investing in the company, gold explorers or small minors won’t work. Because of market factors, such as company management and gold reserves, issuing shares, company expenses, and other risks, buying gold stock has different risks than buying gold bullion.
You can also invest in a mutual fund with gold shares. This strategy is similar to buying individual shares. However you can diversify by investing in more gold companies. A downside to this strategy is the fact that mutual funds typically have higher management fees than stocks.