Gold has fascinated people for millennia. The pursuit of this precious metal has led to wars, murders and riots, wars, and a relentless fascination with much of history. Gold is so important that is synonymous with with the word “wealth”. But having gold nuggets, coins, does not always mean that the value of your investment portfolio is growing or that it is safe.
A lot of the gold that is produced every year goes to manufactured goods, while the rest goes to currency reserves and private investors. Gold has a history of being used as currency reserve. It was the case more especially during the era where everyone subscribed to the gold standard however; the gold standard was abandoned in favour of fiat currencies.
Investing in financial markets requires the ability to be fluid and be able to change your perspective as the world around you changes. If gold bullion bars or coins are purchased, the physical ownership of that gold does not change regardless of changes to the marker price.
If you are buying gold or silver to diversify your investment portfolio you need to keep in mind that you are making a choice to risk capital with the expectation of a return. Diversifying an investment portfolio means shifting asset classes that you have invested in. Stocks are an asset class. Gold is another. You can own shares in a company which means owning a stake in that company. The value of the company shares might go up and down. These assets are completely out of your control and perform according to the market and what the company might be doing to boost its revenue. You might find in the long run that your share certificates are worthless, especially when the company faces financial trouble and possible closure.
The value of gold fluctuates and changes with the market but it is always worth something. This is where the main difference lies. You may not be able to profit from the gold you have but gold is always a desirable asset regardless of its monetary value.
When planning your portfolio also take into consideration what your intentions are. Are you trying to increase your wealth or you simple choose gold because it is easy to convert into cash in times of crisis. Both of these objectives can be achieved if you take time to study the markets more closely. “Rainy Day Gold” is definitely different from gold bought as stock in a gold mine. Holding “emergency” gold does not increase wealth. To realize high returns from your gold investment you need to understand that gold may lose value.
There are basically two ways to invest in the gold market: Buying physical gold or buying a gold futures contract. Buying physical gold means having ownership of actual physical gold. Therefore, even if the price fluctuates, the property is final. Buying stocks or gold futures contract is basically speculation, you don’t own the gold but can make a profit.
Gold futures contracts are standardized with respect to quantity, quality, time and place of delivery. Only the price is variable. Gold bullion bars and coins, track the daily gold spot price.
The demand is global. Gold gets traded everywhere in the world at any time of the day.
Gold as a Commodity
The term “flight to quality” is applied to gold, often referred to as a last resort currency. The idea is that if the economy collapses and fiat or paper money loses its value meaning gold will be the next valuable “currency”. It has happened recently in Venezuela is that country’s currency has been completely debased and people pay for everything with the gold flakes.
So, you see gold can be a useful long term investment or hedge against inflation in times of crisis.