Gold is security, insurance against inflation, currency degradation, and global insecurity. It is said that there are many ways that an investor can lose money with gold. Gold has unique properties as an asset class. The diversity of gold-backed and gold-related products means that gold can be used to enhance a wide variety of individual investment strategies and risk tolerances.
How to Play the Gold Game?
- Buying Gold Bullion
The best way to have gold is by buying gold bullions. Gold bullion traditionally stands for gold bars. Gold bullion has increased by 440 percent over the last 10 years. Even over the last 5 years, it’s done better than most gold stocks (118.14 percent).
Buy physical gold at various prices: coins, bars and jewelry. Some of the most popular gold coins are American Buffalo, American Eagle and St. Gauden’s. You can store gold in bank safety deposit boxes or in your home. You can also buy and sell gold at your local jewelers. Other companies like Kitco.com allow you to store gold with them as well as trade the metal.
When buying gold bullion or coins, the investor should avoid large premiums. Investor should try to buy gold close to the spot price or at a premium of 10% maximum. The higher the premium, the higher the gold price will have to rise in order for you to profit.Coins typically come from the national mint, where they are made and sold at a 4% mark up — the retailer’s margin is 1% to 3%.
- Gold Futures
Another best way to invest in gold is through Gold Futures because they track gold with less transaction costs as compared to shares of gold or ETFs. In addition to this, investors do not have to promise much money to manage a big gold position. The risk, of course, is that a tumble in gold price can wipe out the collateral behind a gold-futures position.
- Gold Mutual Funds
For individuals who are cautious to invest in physical gold, but still want some experience to the precious metal, they can invest in gold mutual funds. These funds hold portfolios of gold stocks-that is, the stocks of companies like Newmont Mining that mine for gold. Newmont is an example of a senior gold stock. A senior is a large, well-capitalized company that has been around several years and has a profitable track record. They tend to own established mines that produce known quantities of gold each year. For many investors, selection of such a company is a more moderate or conservative play (versus picking up cheap shares in fairly young companies).
- Think Long Term
When gold prices follow downward trend, short term investors usually do not invest. However, long term investors take advantage of this state and invest as they have the speculation that prices of gold will increase in the long run. Investors should think carefully before making investments and avoid reacting to short term swings in the market. If an investor wants to invest in gold, then it should be made before the financial panic grips the economy not during this phase. That is because you should be holding onto gold as a long-term investment and a hedge against uncertainty. Since gold is a volatile asset, so it is not always beneficial to invest on a short term basis as no one is sure whether price will go up or down as the price is changing on daily, weekly and monthly basis. However, in the long run, gold will take a stable position and thus the risk of the investment will also be minimized.
- Choose companies that invest money into expanding their reserves.
Companies have proven reserves but that’s not enough. It should actively expand its gold reserves. These reserves must expand into better source of production. Being an investor, find companies that have a history of long and consistent production. After that look how the company convert these projects into production.
For example, Barrick Gold employed $16 billion of revenue from 2005 to 2011 to grow its reserves. It grew reserves by 51 million oz. That’s enough of a buying sign for most investors, but it shouldn’t be for you. Dig deeper! It’s cost per reserve was $313. However, it’s actually increase in production was a mere 2.2 million oz. It’s final cost for new production? $7,260. Gold prices are high, but they’re not that high.