Learn, why the interest of financiers in gold does not stop growing and what methods are there to invest in precious metal.
In a time of volatility and panic in the securities markets, gold remains among the most attractive defensive assets.. It is durable, it is necessary and allows you to preserve capital during a crisis. In this article we will tell, what are the methods of investing in gold and what determines the price of this precious alloy.
Advantages of investing in gold
Investing in gold is profitable for 3 Reasons:
- Capital protection. During crises, the precious metal increases in popularity, so financiers prefer to wait out the financial storm.
- Liquidity. The alloy is easy to implement, if there is a need for this.
- Reliability. The rise or fall in the price of a precious metal does not depend on the financial condition of any state.
Methods of investing in gold
There are several ways to invest in gold:
- Buy bars.
- Purchase gold coins.
- Buy jewelry.
- Open an impersonal iron account.
- Вкладывать в «золотые» ПИФы либо ETF.
- Purchase securities of gold mining companies.
- Invest in gold futures.
Let's talk in more detail about each of these methods..
Purchase of ingots
You can buy an ingot at a bank, on the stock exchange or from specialized companies. The entry threshold is small - 1 city, and spread (difference between buying and selling) may vary by 5-10 percent. The purchase procedure includes weighing and issuing a certificate.
The main advantage of bullion is the physical presence of the rarest precious metal. This option is perfect for long-term investment., if there is a secure place to store the ingots.
Buying coins
You can buy coins at the bank, at the tender, from a special company or in a numismatic store. Coins are 2 species: investment and collection. The price of coins of the first type is close to the price of an alloy, and collectibles have artistic value, what makes them more expensive.
Coin is a tangible object, which is perfect for long-term investments. But it's important to keep in mind, that any physical action on the surface of the coin lowers its price, because storage requires a non-hazardous place.
Buying gold jewelry
You can buy decorations at jewelry stores.. This method of investment is the most versatile, since the price of a product is influenced by a huge number of reasons. Among the advantages of the method, the ease of purchase and transportation is highlighted.. But there is a high risk of acquiring a fake or poor quality product., if it is bought from a personal person.
For the production of jewelry, an alloy with other alloys is used., but not spotless gold, the price increases due to the work of the jeweler and price increase in the trading process. With all this, historical or artistic specimens have the highest value and price..
Opening an impersonal iron account
OMS is an impersonal metal account in a bank, where capital is stored in metal equivalent. The client replenishes the account, acquiring metal, however no physical purchase occurs, so you don't have to worry about a safe storage location. You do not need to pay VAT for transactions.
Exist 2 type of OMS:
- Perpetual or ongoing.OMC is limited in profitability by the increase in the value of gold. Cash withdrawal is available at any time, however, VAT will be charged at the time of account closure.
- Urgent or deposit.Income is generated in two ways: by increasing the rate of gold and interest. Replenishment or early withdrawal is not possible, otherwise there is a loss of payments.
ETF
ETF is an Exchange Traded Investment Fund, whose shares are traded on the stock exchange. The fund usually invests in several instruments, united according to a certain principle - for example, by country or sector of economy. Gold ETFs allow you to invest in gold without having to buy bullion.
Quotes are directly linked to the assets in the portfolio. ETF controls both the Central Bank of the Russian Federation, and foreign banks, what makes investing in gold safe.
Mutual funds
A mutual fund is a mutual investment fund, which is a portfolio of many assets. As part of mutual funds for gold, usually, there are ETFs - exchange-traded funds. The value of the shares of these funds tracks changes in the price of the precious metal..
To become the owner of an investment unit of a mutual fund, it is enough to buy a share - a registered security, confirming the right to a share in the fund. The income will depend on the change in the value of the shares..
Shares of gold mining companies
This is an indirect option for investing in precious metals. However, it is important to consider, that the growth of shares of gold mining companies does not always depend on the rise in world gold prices. If the company for any reason suffers losses, the value of its shares may decline. When choosing a company for investment, pay attention to the cost of metal mining. Than the cost price is lower, the higher the profitability from mining, and vice versa.
You also need to pay attention to the profitability of the company., because this indicator directly affects the price of shares. It is recommended to avoid buying shares of companies, who do not have their own gold reserves and violate the production plan. You can invest in stocks of such gold mining companies, like Lenzoloto, Buryatzoloto, Pole, Seligdar, Polymetal.
Futures
Gold futures is an agreement between a buyer and a seller for the purchase of a precious metal at a predetermined price and in a certain volume on the date of delivery in the future, when will the calculation take place. The dynamics of gold in the world market and the rate of futures are identical, and income or loss depends on the difference between the purchase and sale price of the contract. You need a brokerage account to trade.
Derivatives contracts are a potentially highly profitable and highly liquid instrument. Trading opens up opportunities for strategies and speculation, which are not possible when trading gold bars and coins. However, it is a risky tool, and knowledge and experience are required for successful bidding. Option not suitable for long term investment.
Difficulties and Disadvantages of Investing in Gold
Investors may face 5 disadvantages of investing in precious metals:
- Storage complexity. The price of bars and coins depends on their condition, the slightest scratches reduce the cost, therefore it is important to preserve their original appearance. You can store precious metals in a safe deposit box, which is additionally paid, or at home safe.
- Large spread. Ingots, coins and impersonal accounts have a large difference between the selling and buying prices of the metal.
- Lack of compulsory health insurance. OMS is not covered by deposit insurance, which increases the risk of losing money, if the bank ceases to operate.
- Long-term profit. A noticeable effect of investments in gold appears during 10-15 years, therefore, this type of investment is not suitable for short-term profit.
- No interest for the physical equivalent of gold. Income is possible only after the sale of metal, the owner does not receive any other interest from storage, Unlike, for example, from bank deposits.
How much to buy?
It is recommended to invest only free funds in gold., which will not be needed in the near future. If you have to sell gold soon, then you can lose some of the investment.
Experts recommend adhering to the principles of diversification and investing in gold no more than 10-20% Portfolio.
When to buy?
Gold is considered to be a defensive asset - investor interest in it usually grows during economic crises and depreciation of the national currency. Exist 3 key prerequisites for the appreciation of the precious metal: the emergence of hyperinflation, deterioration of the country's economic condition, reduction of the Central Bank rate.
During a crisis, investing in gold will show its profitability, however, it is recommended to buy it gradually, without investing all funds at a time in precious metal. Different buying rates minimize the difference in costs.
From whom and where to buy?
The physical equivalent of a precious metal can be purchased both in a bank, and private owners. However, buying from private holders carries the risk of purchasing low-quality goods., because unscrupulous manufacturers may add steel or tungsten to the ingot to increase weight. Shares of gold mining companies, Mutual funds, ETF can be bought on the exchange.
Where and how best to store?
The condition of physical gold directly affects its price, the slightest scratches instantly reduce the value of a coin or ingot, therefore, storage should take place in a safe and inaccessible place for unauthorized people. You can store precious metal as you own, or rent a safe deposit box, where all responsibility for storage is shifted to the bank. If the buyer plans to store the metal on his own, it is recommended to purchase a safe.
Factors influencing the rise or fall of the price
The change in the price of gold depends on several factors:
- Inflation. Hyperinflation is one of the main reasons for buying precious metals. When the currency depreciates, then the demand for a more reliable object to preserve savings increases.
- Conjuncture. Gold has the properties of a protective asset, which investors turn to in turbulent times.
- US Dollar. American currency determines the world rate of precious metals. When the US dollar appreciates, then the precious metal rate decreases, and vice versa. However, if an increase in the US dollar depreciates the national currency, then the precious metal rate begins to rise.
- Item CB. When the Central Bank raises the interest rate, the value of gold starts to decline, because money is getting more expensive and classic assets, for example, bank deposits, start to bring more profitability.
Conclusion
Gold is a reliable precious metal, which reduces the overall risk of losing savings during a crisis and economic instability. The metal price is subject to short-term fluctuations, however, in the long term, investments show their profitability. There are various ways to invest in metal, each of which has its own advantages and disadvantages.
