Do you want to invest on gold? Try most common and effective methods of investing on gold
Gold has been sought after for its unique blend of near indestructibility, beauty, rarity and because of its status as a means of exchange and universal currency par excellence for centuries.
With the economy still on shaky ground, many common investment vehicles have taken a beating over the past several months. Stocks, bonds and commodities have all been affected, most experiencing steep price declines. Even precious metals such as gold and silver have not been untouched. In the case of gold, prices have recently started to break out to the upside over the past several weeks. If you’re considering investing in the precious metal, you’ll need to decide how you will purchase your gold holdings. Below are four common options to invest in gold and advantages and disadvantages of each:
This is the actual metal, typically available in the form of bars or coins in various weights. Bars, available from Credit Suisse and other suppliers, are generally the least expensive option in owning the actual metal. You can also opt for gold coins which will normally be more expensive if they are part of a collector’s series.
Pros: Owning gold in this form is the purest form of ownership and offers a hedge in the event of a financial collapse.
Cons: The biggest risk of owning the actual metal is theft or other catastrophic loss if it is kept in your home. It is advisable to rent a safety deposit box to store your gold to guard against theft.
These are like a gold bank account in that your gold is held in a vault along with other owners. Fees are generally lees than 1% of the market price of your holdings making this a cost efficient method of owning bullion. Depending on your provider, accounts are either “allocated” or “unallocated.” In an allocated account a specific number of gold bars are allocated to you. You also pay additional storage and insurance fees. In an unallocated account, you’re asigned a sum of gold, not the actual bars. There are generally no additional insurance or storage fees with unallocated accounts.The markup per ounce is usually less than 1% of gold’s current market price, making this cheaper than owning physical bullion.
Pros: Generally recognized as the most secure form of owning gold, since the metal is securely store in a vault and regularly audited. You also retain the option of having your gold shipped to you upon your request.
Cons: Fees paid in allocated accounts will add up over time. In unallocated accounts, the gold is held in the providers name and is at rick in the event the provider goes under, including your gold.
Exchange-Traded Funds or ETFs
Shares in ETFs trade like stocks on an exchange. Each share represents a pre-defined factional ounce of gold. These shares are backed by the actual metal which is held in vaults in locations throughout the world. The price of these shares closely track the actual price of gold.
Pros: A low cost of entry and high degree of security are the two main advantages of owning shares in gold ETFs. Liquidity is another benefit since buying and selling is easily handled through your stock broker.
Cons: Taxes. The government taxes capital gains on gold ETFs at a flat 28%, almost twice the normal log term capital gains rate on stocks. You also pay managements fees of approximately 0.4% which adds to the cost of this form of ownership.
Another option is to consider the common stock of the gold mining companies. While you don’t own actual gold, you do participate in the success of the companies that actually acquire the gold Also the risk in associated with rising an falling prices are spread across all the available gold the mining company has, both mined and still in the ground.
Pros: This options generally gives you the most bang for your investment dollar. You will usually have to commit twice as much money in bullion or ETFs to get the same level of exposure as you get with the stock of mining companies.
Cons: As with investing in any company’s stock, you are exposed to the overall financial performance of the company in addition the the fluctuations of the gold itself.
Is investing in gold something you’re considering? I welcome your comments.
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