Best Way To Invest In Gold
If you have been thinking of investing in gold, congratulations. Why? It shows you think long-term. The truth is that gold has always been a 'safe refuge' for investors during times of economic uncertainty. As awesome as global stock markets have been performing lately, the old saying of 'what comes up must come down' definitely applies not just to the physical and natural worlds but also to the finance world. Stocks often go through boom and bust cycles. Inflation is always lurking in the background threatening to reduce the value of your hard-earned cash. Governments are not immune from devaluation. These are the key risks investing in gold protects against. You would do well to diversify your investment portfolio by investing in gold. With that said, there are so many ways to invest in gold and precious metals, for that matter, out there. How do you pick the 'best' way to invest in gold.
The problem with defining 'the best'
Let's face it, 'the best' is a very subjective and slippery term. Maybe this is why salesmen love using the phrase 'the best.' Hearing 'the best' makes you feel good but chances are you're just letting your impressions and assumptions regarding the meaning of this overused and abused phrase get the best of you. The sad reality is that what is 'best' for your might turn out to be a disaster for someone else. And vice-versa. Moreover, you can't base your investment decision on what is 'best' for a salesperson trying to get you to invest in a particular gold investment option. The good news is that there is a powerful way to define what is 'the best' when it comes to your gold investment options: focus on your needs. That's right-by focusing on what your particular investment needs are, your risk profile, the amount of time and management you're willing to put into your gold investments, and other factors, you can come up with the best range of options when it comes to owning gold. Keep your needs in mind when examining the different gold investment options listed below.
Direct ownership: Physical gold
There is a certain psychological benefit to being able to physically handle the gold you are investing in. Unlike stocks which give you a legal share in a corporation, when you buy direct physical gold, you get to handle the gold. You get to touch it. You get to see it. There is a psychological benefit to this. You simply and directly feel you own something valuable. So far so good, right? Well, the downside with owning gold directly is that you have to worry about robbers. If you think your gold bullion is valuable to you, it is doubly more valuable to people who want to rip it away from you. You have to invest in a home safe or pay to have your gold stored somewhere. Also, you have to get the proper insurance for your gold bullion investment. When it comes time to sell, you would need to pay assay fees so the company (most people usually sell to a company that buys and sells gold when they liquidate) can be sure that you're selling real pure gold bullion. Keep these details in mind. They definitely add to your cost. Also, there is a psychological price to having physical gold in your home-you can lose sleep due to the risk of crime.
Direct ownership: Gold coins
The great thing about owning gold coins is that you get to play two investments in one. First, you're obviously investing in the gold market. At the very least, your gold coins will be worth the price of the gold they contain. Gold prices can change dramatically and you can definitely play the gold market by buying gold coins. The second market you're investing in when you buy gold coins is the collectible coin market. Gold coins get their value from two sources: the amount of gold they contain and the premium collectors pay for the coins. This is a serious consideration. Why? When you buy your gold coins, you actually pay the base gold value and a premium for the coin. This can be a serious headache when you try to unload your gold coin collection. You might end up losing money if the price of gold remains stable or the same and the collector premium of your coins don't go up.
Gold ETF
Investing in gold exchange traded funds is the safest way to invest in gold bullion. Imagine getting into physical gold without having to worry about burglars or paying all sorts of fees for the storage and insurance of your gold holdings. Exchange traded funds work like mutual funds. They are traded based on net asset value (NAV). Gold ETFs only have one asset and one asset alone: a fixed amount of gold bullion. You basically buy the Gold ETF and play it like a stock investment: buy low and sell high. The advantage to this way of owning gold is that it is very liquid. You can easily buy to get in and sell to get out. The biggest advantage to ETFs is that they make investing in gold very easy. The downside is that you don't get to physically handle your gold investments. Another downside is that the price of the ETF is tied to the price of gold solely.
Gold mining stocks
One of the most interesting ways to play the gold market is to invest in gold mining stocks. You get rid of the headaches of physical and ETF gold investments by investing in gold mining stocks. Your stock might go up higher than the appreciation of gold prices. Why? Your stock might enjoy a 'market premium.' This is the extra value placed by the market for hot stocks. With gold mining stocks you essentially get the benefits of playing in the gold and stock markets. The downside, just like with playing the stock market in general, is picking the right company to invest in.
Thanks to ETFs and a robust stock market, getting into gold investing is easier now than ever. Keep the investment options' pros and cons firmly in mind when planning your gold investment moves.
Gold Reason No. 1: Don't Ignore Inflation: The stock market panic of 2008 sent commodity and stock prices - which includes the price of oil - much lower. That launched a huge debate whether deflation or inflation would be the final result. Remember, since 2001 - under estimated price inflation of 2.5% - gold managed to rise 400%. The Federal Reserve is expected to keep short-term rates near zero through 2013 & 2014 leaving the door ajar to ignite more inflation.
To shorten the recession, quantitative easing (massive printing of dollars) exploded the monetary base. As of October 2008, in only four months, the central bank doubled the U.S. money supply, going way beyond anything done in the nation's history.
On a worldwide basis, central banks have printed up an unbelievable $12 trillion worth of stimulus money, which is Robbing us-the citizens, by greatly decreasing the purchasing power of the dollars already in existence-the dollars in our paychecks and bank accounts.
Most economists agree that [inflation] will win out over deflation eventually.
Gold Reason No. 2: Demand is Exploding: The largest investors - pension funds and hedge funds - are making larger investments into gold. Their highly-paid investment advisors must be telling them [inside Info] the rest of us are not hearing about?
The popularity and success of exchange-traded funds (ETFs) that invest in and hold Gold proves this 'major trend.' The world's largest ETF containing 1,100 tons of the golden metal, the SPDR Gold Trust (NYSE: GLD), is the sixth-largest holding account of gold bullion. Investors never had an easier, nor quicker way to own gold. (via the Internet, on their laptop)
This is not just a U.S. phenomenon. Pursuant to the World Gold Council, world-wide gold demand increased 15% from the second quarter to the third last year (2012).
China & India = Growing Demand!
With a population over 2.5 billion citizens and a deep cultural affection for gold, Asian countries are driving more global demand in a big way. China encourages its citizens to buy more silver and gold and goes a step farther by providing them checking accounts linked-to-gold. China is currently neck-to-neck with India as the world's largest consumer of gold. A growing middle class whose members are experiencing rapid rises in disposable income are a major driver that's bullish to keep pushing up the price of gold. (the continuing 'population expansion' guarantees more gold-buyers)
Gold Reason No. 3: Central Banks are (new) Net Buyers: India's recent purchase of 200 tons of gold from the International Monetary Fund (IMF) was the probable reason that pushed gold up over the $1,200 level in December, 2012. Even more importantly is the major reversal that has witnessed the world's central banks switch from being net sellers into becoming net buyers of gold. It will have been the first time in 20 years banks turned into "gold buyers", as central banks have been net sellers of gold since 1988. More "buyers" equals MORE DEMAND for gold.
Gold Reason No. 4: The Pending Currency Crisis: Portugal, Italy, Greece and Spain -The "PIGS" - are in very bad fiscal shape. They are not the only ones. Iceland is considered nearly-bankrupt. The United Kingdom, the United States, and other economies are struggling on, barely able to grow their GDP any at all. That grim reality ignited a 'crisis of non-confidence' regarding fiat currencies in the minds of most citizens and investors. (*) "Paper-Money is nothing more than paper and ink, backed by the faith and credit of the issuer." When investors discover their faith in the issuer is greatly weakened, the value of the currency falls lower. Another potential trigger to spark a currency crisis is additional sovereign-debt downgrades from ratings agencies. Under those conditions, the ultimate store of value, - Gold - which is the oldest form of money on earth - will soar higher, as citizens and investors alike take actions to protect their dwindling purchasing power.
Gold Reason No. 5: Don't Wait for the Mania Stage: The gradually building gold bubble that carry's gold prices to all-time-record levels will eventually inflate in three distinct stages. In Stage One, the process starts with currency devaluations which will be driven by growing investment demand. (China & India & their citizens buying up 100 tons a year!) In Stage Two, gold prices will experience a stratospheric ascent repeating the late 1970's all over again. In Stage Three, will be the mania phase, when everyone and their grandmother are jumping in cause they see gold running uphill with price escalations. Truly, those investors who got in early (gold about $1,000 an ounce) could make fortunes as the price of gold balloons to $5,000-an-ounce and beyond.
Many economists predict the $5,000 price will be reached in the third and final phase, if not before. When the price of gold enters the mania phase, like it did back in 1977-79, it will act like it has a jet pack strapped on its back. Today's market price ($1,200 an ounce) will be dwarfed by the high levels gold prices climb to eventually.
Remember, the whole world-wide gold industry only has a total market value (capitalization) [below] the total value of Walmart Stores Inc. (NYSE: WMT) (about $200 billion). So when the crowd jumps in (mania phase), most of the "big money" to be made quickly will be with investments in the stocks of 'gold explorers and producers', where 1,000% returns could be common, figured from today's prices ($1,200 for Gold; $20 for Silver).
(*) These Demand-reasons explain why gold prices are poised to surge higher from here.
And while I predict gold will reach the $5,000 range eventually, that leaves plenty of room for investors to profit by entering at current levels (Dec, 2013).
Is It Time to Make Your Move?
Everyone should hold some gold in their portfolio, no matter their risk tolerance or age. Owning some physical coins or bars makes economic sense, but it's a little complicated to enact inside most retirement accounts.
That's why 'explorers and producers' of the gold sector promise the biggest payoffs. Production costs usually rise, as gold prices rise, while profit margins are expected to expand even faster. Once your friend's conversations turn to gold, for any one of the reasons I described above, gold stocks will erupt and then streak for record highs, just like they did in 1977-79.
When is this likely to happen? In a few years most likely. No one ever knows for sure with speculative frenzies or bubbles.
When this happens, gold will likely create a new generation of millionaires, possibly some new billionaires goldlieb.de. Although the mania stage is several years away, the smart investor will recognize the importance and the potential of investing in gold or silver [today] while prices are lower.
There is little doubt today's $1,200 gold price will eventually look like an outrageous bargain.
Our advice is: If you own gold, gold shares, silver, or silver shares, hang onto them and buy even more on the price dips. In the years to come you will look like a hero to your family for your far sighted investing acumen and have a great legacy to leave them.
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