Wednesday, January 27, 2016, PM | Leave Comment
Investing in gold can be a really good way of diversifying your asset portfolio. It has the advantage of being relatively rare and this often results its value not moving line with other financial assets or even property.
While almost all financial gurus agree that investing in gold provides your portfolio insurance and stability, most retail investors have no clue about the various forms of gold that can be invested in.
Take a look at the options available:
Gold in the Physical Form
Due to its unique status of being a universal currency with restricted availability it is held by almost all the central banks of the world. The same logic should be adopted by the retail investor.
Just as you would not view the home that you stay in as an investment, you should also consider bullion more of a financial insurance than a financial investment that will come in handy should you ever run into bad times.
It is a very good way of preserving your wealth and in the long run a very effective way of passing on your wealth to the next generation.
Bullion Bars and Coins
Bullion bars and coins permit retail investors to possess investment-grade gold very easily and conveniently.
Available at a small premium to the spot price, its price movement follows the price of bullion exactly.
There are a number of countries that mint bullion coins. These include US, UK, Canada, Austria, China, Australia, and especially South Africa.
Available in denominations ranging from 1/10oz to 1oz, the retail investor has especially taken to the advantage of owning legal bullion with aggressive marketing of Krugerrands.
Adding to the attraction is the freedom from stamp duty and VAT in both the United Kingdom and the European Union.
Numismatic and Semi-Numismatic Gold Coins
These coins are collected by many retail investors because of their added value of rarity, aesthetic, and historical appeals over and above that of the gold content itself.
In a bull market their value rises more than the gold benchmark but dips faster too in a bear run.
The British gold sovereign is the world’s most owned and traded semi-numismatic gold coin. It is also exempt by law from capital gains tax.
While contemporary society in the U.S. and Europe have almost stopped considering jewelry as an investment, this form of investing in gold ruled for many centuries, almost ever since gold was first discovered.
Even today, it is extremely popular in Asia and the Middle East, with India being one of the largest such markets as gold jewelry plays a very significant part in religious and social customs.
Due to that there is a very large retail trade presence dealing with personal jewelry like necklaces, bangles and even men’s wedding bands.
Because of the emotional value associated with personal jewelry, its value as an investment is severely limited and it is considered more of insurance than a wealth multiplier.
The world’s only precious metal certificate program backed by a government is the Perth Mint Certificate Program.
You can actually own gold that is kept in a government mint with Lloyds of London insuring it.
Even though all you own is a certificate issued by the Perth Mint, it has proved to be very popular as the investor is not charged for logistics, insurance or even custodial fees.
As opposed to this form of unallocated gold, investors can also purchase allocated gold that is represented by physical bars and coins purchased from a bullion brokerage.
The brokerage will arrange for its transfer to the purchaser’s bank or depository. The owner has absolute title to the bullion.
Digital and Paper Gold
Gold in the digital form is mainly used by purchasers as a savings instrument or as electronic money. Due to the lack of regulation, this mode can be especially risky.
Investors can also consider investing in companies that are engaged in exploration or mining of gold; however this is the same as investing in equity and does not carry either the security or liquidity of actual gold.
Experienced investors can play the gold market in the same manner as they would do for any other commodity by speculating on the future movement of its price.
You just make or lose money on the price movements and never actually possess any gold itself. You can even invest in gold funds that work very similarly to mutual funds.
Monica Caviezel is a money market researcher at one of the biggest investment banks. Extremely knowledgeable about gold and other precious metals, she is consulted with by a number of jewelry stores, including http://mensweddingbands.com/, a leading online jewelry retailer.