Many wonder how to invest in gold. We have mentioned in previous article that the solutions to invest in gold are six: the purchase of coins, the purchase of bullion, the opening of a gold deposit, the subscription of gold certificates, the signing of a mutual fund who buys and sells shares of gold companies, the subscription of an ETC (Exchange Traded Commodities) tradable on the stock exchange.
The first four tools are offered by investment banks (especially in Switzerland) that has a heritage of a certain size (a few million Euros):
> Coins. There is a wide variety of gold coins issued by governments around the world, the market value of which depends on their content of pure gold. Do not confuse the coins in precious metal coins commemorative coins collected by enthusiasts. The value of the latter, in fact, depends on rarity, design and finish of the issue, not the content of pure gold.
> Ingots. They can be purchased in different weights and sizes (usually range from one ounce to 400 ounces – one ounce equals 28.35 grams). Are considered as small ingots weighing less than 1,000 grams. There are 94 producers in the world of gold bullion in 26 countries.
> Gold Deposit. They can be opened with many large banks where the gold is stored in a vault. The bars (or coins) are stored, numbered and identified according to an official seal of guarantee. The investor pays for the service and filing of an insurance policy against theft.
> Gold Certificates. In some countries (especially in banks in Switzerland and Germany) are gold certificates allow investors to own gold without the physical delivery of the material. The certificates are for those who own them, a title of ownership while the bank keeps the gold material for the customer, who can still sell the certificates with a simple phone call to the bank.
Among small and medium savers solutions are popular for some years, especially two.
The first is represented by equity mutual funds that invest in mining companies in the gold mining sector, i.e. companies that are engaged in gold mining around the world. In general, if the gold price increases, the actions of these companies increase in value. Actually, however, not always the case. It should be borne in mind that this type of investment fund products are still affected by the trend of equity grants. During the financial crisis of 2008, these products have come to losing on average as high as 25%.
The second solution, we believe the most effective way to invest in gold without incurring the risks of equities, is to focus on ETC (Exchange Traded Commodities).
These financial instruments to allow small and medium investors to invest in commodities such as oil, agricultural products (corn, soy) and, of course, gold. The investors buy shares of ETC (which is negotiable on the stock exchange at any time during the hours of trading, as any equity security) and paid the money needed to buy a certain quantity of gold, which is stored in the form of ingots in the vault of a large international bank. Each installment of the ETC is, even if indirectly, to the property “physical” gold. So, if the gold price rises, even quotes the ETC move in the same direction. ETCs do not expire, meaning they can be purchased and held in the portfolio for several years.
In international stock markets gold is usually traded through financial derivatives (options and futures) whose operation is difficult to understand for investors who are unfamiliar with finance. The tools are simple Etc instead of derivatives, but not always. Pay attention, for example, the exchange factor, because almost all are priced in dollars. If the euro strengthens against the dollar is likely to have negative returns to the point of dismantling the possible rise in the price of gold.
However we can say that the gold Etc represent a suitable tool to small and medium savers are instruments that provide good diversification opportunities, particularly because the gold (and commodities in general) is not strictly correlated with the main markets investment such as equities and bonds.
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