Gold is a precious metal with high value. Some time ago, gold was a serious form of exchange for goods and services, however, now it is used on jewelry and ornaments, although it is still largely traded and you can invest in gold for profits.
According to USGS, gold performs critical functions in computers, communications equipment, spacecraft, jet aircraft engines, and a host of other products. Although gold is important to industry and the arts, it also keeps a unique status among all commodities as a long-term store of value.
While this article will strongly focus on how to invest in gold listing all the available opportunities, it will also discuss the production process and some conversion techniques used in purifying and making gold strong.
Why Invest in Gold?
Gold is a distinctive tool that is highly unique and is really a great form of investment for a lot of people. Indeed, gold is no one’s liability and carries no counterparty risk. Hence, it can function efficiently in an investment portfolio.
Most times, gold functions as a diversifier and a vehicle to mitigate losses in times of market stress. More importantly, it can serve as a hedge against inflation and currency risk.
If you’ve ever been interested in making an investment in gold, there are certain key things you should know which include:
- Gold is a mainstream asset driven by many factors, not just investment demand
- Gold is one of the most effective diversifiers
- Over time, fiat currencies—including the US dollar—fell in value against gold.
- Gold provides competitive returns compared to other major financial assets
- Gold offers downside protection and positive performance
The combination of these factors means that adding gold to a portfolio can enhance risk-adjusted returns. The number of returns you can get on your investment will depend on your investment.
How is Gold Produced?
Studies make us believe that majority of the gold in the world came from dead stars. As the Earth formed, heavy elements such as iron and gold sank toward the planet’s core. If no other event had occurred, there would be no gold in the Earth’s crust.
A lot of gold can be seen in diverse ores. It usually shows up as flakes with silver in the natural alloy electrum. Usually, erosion separates the gold from other minerals. Due to the heaviness of gold, it sinks and accumulates in stream beds, alluvial deposits, and the ocean.
Earthquakes play a key role, as a shifting fault rapidly decompresses mineral-rich water. When the water vaporizes, veins of quartz and gold deposit onto rock surfaces. A similar process occurs within volcanoes which leads to the formation of gold.
What is the Value of Gold?
The amount of gold gotten from the Earth is a small fraction of its total composition. In 2016, the United States Geological Survey (USGS) estimated 5,726,000,000 troy ounces or 196,320 U.S. tons had been produced since the dawn of civilization.
Currently, about 85% of this gold remains in circulation. And the reason is that gold is so dense (19.32 grams per cubic centimeter), it takes up only a little space. In fact, if you melted all the gold mined to date, you’d wind up with a cube about 60 feet across!
Despite these figures, gold accounts for a few parts per billion of the mass of the Earth’s crust. Although it’s not economically workable to extract much gold, there are over a million tons of gold in the top kilometer of the Earth’s surface. The abundance of gold in the mantle and core is unknown, but it exceeds the amount in the crust.
Invest in Gold | Processes
There are many ways you can invest in gold. Different products can be used to achieve a variety of investment objectives.
As an investor, you should consider the options available in your market, the form of investment that is appropriate to the circumstances, and the nature of professional advice it will require.
Choosing how to invest in gold involves reviewing the various gold-related investment products, all of which possess different risk and return profiles, liquidity characteristics, and fees.
Typically, an asset allocation distinct risk will check long-term versus medium-term returns, and how gold investment products behave in positive or negative correlation with other assets. Hence, you can invest in gold through:
Buying Physical Gold (Bars and Coins)
Small bars and coins are responsible for approximately two-thirds of annual investment gold demand and around one-quarter of global gold demand over the past decade. The huge demand for bars and coins has quadrupled since the early 2000s, and this trend covers both the East and the West. The European markets and China have put up strong grounds.
Buying Gold-Backed Etfs And Similar
Physically-backed gold exchange-traded funds (ETFs), exchange-traded commodities (ETCs), and similar funds account are responsible for one-third of investment gold demand. These funds started off in 2003 and, as of March 2016, they have about 2,300 tonnes of physical gold on behalf of investors around the world.
Internet Investment Gold
An increasingly interesting way of accessing the gold market is Internet Investment Gold (IIG). Internet Investment Gold helps investors to purchase physical gold online, have it stored in professional vaults and take possession of it should when necessary. As such, Internet Investment Gold gives investors a highly convenient way to benefit from outright ownership of physical gold.
Buying Into Allocated Gold Accounts
Bullion banks give institutional or high net-worth customers allocated gold accounts consisting of gold deposits and resembling currency accounts. The owner of an allocated account is the legal partner of a specific quantity of gold. You can access an unsolicited account using Bullion banks.
In an unallocated account, a customer does not possess specific bars or coins but possesses a general entitlement to a set amount of gold. As an investor, you’re not the legal owner of any physical gold, but rather is a creditor of the provider.
Buying Gold Derivatives: Futures, Forwards and Options
Investing in derivatives demands you build a sound knowledge of financial securities than other forms of investing that aren’t beneficial for all investors.
Derivatives trade over-the-counter (OTC) and on exchanges. Derivatives traded on exchanges sit in a central clearinghouse that matches buyers and sellers. OTC derivatives are bilateral contracts that possess greater flexible structures but include additional counterparty risk.
Purchasing Gold Mining Stocks
As an investor, you can invest in shares of gold mining companies. Gold mining company stocks may stand together with the gold price. However, the growth and return in the stock depend on the expected future earnings of the company, not just on the value of gold.
If you want to invest in gold and yield great returns, you must ensure you understand the market and the right processes to follow. Nevertheless, if you don’t possess this knowledge, you can discuss this with a gold expert to start the process.