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Essential Information About Investing in Gold
Investing in gold is a wise way to diversify your portfolio. Gold is relatively rare and its value often does not move in line with other kinds of assets like property or equities. History has shown that gold always rises in price when the economy starts fluctuating with uncertainty. Investing in gold and other commodities tends to be more challenging for investors than investing in bonds or stocks. One reason for this is that bonds and stocks are easily accessible and readily transferable to average investors. Commodities are more difficult to invest in because of the complex way they trade through the options and futures markets. However, gold is more accessible to the average investor because there are many ways of investing in gold. The following are the ways in which you can invest in gold.
It is worth it to invest in physical gold because it is a universal finite currency that most central banks hold. It is a good way to preserve your wealth and pass it from one generation to the other. Buying bullion gold bars is the most conventional way of investing in gold. You can buy or sell gold bars at major banks or from bullion dealers. Bars come in various sizes. For instance, in Europe, good delivery bars weigh about 12 kilograms or 400 troy ounces. One kilogram bars are also popular. In general, gold bars carry lower price premiums when compared to gold bullion coins.
Gold bullion coins are the other common way to own gold. They are priced according to their fine weight, in addition to a small premium based on demand and supply. Their sizes range from 1/10 of an ounce to 2 ounces. The 1 ounce size is readily available and highly popular. The most widely held gold bullion coin is the Krugerrand. You can buy gold bullion coins from dealers.
Gold rounds appear like gold coins, but they do not have a currency value. They are also similar in size to gold coins. No additional metals are added to gold rounds for durability purposes. They have a lower overhead price than gold coins, but they are not as collectible as gold bullion coins.
You can invest in gold certificates if you want to avoid the risks associated with transferring and storing physical gold such as large bid offer spread, theft and metallurgical assay costs. When you buy gold certificates, the only risks you have to take on include storage fees, commissions and various kinds of credit risk. Banks issue gold certificates for gold that is either unallocated or allocated.
Allocated Gold Accounts
Many banks offer gold accounts where you can instantly buy or sell gold, just like foreign currencies on a fractional reserve basis. If you have an allocated gold account, you can purchase gold bars and coins from a bullion brokerage. The brokerage will then ship or transfer the bullion to your account in a bank or depository.
Gold IRA Accounts
When saving for retirement, it is wise to put your money in safe fixed income investments. However, some of these investments pay minimal returns and the risk of inflation is worrisome. This is the reason why you can choose to invest some of your IRA money in gold and other precious metals. A gold IRA is an investment vehicle that you can use to save for retirement by buying and holding gold coins, bullion and other approved precious metals. You can set up your gold IRA account with pre tax funds or as a Roth IRA that is bought with post tax funds. The Internal Revenue Service allows people who hold self directed IRA accounts to buy coins and bars minted from gold or other approved precious metals such like palladium, platinum and silver. Unlike other individual retirement accounts, gold IRA accounts require investors to buy and store the physical asset. Therefore, gold IRA investing necessitates the use of a custodian such as a brokerage firm or bank to manage the account.
Exchange-traded products Gold exchange traded products include exchange traded notes, exchange traded funds and closed end funds. They are traded in a similar way to shares on major stock exchanges. They represent an easy way to gain exposure to prices of gold, without the inconvenience of storing gold bars. A small yearly storage fee and a small commission is charged for trading in gold exchange traded products.
Investing in gold offers the benefit of having a diversified portfolio. It has the potential for high returns, but it also has risks just like any other investment. If you are planning to invest in gold, it is wise to consult with a financial advisor to determine how gold can fit with your overall investment goals.