Is Gold a Good Investment?
Ways of Investing in Gold to Have a Diversified Investment Portfolio
Jun 22, 2009
The gold price has remained at over $900 per troy ounce for months with many predicting an increase in the price as the financial system continues to be under pressure.
Gold has always been seen as a permanent currency, it is non-perishable and durable and its value has always been recognized especially in times of economic turmoil, such as during the great depression.
Now more than ever in today's financial crisis, many are investing in gold as a safe option.
How and Where to Buy Gold
- Different governments across the world have issued gold bullion coins, which range from 1/20, 1/10, ¼, ½ and 1 ounce in weight, for example, the South African Krugerrand, USA American Eagles, Australian Gold Nugget Coins and Canadian Maple Leaf Coins. Those who want to invest in gold should not confuse gold coins with commemorative coins, which have a different value attached to them.
- Gold Bars can be purchased in different weights and sizes, ranging from one gram to a small bar that weighs less than 1000g. There are approximately 26 different countries which produce more than 400 different types of standard gold bars.
- Gold Based Mutual Funds – This is a collective investment scheme that pools money from many investors and invests it into gold stocks. The fund is managed by a professional. There are many brokerages and financial institutions through which one can buy mutual funds.
- Exchange Traded Funds (EFT) – This is perhaps the safest method of buying and owning shares, by investing in shares in a fund base solely on the existing market price of gold.
- Gold Futures and Options – This is a risky but potentially lucrative method of investing in gold. A futures contract is a legal contract that binds the investor to purchasing a fixed amount of gold at a pre-determined price in the future. One can benefit from a drop in the price of gold by selling short.
- Gold Jewelry – Purchasing gold jewelry is a major method of saving and investing in gold in developing economies.
How Much Should Be Invested in Gold?
Remembering that gold is historically volatile, the value has not always kept up with inflation and gold does not pay interest or income, most experts recommend putting only a small portion of an investment portfolio into gold:
- AboutGoldGoins recommends 15 to 25% of one's portfolio.
- USA Today suggests “5% or so” of one's portfolio should be invested in gold.
- Money Girl simply suggests “do not go overboard”.
- The World Gold Council advises investors to buy a little at a time and accumulate gold over the long-term.
Sources:
- The World Gold Council, article "Gold Research and Statistics"
- The South African Gold Coin Exchange, article "Krugerrands"
The copyright of the article Is Gold a Good Investment? in Precious Metals Investing is owned by Fleur Hupston. Permission to republish Is Gold a Good Investment? in print or online must be granted by the author in writing.
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