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Different Ways To Invest In Gold – A Beginner’s Guide

It’s been years since fiat money replaced gold as the world’s primary currency. However, that doesn’t mean gold has lost its value – on the contrary. In times of international conflict or general economic hardship, markets often start acting up, and investors are quick to cash their chips and get out of the game.

In those times of uncertainty, many of them turn to gold once more – the ultimate safe haven. And in 2022, it’s perfectly clear why – with the stock market operating quite a bit below its historical highs and inflation spiking out of control across most of the world, it’s not a mystery why investors are more interested in a historically safe and valuable asset like gold.

Some attributes of gold make it an excellent counterpoint to some of the most popular modern securities, like bonds and stocks. Even though gold doesn’t produce any cash flow, it’s still a store of value in the eyes of many investors – the perfect hedge against rampaging inflation.

But the question is – how can you invest in gold in practice? Experts from the Cayman Financial Review are here with some quick tips for beginners on that topic!

Gold bullions

Even today, plenty of investors buy actual gold coins and gold bars. There’s a lot to be said about the emotional satisfaction of this approach; you get to touch your gold and look at it, which is always immensely satisfying. However, the drawbacks are just as clear – keeping physical gold safe and secure is quite the hassle.

Also, if you buy physical gold, the only thing you can rely on for a profit is the price of gold on the global market. On the other hand, for people who invest in gold-related businesses – like mining companies – your profit relies on the company’s success.

If you decide to buy gold bullion, know that there are a couple of ways to do it – mostly local collectors and dealers or online gold dealerships. Also, pawn shops tend to have some gold to sell as well – though on an irregular basis and in the form of various jewelry and other items.

When you’re considering whether to buy coins or bars, remember that coins tend to come with higher prices per gold content – you’re not just paying for the gold, but for their collector value as well.

The risk with gold bullion is quite obvious: someone may physically take your gold if it isn’t properly protected. Also, the second is that quickly selling off gold is difficult when you’re in a bind – the buyers generally notice your haste and make it harder to get a fair market price. In the end, you may have to sell for less than what you’d get on a national market.

Gold futures

As with any other future contract, you’re not buying actual gold – you’re speculating on whether the price of gold will rise and fall.

The biggest advantage here is that you can have a lot of leverage for a relatively small amount of money – gold futures are far more affordable than gold, and you’re still invested in the commodity’s price. If the price of gold goes up, you stand to profit quite a lot.

Of course, there are some risks – for example, the fact that the price of gold may also go down. And if it moves against your position, you’ll need a lot of money to maintain your position – or it will be closed by your broker, and you’ll have to suffer the loss.

All in all, gold futures allow for great profits and equally great losses. That’s why the futures market is rarely good for inexperienced investors.

Gold-owning ETFs

Suppose you’re not comfortable with the substantial margin requirements of futures and the practical hassles of dealing with physical gold. In that case, another option is to invest in an ETF (exchange-traded fund) that tracks the price of gold.

Why is investing in ETFs sometimes better than bullion? Well, for starters, you can exchange ETFs far more easily for cash at any point. It’s no different from selling stocks – you can do it whenever the market is open. That makes gold ETFs quite liquid, especially when compared to physical gold.

Of course, there are some risks to consider, mainly because ETFs are still exposed to fluctuations in global gold prices. Ultimately, the success of any gold-related investment depends on the price of gold. And while gold is still one of the most certain investment assets on the planet, it can still be volatile. The ETFs just remove the risks you take if you decide to buy the physical commodity; you don’t have to keep the gold secure yourself to benefit from its price increases.