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Investing in Gold: Knowing Your Basics
Gold investment is considered as one of the safest investments in any economy as it has a consistent demand and supply in the market. Gold is not just a commodity but also carries a special status of being a lucrative asset. Gold has always been an attractive but risky investment, irrespective of economic conditions. It is a preferred choice of investors due to its exceptional characteristics such as low counter-party risk, predictable prices, divisibility, and liquidity.
Reasons to Invest in Gold
- Inflation Hedge – The value of gold remains relatively stable even in times of economic or political disturbances, while the value of paper currency is not stable. The purchasing power of paper currency decreases over time which is why investors use gold to hedge against inflation.
- High Liquidity – Gold is very easy to buy and sell, and its prices daily fluctuate. As gold is reflective of the price of a single currency, it is easy to buy and convert.
- Safety & Reliability – Gold is considered as safest and reliable commodities traded in the market as its price increases exponentially in the long run.
- Portfolio Diversification – A good balance of different types of investments, minimizes the risk of a large loss. Gold can be the perfect addition to your portfolio as it offers the stability which other investments cannot.
Forms of Investing in Gold
Gold can be invested in a variety of ways depending on what kind of exposure an investor is looking for. The most common types of gold investments are physical gold, gold coins, securities, ETFs, and mutual funds.
- Physical Gold – Buying raw gold coins, bars, or jewelry are the most popular ways of buying physical gold. It is perfect for those who are looking for tangible assets that can be either kept in personal lockers or home.
- Gold Coins – Gold coins are minted coins which have a certain face value and are usually made from gold alloys. Gold coins can be affordable for small-scale investors and typically come in variations such as gold krugerands and Chinese Gold Pandas.
- Gold ETFs – Exchange-traded funds are investments that are traded on the stock exchange. A large majority of investors prefer to buy gold ETFs as it is considered as low-cost and an easy way to own gold while avoiding the need to store and secure it.
- Gold Futures – Gold futures are contracts between two parties that agree to buy or sell gold at a predetermined market rate. They are held on futures exchange and involve fixed delivery dates and prices, making them ideal for experienced investor looking to speculate on the market.
Risks Of Investing in Gold
Though gold has become popular among investors beacouse of its potential for financial security, it is still a risky investment with no guarantees. Thus, it is important for investors to understand the risks involved in investing in gold.
- Market Fluctuation Risk – The price of gold is volatile and can change significantly from day to day, so any purchase of gold is an inherently risky investment. Prices can be influenced by currency movements, inflation, global geopolitics, and regional supply and demand.
- Storage Risk – Physical gold investments carry risks related to storage, insurance and theft. Also, it can become cumbersome to keep them in check and necessitate frequent visits.
- Tax Implications – Different countries impose different tax rates on gold investments. For example, while gold in India is inspected but not taxed, capital gains in the U.S from gold investments are subject to taxes.
Final Words on Investing in Gold
Gold is an attractive asset for both investors and savers due to its low counterparty risk and liquidity. However, investing in gold is still a risk and there are various factors to consider in order to make a profitable investment decision. A detailed analysis of the markets and gold’s positioning can provide valuable insights that can guide an informed decision.
FAQs on Investing in Gold
Q.What is the current price of gold?
A.The current price of gold is constantly fluctuating and changes every second depending on the exchange rate and other factors. You can check the live prices of gold on the various gold exchanges or on many websites and apps that provide live price updates.
Q.Are gold investments safe?
A.Gold investments carry an inherent level of risk as the price is constantly fluctuating. However, it is considered one of the safest investments in any economy.
Q.How is gold traded?
A.Gold is commonly traded through ETFs, futures, bars and coins. Investors can buy gold from local dealers or online, and resell them in the market for a profit.
Q.Which is better for investing, gold or silver?
A.Ultimately it depends on an investor’s personal preferences and risk appetite. Both gold and silver are highly liquid and have a consistent demand in the market.
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