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Gold has been a store of value and an investment asset since time immemorial. Gold provides robust long-term returns, diversification benefits, portfolio protection, and liquidity for investors. For most of the world’s history, there were only a limited number of ways to invest in gold: jewelry, coins and bullion. Today, investors have a broader range of ways to invest in gold.
Exchange-traded funds (ETFs) are investment products that trade on stock exchanges. ETFs allow a pool of investors to invest in stocks, bonds or other assets. An investor in an ETF owns a share of the underlying assets owned by that ETF. The value of the shares in the ETF is worth the market price or the net asset value (assets minus liabilities) of the shares.
Gold ETFs hold gold on behalf of their investors. Your share of the gold is the equivalent of your share of the ETF.
The most popular gold ETF in the world is the SPDR Gold Shares ETF, which holds gold bullion, and tracks the spot price of gold. The VanEck Vectors Gold Miners ETF and the iShares MSCI Global Gold Miners ETF do not hold physical gold, but they do own shares in gold miners. So, gold ETFs don’t just offer the possibility of owning gold, but of owning miners, and exploration companies.
An indirect way of investing in gold is to invest in companies in the gold sector, mostly gold miners and exploration companies. Gold stocks do not track the movement of gold prices. When you invest in gold miners, you have to realize that they are historically very volatile. This is because gold miners are price takers. So, when gold prices rise, gold miners increase their production, and this often leads to excess supply, and a bursting of the gold bubble. So, when you invest, you have to understand the gold market first, before you understand any specific gold company. You want to focus on the supply-side of the industry and invest when supply is contracting, or historically low. Ignoring supply is the biggest mistake that investors make. Edward Chancellor calls this the “capital cycle”.
When you have understood the supply-side of the gold industry, you can then look at undervalued gold companies. Gold companies often provide a wonderful source of dividends, bolstering your income.
Individual retirement accounts (IRAs) are one of the most powerful ways of investing in gold. An IRA is a tax-deferred investment in which earned income is invested for retirement. There are two main types of IRA: traditional IRAs and Roth IRAs. You can set up an IRA with a bank or some other financial institution, a life insurance company, a mutual fund, a stockbroker, or one of the gold IRA companies in this list of companies.
A self-directed IRA allows you to invest in a wide array of assets. Precious metals IRAs invest in gold, silver, platinum or palladium. They are commonly referred to as gold IRAs because most people choose to invest in gold. The gold is held in trust, in the form of coins or bullion. The tax protection they provide makes them very attractive to investors.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence