Ways to invest in gold
When ever you buy gold, the at first rule of thumb is dollar cost averaging putting a fixed amount of money towards gold every month no matter of the price. For the typical investor, this strategy flows risk out over time and lessens the downside.
During the past few years, as worries about a financial and economic breakdown spread, there were periods of gold coin bottlenecks and actual shortages. In 2008-2009 at the height of the financial crisis, demand was so effective that the national mints could not keep up with it.
The flow of historic gold coins from Europe was also limited to meet snapping demand both there and in the United States. Premiums shot-up on all gold coins and a scramble developed for what was available. There is an old saying that the best time to buy gold is when everything is quiet. I would underline that sentiment.
What is the future of gold? Futures contracts are in many instances considered one of the most speculative areas in the investment marketplace. The investor's visibility to the market is leveraged and the moves both up and down are greatly exaggerated. Something like 9 out of 10 investors who enter the futures market come away losers. For someone looking to hedge his or her portfolio against economic and financial risk, this is a poor substitute for owning the metal itself.
Bonds vs gold? Bonds are the prototypical old-school investments, as opposed to stocks, which are more assuming in nature. When you invest in bonds, you pay the par value of the bond, plus any premium or minus any discount, plus any accrued interest, plus any commissions, and get paid fixed annual interest specified by the coupon rate, typically twice yearly until maturity of the bond, when you get paid the par value of the bond.
Being familiar with the internal dynamics of the gold market can be helpful as to investment timing issues. For example, the weekly position reports of commodity trading funds or sentiment indicators offer useful clues as to entry or exit points for active trading strategies.
Reports on physical demand for jewelry, commercial, and other uses compiled by various sources also provide some perspective. However, no of these considerations, non monetary in nature, yield any insight as to the broad market trend. The same can be said for reports of central bank selling and lending activity. Central banks are bureaucratic institutions and in their judgements they are essentially market trend followers.
So how much is gold really worth? With stocks, bonds, rental houses, one way to answer that question is to analyse the purchase price with expected cash flow. But gold doesn't generate any cash. Indeed, it costs something to store it. For stock investors who won't feel comfortable without having some physical gold within easy reach, one last piece of advice: Forget about Krugerrands. Buy your spouse something expensive, lovely and high-carat.
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