Are you looking for a way to diversifying your investment? Perhaps you have been trading stocks or currencies and now feel that it is time to grow your portfolio. Well, diversifying is always a good thing because it helps to lower the risk associated with investments. One of the best ways to diversity is investing in gold, but how do you go about it?
If you are new to investing in gold, here is a comprehensive guide to help you understand how it works and how to invest.
Why invest in gold?
Gold is traded as a commodity, and its price on the market follows the law of demand and supply. Most of the gold is mined from hard rocks, but can also be produced as a product of copper mining. Australia, China, and Russia are the largest gold producers on the globe.
The biggest percentage of gold is used in jewelry production, but dentistry, aerospace, and electronics also take a significant proportion. Central banks also buy gold and store it. Today, the US is the largest holder of gold as Germany, and the International Monetary Fund (IMF) comes second and third, respectively.
Many private investors go for gold, especially when expecting currency depreciation, inflation, or recession because it holds well against related declines. For example, gold continued on an uptrend in 2007 even as the recession hit the globe in 2007-2008. Its price continued on an uptrend in the subsequent years as investors were concerned about the performance of the dollar and British Pound.
How to invest in gold
Now that you know the main reason why people invest in gold, we will now tell you how to go about it. There are three main methods of invest in gold, which include buying physical gold bullions, futures, and ETFs. You might also want to trade the shares of gold mining companies
Buy gold bullions
This method of trading involves buying physical gold and selling them when the price moves up. Note that you will need to have a vault or use a bank deposit box to store it. A simpler way of going about it might be buying from trusted dealers who also offer storage services for you. People are advised to make sure they install strong safes if they want to store gold at home. One of the best considerations when buying gold bullions is the GoldAvenue.
Buy gold futures
These are standardized contracts that are traded on the exchanges. As an investor, you are allowed to buy and sell an underlying contract at a specified time in the future at a predetermined price. To be able to trade gold futures, you are required to have an account and then deposit an initial margin for holding a position. If the value of the futures drops, you are required to top up your margin. Once the time of the futures expires, it is paid in full. It will be a good idea to start by learning how the gold futures work and interpreting the market.
Buy gold ETFs
For people who do not fancy working with gold futures and bullions, another option is trading ETFs. ETF, a shortening for exchange-traded funds, is a form of investment that is traded on stock exchanges. They work like mutual funds, but they are traded the entire day, while mutual funds are based on the closing price for the day.
As you can see, there are several ways that you can use to invest and trade gold. Remember that no matter the strategy you select, it is prudent to follow the latest trends on the market to be able to make the right decisions. If you prefer trading gold futures or ETFs, ensure to follow a good strategy such as position or trend trading. Consider using different indicators, such as fundamental or technical signals, to understand price movement.