You’ve probably heard the advice of many famous people about investing in gold. You may be wondering how. What is the difference between the different types of gold investments?
This article will discuss the five types of gold investments you have and their pros and cons. Each type can be compared to determine which one is best for you. These are the 5 types of :
1. Physical
It is just what it says: Physical gold. Physical gold is something you can actually hold in your hands. You can further subdivide this into the following:
a. Wearables
This includes all of your jewellery, including rings and necklaces. This is a popular choice for older generations. This type of investment has the advantage that it serves a utility purpose. An anonymity is another benefit of this type of investment that isn’t often discussed. It is easy to go to a jewel shop and buy your jewellery. There are usually no records.
This form of investment is however not the best because it offers a huge discount. The fee for workmanship is usually charged by jewellers when you purchase gold jewellery. It can sometimes be as high as 20%. They will also offer a discount if you sell your jewellery.
b. Bullion
Investors who are interested in physical gold should consider investing in gold bullion. By defination,
Bullion is high-purity physical gold or silver that is kept in bars, ingots, and coins. Bullion is sometimes considered legal tender and is held in reserve by central banks or institutional investors.
By Investopedia, 3 Nov 2019
For serious investors looking for gains, bullion is the best way to invest in physical Gold. Jewellery investment can be sufficient for some people.
The best thing about bullion? It can be used to instantly access your gold in extreme situations, such as when your country’s financial system is in crisis.
It is this very characteristic that many have cited as one of its drawbacks. It is the storage of it. It is possible for it to be stolen or robbed by storing it in your home. It is possible to charge a fee for storing it in safe deposit boxes. You can’t take the gold out of the safe deposit box if your country is in financial crisis.
2. Paper Gold
This is an investment that you own but don’t hold physically. This is an IOU you purchased from a third-party, usually a bank. It could be your gold certificates. These are similar to fixed deposits, but in gold. This could also be your gold etfs. ETFs work by an investor placing their money with a fund manager. The manager will then add up the amount and go out to purchase physical gold that will be stored in a secure facility. The fund manager receives a management fee, which covers storage, administration, and insurance costs. Investors will then be able buy and sell their units on an exchange.
This investment method has many advantages. It doesn’t require you to keep it safe. You can also buy smaller amounts of etfs at one-tenth the price of an ounce.
The fund will require management fees. It may sometimes be difficult to execute trades. You may not be able to access it in extreme financial markets. However, this is very rare.
3. Digital Gold
It shares some similarities with physical and paper gold. Customers can buy small amounts of the physical gold, which is kept in secure vaults on the same platform where they bought it. The physical gold can be slowly accumulated in small amounts. This is the main advantage I see in this investment method.
However, there are many disadvantages. Below are some of the disadvantages:
a. It is done online via the platforms. Therefore, due diligence must be taken to ensure financial stability and strength.
b. Some platforms allow you to keep the gold in their vaults only for five years. After that, you can either take delivery of the coins or sell it back at a loss.
c. You can take delivery of gold coins but there will be costs.
4. Gold as Forex
This basically involves betting on the gold price against major currencies. You can also have gold against the US$ (XAUUSD), japanese currency (XAUJPY), etc. If you believe that gold is bullish and that Japan’s yen will be devalued by certain crises, your best bet would probably be to place a bet on XAUJPY. You would profit from both the increase in gold prices and the devaluation Japanese Yen.
Trading Gold as a forex pair has 3 advantages. It can be done from Monday through Friday, when exchanges are open, and it is possible to do so at any hour of the day. This forex pair has the narrowest spread of all the options and you can make large gains by using leverage.
Trading in forex is riskier because of the leverage nature. Online trading platforms have reported that more than 70% of accounts are losing money. It is best to only advise experienced traders with a solid grasp of markets and risk management and mitigation.
5. Stock of gold miners
Stocks of gold miners could be another way to invest in gold. These companies that mine the gold and then sell it would make more profit if the price of gold rises. This would allow you to own companies that report higher profits, which will attract a higher stock price.
This has the advantage of allowing you to make higher returns than you would if you invested in physical gold.
You are investing in company stock and its management. Even though gold prices are up, you can either make more or lose more. Because the company you purchase may not be well managed. To pick the winner, it is important to do your research.
Furthermore, I feel that this isn’t about investing in gold but in the equity markets. Therefore, it doesn’t really fit into the categories of what types of gold investments. This is just to inform you.
If you are looking to gradually accumulate gold, then I believe that physical gold bullion should be purchased.
Personally, I prefer to buy physical gold long-term, and accumulate gold when the price is low. Grab your free gold investment kit today and get started on your gold accumulation journey.
For the short term, I would trade the forex pair of XAUUSD.
