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Gold has remained on top of the league tables as an investable asset class. It is considered by many to be a safe haven that hedges investor risks during times of trouble. Apart from this, the yellow metal has remained attractive as it generates steady returns over the long-term. Over the years, the industry has created different avenues for gold investment.
There is now a raft of different gold investment types. Physical gold coins and bars provide maximum security and peace of mind but can be expensive if traded regularly. Electronic gold such as ETFs and online fractional ownership provide exposure to the gold market at smaller premiums but present some counterparty and leverage risks. Ownership of gold mining shares presents a slightly different investment risk but offers the potential for greater upside (and downside) if the company outperforms the market. Gold funds such as the Blackrock Gold & General spread the risk of share ownership amongst many mining companies but have ongoing management fees.
It is a proven fact that human beings love to own gold in its physical state. There are certain advantages to this. Firstly, investments in gold bars and coins do not carry counterparty risks. When you buy any paper-based investment, such as stocks, mutual funds, bonds or derivatives, you open yourself up to counterparty risks. This is simply the risk of the underperformance of the company that issued the investment paper. When global stock markets are in turmoil, stocks of even blue-chip companies can crash. The value of your investment erodes considerably in no time and can even become worthless.
In this respect, gold provides you safety, as there is no counterparty involved. The only risk you face is that of safe storage. Of course, you must ensure that the precious metals you buy are delivered to you via an insured courier. You then need to make arrangements for storing them safely at home. This could mean investing in a purpose-built, robust safety vault. Such vaults can even be installed into the floorboards of your home, rendering them difficult to detect. Alternatively, you could opt for storage provided by a reputed dealer. In this case, please ensure that your gold is segregated and stored in an approved commercial vault, where it is free from damage, tampering or theft.
A forum of paper gold investment is an exchange-traded fund (ETF). These funds issue you certificates for ownership of gold, without you actually owning it. However, you are once again faced with the issue of counterparty risk. Many companies that issue ETFs do not have sufficient gold reserves to back up the number of certificates they have issued. As a result, they may not be able to fulfil their payouts if several investors try to cash in their certificates due to the market crisis.
Mining shares are essentially shares issued by mining companies that did out gold from the Earth. By issuing these shares, they raise money from the capital markets, which funds their operations and capital purchase of equipment. But, like any other equity shares you may invest in, the performance of these shares and the returns they generate are dependent on numerous factors. Yields from the mines may slow down, resulting in the devaluation of the stock. The overall performance of the business itself can be a critical factor. Also, the state of the capital markets has an impact on the share value of these companies. So, as you can see there are myriad risks attached to these investments.
Our gold market experts can help you make sound decisions when planning your investments. If you prefer to hold physical gold, our team can guide you on which bars and coins to buy and when. Call us on (020) 7060 9992 or simply get in touch with us online before investing your money into the market.
Image Credits: Wikimedia Commons and Wikimedia Commons
Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.