Going for gold? Here are five ways you can invest in the yellow metal

Summary

  • As per the June edition of Australia’s Resource and Energy Quarterly (REQ) report, the demand for physical gold, which includes jewellery, gold coins and bars, surged by as much as 52% y-o-y to 477 tonnes during the March quarter of 2021.
  • Each ETF stock is typically backed by either 0.5 or 1 grams of gold and once investors buy the ETF, they secure a contract which guarantees the ownership of a relative amount of gold.
  • One of the most lucrative ways to invest in equities and still benefit from the rise in the gold prices is to invest in gold stocks.

In the past few months, gold has been fluctuating in the range of US$1,750-1,900 an ounce. Industry veterans, such as Peter Schiff, perceive the current price point as an opportunity to buy gold for generating wealth in the long term. While most laymen know only one or two ways of investing in gold, in this article, we would be discussing about five different ways to invest in gold. Investors may choose to invest in one or more of these instruments, depending on their risk-taking capability, capital and expected returns.

Gold has been a part of the heritage and traditions of many countries including India and China, the two countries who have historically accounted for more than half of the total physical gold consumption. In many cultures, not only women but also men, wear gold jewellery and the yellow metal has been considered as the purest metal.

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Here are the five ways you can directly or indirectly invest in gold –

1.     Physical gold

One can invest in physical form of gold like jewellery, gold coins, bullions and bars, which can be stored due to their small and portable nature. As per the June edition of Australia’s Resource and Energy Quarterly, the demand for physical gold which includes jewellery, gold coins and bars surged by as much as 52% y-o-y to 477 tonnes during the March quarter of 2021. This spike in demand came in response to the commencement of vaccination programs globally and even the slightest signals of economic recovery.

In the recent months, gold prices have been hovering around US$1,800 an ounce, and retail investors have returned to the gold markets and have been stocking up on the yellow metal.

Investing in physical gold grants the consumption right to the investor, who holds the underlying asset in its material form. The major disadvantage of investing in jewellery is the making and manufacturing cost which may account for a significant percentage of the gold price making the item less investible.

Also Read: How to invest in gold stocks in Australia?

2.     Gold Futures

The derivatives market allows an individual to trade in the future contracts of gold as an underlying asset. The prices of the future contracts are derived on the basis of the movement in the current spot markets and these futures are available in both domestic and international markets. One of the most prominent commodity exchanges – COMEX in the United States allows investors all across the globe to invest in gold future contracts.

These contracts come with an expiry date, after which the physical settlement is conducted. Furthermore, just like other commodities like crude oil, investors can exit or strengthen their positions prior to the expiry date.

Also Read: Three ASX gold stocks to light up your portfolio as gold prices heat up

Gold futures allow investors to benefit from leverage. Also, an investor needs to pay only a proportional amount and not the entire value of the contract to enter. The major issue with the futures is that the price actions created by the trading of the future contracts may differ from the spot markets.

3.     Gold Stocks

One of the most lucrative ways to invest in equities and still benefit from the rise in the gold prices is to invest in gold stocks, which might pertain to an exploration or production company. However, investing in a stock accompanies an additional risk related to the mining company or the market risk.

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Read Here: Is euphoria around gold stocks short lived?

The share price of a gold miner usually track the movement in gold prices, however the events and the factors intrinsic to the company may also impact its share price.

4.     Gold Exchange Traded Funds (ETFs)

The exchange traded funds have no lock-in period and are offered by multiple financial institutions. Each ETF stock is typically backed by either 0.5 or 1 grams of gold and once investors buy the ETF, they secure a contract which guarantees the ownership of a relative amount of gold. Gold ETFs usually trade on a stock exchange.

Must Read: Why go for gold ETFs? Which is Australia’s best gold ETF?

Furthermore, the ETFs are not just restricted to gold, but you can also invest in an ETF that invests into gold stocks.  This particular financial instrument allows high liquidity since it can be readily transacted on the stock market.

5.     Gold saving funds

Gold savings funds are the funds which incorporate an ETF and maintain the physical gold prices as the retail benchmark. The creator of these funds provides the investors with a certain unit in paper form, while they use the funds collected to invest in a couple of different ETFs to match or outperform the benchmark return.

Suggested Read: Three ASX gold stocks to mull over in wake of Janet Yellen’s inflation remark

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