Best Options for Gold Investment
The rise in the price of gold, which has seen it jump from just over $750 an ounce six months ago to over $930, has hit gold jewellery sales hard.
India is the world’s number one consumer of gold, accounting for almost a fifth of gold sales. Gold jewellers, struggling to cope with sluggish sales as a result of the soaring price of gold, are looking forward to next month and the start of the Asian wedding season. The five-month period sees sales of the precious metal rise as brides are adorned with gold jewellery and given gold as part of their dowry.
There are spikes in gold demands both January and September, months when Indian manufacturers typically restock inventories to meet the demands of the two Indian wedding seasons. The first, mentioned above, starts in November and ends in December. The second starts in late March and runs through into early May.
The price of gold has risen 10% since January and with volatility in equity markets and growing economic uncertainty in major Western economies, demand is likely to continue to rise, analysts say.
Ownership of gold takes many forms:
Jewellery
Probably the worst way to invest in gold, mainly because the real value is subjective and prices can change with design, craftsmanship and the inclusion of gemstones.
Bullion bars and coins
Gold coins such as Krugerrands come in a variety of weights and sizes. They are a cost-efficient option for investing in tangible gold as they are exempt from VAT. Coins are available through dealerships, but purchasers need to ensure they buy gold with a hallmark of internationally recognised refiners.
Buyers can visit a reputable gold bullion dealer, and buy and sell small bars of gold over the counter.
Allocated accounts
The most secure way to invest in physical gold. A recognised bullion dealer stores and manages an owner’s physical gold, while the account reflects the value of the gold stored. A variation on the allocated account, where transfers and payments in gold can be made electronically – but where the physical assets are stored in vaults by banks or currency operators as ultimate security for transactions.
Gold futures
Like future contracts on any other asset such as shares, gold futures are promises to make or take delivery of a specified quantity and quality of gold on a prescribed date at an agreed price.
The benefit is that the initial margin paid to a broker is only a fraction of the price of the gold underlying the contract. This means substantial profits can be made for small outlays. But the risk is that losses can mount in the same way.
Shares and funds
Funds investing in gold companies, or holding shares in the firms, offer a diversified investment route. Recently, funds such as BlackRock, Merrill Lynch, and Gold & General have topped the tables both in terms of performance and popularity. The fund has outperformed gold itself. But shares in gold mines carry their own dangers, such as the political risks associated with the countries in which the mines operate – often in volatile and unstable regions.
Gold Exchange-Traded Funds ETFs are shares, traded on the stock market and bought through brokers, which shadow the value of their underlying asset. The most popular ETFs track major share indices, such as the FTSE 100, but the funds are also available for bullion and other commodities.
Tags: Gold, Gold Bullion, investing in gold