Investing in Gold
Investing in gold, that is physical gold, should be thought of as an insurance policy rather than an investment product, in the same way your house of residence should be thought of as a home rather than a vehicle to make lots of money.
If you make money on your own home, all well and good but its main purpose is a home and financial security. Physical gold in the same way is a financial security. If the proverbial hits the fan as has been happening recently and is set to continue, and paper money becomes more and more devalued its nice to know you have some physical gold stored away for a rainy day.
If you want to be right up there at the front, then just look at what the Chinese, Asians, and Indians are doing in the face of the continued devaluation of major currencies.
They are investing in gold!
Because there is a limited supply of gold (and silver) therefore it has value unlike fiat money which government are producing like there is no tomorrow. In hard times people always invest in gold.
There are three main choices when it comes to investing in gold:
1. Physical gold - you should have physical gold for the reason I have explained above. The amount of gold you should have as a percentage of your total portfolio should be in the region of 5-15% depending on the economic climate. Obviously at the moment you should be looking towards the upper limit of 15%.
When it comes to investing in gold assuming you don't want to store it at home or in a safety deposit box (not advisable) you have two choices....
- allocated storage, ie you physically can see the gold when you visit your chosen storage provider or
- unallocated storage.
Be careful with the latter because if your storage provider goes bankrupt you will not be able to claim your gold since it was unallocated and therefore you would become a general creditor. Even with allocated storage you will have to do your due diligence.
When chosing a provider you should be looking for a company that offers a very secure way of investing in gold and one which enables you to store it in an offshore location too.
Remember that many governments will seek to confiscate your gold if people are favouring it instead of its own devalued fiat currency - the USA has done this before - therefore it is important that the provider offers a choice of secure overseas locations.
A fantastic way to buy your physical gold is from a company called Bullionvault.
This company even give you a free gram of gold when you open a new account. I highly recommend them.
2. Purchasing an ETF (Exchange Traded Fund) - The purpose of an ETF is to allow exposure to a particular commodity - such as gold or oil - that is not readily available to the market. Purchasing an EFT in gold will directly replicate the movement of gold but without the same amount of exposure eg. each share might represent one tenth of the value of an ounce of gold. ETF's are designed to give financial institutions and private investors the ability of investing in gold and gaining exposure to the price without physically owning it.
A company that does this and which I recommend is called New Millennium Inc.
3. Gold futures and options - a gold future is a contract or obligation to either deliver or receive a quantity of gold on a predetermined date and price. Only a small amount of the total commitment is required at the time of the contract. This means you can highly leverage your 'derivative' investment and can control much greater quantities than if you bought gold bullion or ETFs.
Gold options on the other hand give you the right but not the obligation to buy or sell at a pre agreed date and price. Like futures, trading can be highly leveraged but unlike futures if the option is not exercised any losses are limited to the premium initially paid for the option. Both futures and options can be traded through brokers.
In conclusion then, an exposure to gold should be part of every portfolio. A minimum allocation should be about 5-10% in a healthy economic market and about 10-15% in a market we have today.
All portfolios in my opinion should have physical allocated gold but it should be thought of as an insurance against poor economic conditions rather than an investment, although we are presently in a very bullish gold market.(2008-10) Once physical gold is part of your portfolio then you can start to look at gold EFT's and even much more speculative investments in gold futures and options.
Here is a good solution you may be interested in. Inflation Proof Investor is a Pan-European investment vehicle for retail investors to beat inflation and benefit from the largest ongoing wealth opportunity of recent decades. They offer Precious Metals and other Alternative Investments related solutions to mitigate the political risk your assets are exposed to. By diversifying your investments into different asset classes and jurisdictions - mostly connected to Europe's No.1 financial location, Liechtenstein - your assets are no longer under any one Government's control. You benefit from free access to all investment classes, tax benefits, the highest discretion of Lichtenstein Law and bankruptcy protection.
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Gold Inspirational Quotes
"More gold has been mined from the thoughts of men than has been taken from the earth."
"Make new friends but keep the old ones; one is silver and the other's gold"
"Truth, like gold, is to be obtained not by its growth, but by washing away from it all that is not gold."
Leo Nikolaevich Tolstoy
"The desire of gold is not for gold. It is for the means of freedom and benefit."
Ralph Waldo Emerson