Gold is viewed as a safe haven. When markets fall, gold tends to rise. Buying gold bars is difficult but Exchange Traded Commodities (ETCs), Funds and Shares offer an easy way to invest in gold without the worry of where to store it!
Why does Gold Rise when Markets Fall?
Gold is viewed as a safe haven and its price will rise when markets take a steep fall and there is general uncertainty in the economy. But why you may ask? It’s unlikely that if times are tough, then more people will be buying gold watches!
Well there’s some sound reasoning. Gold by its nature is tangible and stands the test of time – it’s not going anywhere and doesn’t really erode. Infact, it’s believed to have been existance since 40,000 B.C.
Gold is not also only used in fashion and jewellery, it has many uses including within dentistry and electronics.
So while companies may come and go, markets go up and down, Gold is evidently here to stay and in demand. Although one of the downsides for income investors is that it itself doesn’t pay interest or dividends. Likewise, there is risk associated with buying gold at a peak only for markets or the economy to improve significantly.
How to Invest in Gold? There’s 4 ways.
The first way is to physically invest in gold, but that carries the problems of not only the cost but also having somewhere safe to store it. With that said, online services that allow you to buy into Gold Bullions have made this more practical, capable of investing a sum of money to obtain a share of the Gold.
But we’re all about investing here, so we think are better and more practical ways to get exposure to Gold and diversify your portfolio.
Exchange Traded Funds or Exchange Traded Commodities
Exchange Traded Commodities (ETCs) are essentially the equivalent of Exchange Traded Funds but with a focus on Commodities such as Gold. They are passive in nature and track the movement of the price of gold.
Like a share, an Exchange Traded Commodity is bought and sold on a stock exchange and give you an easy, low-cost option to invest in Gold. There’s no storage issues to worry about, no insurance, nor large capital outlay needed.
However, there is one thing to look for here. ETCs like Exchange Traded Funds fall into two camps; those that the hold assets themselves versus those that use complex derivatives or synethics (they don’t actually hold the assets). The latter type is quite complicated. So it’s best to ensure you invest in Physical Gold ETCs, these are ones that actually hold the commodity (like a Gold Bullion).
When investing in an ETC, it should be easy to which ones hold the asset as it should have Physical Gold in its title.
Shares and Gold Miners
If the price of Gold (the end product) tends to rise during market downturns, then it should be little surprise that those involving in mining the Gold also see their share prices rise! There are a number of Gold Miners listed on the London Stock Exchange such as Polymetal which can offer share buyers the opportunity to get in on the gold rush and diversify their portfolio.
It has also been known for some Gold Miners to even pay a dividend, albeit a small one. But it must be noted that not all Miners are the same, some have better operating models, lower cost and greater scale which will mean they perform better than their peers. It has been known for the share prices of some Gold Miners to not necessarily track the increase in price of growth. So fundamental analysis is as important as ever.
Lastly, but not least, an investment fund can give you exposure to Gold and reduces the risk of investing in one or two Gold Miner shares by investing in many Miners around the world.
The Blackrock Gold and General Fund is often one fund you’ll hear mentioned frequently. A quick look at its holdings at the time of writing that 20% of its holdings are in the two biggest Gold miners globally, listed on the New York Stock Exchange. But you also see other Miners from around the world including Polymetal (listed on the London Stock Exchange).
Active Funds of this nature allows you you to benefit from the expertise of fund manager actively selecting investments.
Going for Gold – The Easy Way!
Gold is a useful asset to diversify your portfolio and reduce your overall risk in the event that there is a downturn in the equity market or economy. It truly stands the test of time.
Buying directly into Gold is tough, impractical and out of reach for most. Two of the most efficient ways to invest in gold are via Exchange Traded Commodities (of the Physical Gold variety) as well as Investment Funds that invest in Gold Miners which usually benefit from increases in prices of Gold. You can also buy directly into Gold Miners yourself through shares, but Gold prices and companies themselves are volatile – you have less risk with the other two options.
Both options are just as simple as buying a share or a regular investment fund.