When people talk about investing in precious metals, the first one that springs to mind is Gold. Gold’s qualities make it one of the most coveted metals in the world. Not only it is nice to look at, but it can be shaped and sculpted into pretty much anything you can think of, hence its extensive use in jewellery. It’s also a highly effective conductor of both heat and electricity and these characteristics have made it the metal of choice for the tiny relay contacts and connectors in mobile phones and computer circuit boards. Yes that’s right, you probably own a tiny amount of gold already but before you get too excited, each mobile phone contains just fifty milligrams of the precious metal. That’s one five hundredth of a gram of gold so don’t go handing in your notice and reaching for the sombrero just yet.
But it’s not just it’s characteristics that make gold a highly prized commodity. Its rarity is the real key to its value. Even with today’s modern technology, gold is incredibly difficult to find. In total just one hundred and sixty thousand tonnes of gold are in circulation across the world right now. That might sound a lot, but compare that figure to the coal reserves in the US alone, which stand at two hundred and fifty-five BILLION tonnes and you start to get an understanding of just how rare gold is. Don’t forget as well, gold is much denser than most other materials and that means it’s very heavy. Formed into a single cube, the total amount of gold in the world wouldn’t even cover a tennis court and new gold is only being mined at a rate of two thousand six hundred tonnes a year. That’s about enough to fill a pokey one bedroomed apartment here in London.
These facts mean that gold is a popular commodity to hold and for many savvy investors, it will make up between ten and fifteen percent of their investment portfolio. When outside pressures such as political instability, war, or high inflation affect the stock markets, it’s gold that investors turn to as a safe haven. That means, when many stocks are on the downward slide, gold will come rising to the top. Gold acts as a kind of an insurance in your investment portfolio.
So ‘what’s the best way to invest in gold’ you’re probably asking? Well, there are three distinct methods. The first is to buy physical gold. Websites like bullionvault.com offer easy access to the markets. The gold will be registered in your name and they offer low cost, secure storage outside of the UK in places like Singapore and Zurich. Gold bullion can be purchased in coins or bars or ingots and is typically ninety nine point nine percent proof. The advantage of gold coins over gold bars is that they allow you to be more flexible. After all, it’s easier to sell twenty per cent of your gold if you own ten gold coins rather than if your whole investment is in one gold bar. For the same reason, you’ll probably find that coins are that bit more easy to sell.
The second way to invest in gold is through Exchange Traded Funds or ETFs. With ETFs you never actually own the gold yourself. It’s owned by the provider of the ETF. Instead you become a beneficiary of the debt owed by the ETF and that debt is backed by gold. In short, it’s a gold plated I.O.U. Your investment allows the fund to buy more gold and when you want your money back in the future, the amount you get back will depend on the value of the gold at the time of your request. ETFs provide a cheap and convenient way to invest in gold. There’s a lower entry point and you don’t have to worry about where you’re going to store your gold or how much that’s going to cost. The downside for me in this scenario, is you can never really be sure that the ETF in question has actually bought the physical gold to back up its debt and that invites an extra level of risk into the equation. If there’s a sudden panic in the market, will they have enough gold to cover their commitments?
If you don’t want the hassles of owning physical gold and you’re not keen on gold plated I.O.U notes, another way to invest in gold is through the mining companies themselves. Barrick Gold, Newmont Mining and Goldcorp are some of the many Gold Miners that are available to invest in through the stock markets. Shares of precious metal miners are typically leveraged to price movements in the precious metal they mine and they’re a good way of getting many times the increase in the spot price of gold. But shares in gold miners have been highly volatile recently and their price has been hammered in recent years. The upside of that though, is with mining stocks now sitting at long-term lows, as Yazz and her plastic population once said, the only way is up.
Like all investments the price of gold can and does go down as well as up so it’s hugely important that any investment is part of a well diversified portfolio. But if you’re relying on paper money issued by bankrupt government as a store of value for your wealth, be very careful out there.