Many people value gold so highly as an investment since it is deflationary in nature and can be a safe way to store your wealth. The value of gold is determined on a market that is available 24 hours a day and seven days a week. Unfortunately, purchasing the precious-metal itself comes with many costs, including asset storage. Therefore, investors have since sought out other ways to profit from precious-metal investments without actually holding them in their possession. Here are some of the most common.
Purchasing gold-backed cryptocurrencies
Gold-backed cryptocurrencies are stablecoins that are backed by a predetermined amount of physical gold. Since each token’s price is backed by the precious metal, there is believed to be less volatility than other altcoins. Several gold-backed cryptocurrencies are now available for purchase, including Goldcoin, AurusGOLD, and Tether Gold. Cryptocurrencies can be purchased directly from the token creator, through a brokerage, or on an exchange like GoldExchange.com.
One of the most significant benefits of purchasing gold in this manner is its ability to be divisible by any amount. This is likely the ideal scenario for those who want to begin investing in gold and don’t have tons of funds to do so.
Credit banking is believed to have gotten its start from communities that stored gold and made exchanges for a paper receipt equivalent. This piece of paper indicated the purchaser was entitled to redeem the precious metal at a future date. Within the system, the expectation lived the expectation that only a fraction of these receipts would ever be redeemed, and more receipts could be issued than the assets they had stored.
A similar process still exists today, allowing users to purchase an electronic tradeable receipt (ETR) through the Royal Canadian Mint. Gold accounted for by an ETR is not directly allocated and is instead said to exist within the Mint’s refinery.
Gold Mining Stock
A less direct way to invest in gold is purchasing stocks for the companies that mine gold, such as Eclipse Gold Mining (EGLD), Labrador Gold (LAB), Barrick Gold (ABX), and Kinross Gold (KGC). Purchasing these stocks allows users to gain exposure to a precious-metal without speculating on the price fluctuations. Instead, traders will earn a profit relative to the margins of the underlying company.
However, not all gold stocks will be good investments, so investors must weigh the potential risks and rewards beforehand.
Exchange-Traded Funds (ETFs) are a popular investment for those seeking a collection of securities without the hassle of individually picking their investments. ETFs are quite similar to mutual funds other than the fact that they are available for purchase on an exchange, just like any other stock. Purchasing an ETF or mutual fund will allow investors to take advantage of the underlying price movements of the asset without any of the hassles of actually owning gold.
One of the most well-known ETFs is SPDR Gold Shares, which is traded through the New York Stock Exchange (NYSE). Purchasing one share of this ETF grants the investor one-tenth of an ounce of gold. This ETF is based completely on gold bullion allowing investors to take advantage of the direct price swings of the underlying asset. It is not uncommon for similar ETFs to also invest in company shares and bullion to minimize the effects of price fluctuations on one asset class alone.
Gold Futures and Options
For a less capital-intensive option, traders might decide to purchase an option on a gold ETF. An option is the right for a trader to buy or sell a specified asset at a future date at a set price. Options limit the amount of risk since the right to make a trade does not need to be exercised, so the most tremendous loss will be the option’s price.
Investing in gold should always be a part of a more significant diversification strategy. Therefore, purchasing a combination of gold bullion, stocks, ETFs, and gold-backed cryptocurrencies can reduce the amount of risk in a trading strategy while exposing new investors to many potentially rewarding opportunities.