Gold is a commodity subject to the variation of supply and demand. The value of gold changes fast, and gold's price moves can be very volatile. Gold stocks also have a tendency of performing terrible when the stock market is doing well, as they are today.
Consistently, throughout the years, Gold has outperformed a variety of investments. However, surprisingly there are still millions of Americans who don’t own any gold or gold stocks. A large number of people still remain on the sidelines simply because they are confused by the vast array of gold investment options. This puzzlement is the subject that we are going to examine today in this blog.
Consistently, throughout the years, Gold has outperformed a variety of investments. However, surprisingly there are still millions of Americans who don’t own any gold or gold stocks. A large number of people still remain on the sidelines simply because they are confused by the vast array of gold investment options. This puzzlement is the subject that we are going to examine today in this blog.
It has been characterized by the methods and principles of science that it is easier for individuals to make decisions when there are only 2 or 3 possible choices. Otherwise, the assignment of assessing every conceivable decision turns out to be to daunting of a task for people, to the point that it scares them into inaction. The gold market has recently seen the innovation of a large number of new products, but at the day’s end there are really only two choices for buying gold - paper gold or physical gold.
Paper gold investments, also known as gold derivatives, are investment vehicles that have something to do with gold, but do not include the physical delivery of it to the purchaser. Examples include gold mining stocks, gold ETF investments and gold pooled accounts. The calling cards of these ventures is that they are frequently expected to closely track the gold spot price, but rarely do, and at the end of the day you still require a piece of paper to prove possession of it.
Physical gold investments are exactly what they sound like: these are purchases which include taking possession of physical gold. An Investor can purchase gold bullion bars, gold coins or certified coin investments and immediately become a part of the physical gold investment market. The bullion is always tracked by the spot price, while certified coins regularly track the spot price and in many cases beat the bullion over time.
Gold speculators who are in it looking to make a quick buck may do better with paper gold investments, but safety minded investors will usually get what they are looking for by purchasing physical gold. It’s a simple question, if you are one of the many people as of yet who do not own any gold investments, you have two options when looking to buy Gold. It’s merely an easy question of what is most important to you, profit or safety.
Whether it is the tensions in the Middle East, Africa or elsewhere, it is becoming increasingly obvious that political and economic uncertainty is another reality of today’s economic environment. Consequently, speculators commonly take a gander at gold as a place of refuge amid times of political and monetary vulnerability. Why is this? Well, history is full of collapsing empires, political coups, and the collapse of currencies. During such times, investors who held gold were able to successfully protect their wealth and, in some cases, even use the commodities to escape the turmoil. Thus, there are situations that indicate some sort of worldwide financial vulnerability, speculators will frequently run to purchase gold as a place of refuge.
The fact that gold is no longer backed by the U.S. dollar (or any worldwide currency), why is Gold still important to invest in today? The more straightforward answer is that while gold is no longer in the forefront of the global economy, it is still extremely critical to own. To further illustrate this point, there is no other compelling reason to look any further than the accounting reports of national banks and other money related institutions. Presently, these institutions are in charge of holding around one-fifth of the world's supply of above the ground gold. Further still, many national banks have been adding to their ever present gold stockpiles, telling tales of their concerns about the long haul of the worldwide economy.
The idea that gold preserves wealth is even more important in an economic environment where investors are faced with a declining U.S. dollar and rising inflation. Historically speaking, gold has served as a hedge against both of these situations. With rising inflation, gold typically advances. When investors realize that their money is losing value, they will start positioning their investments into hard asset that haves traditionally maintained its value. The 1970s presented a prime example of rising gold prices in the midst of rising inflation.
The reason gold benefits from the declining U.S. dollar, is because gold is priced in U.S. dollars on a global scale. There are two explanations behind this relationship. First, speculators who are thinking of purchasing gold (i.e., national banks) must tender it in U.S. dollars to make the exchange. This eventually drives the U.S. dollar lower as worldwide financial banks try to differentiate out of the dollar. The second reason is the way that a struggling dollar makes gold less expensive for speculators who hold different forms. These outcomes are a more of a noteworthy request from institutions that hold gold forms in retrospect to the U.S. dollar.
When you pair assets that move differently from each other, you tend to create a more diversified portfolio. This is why mixing bonds with stocks is the cornerstone of so many portfolios. Bonds have a negative correlation with stocks, meaning they tend to go up when stocks are going down, and vice versa. Here's the interesting thing: Gold's correlation with bonds over the past decade or so is roughly 0.25, still very low. So gold doesn't track along with stocks, and it doesn't track along with bonds, either. Adding a small amount of gold to a stock and bond portfolio, probably no more than 10%, can help increase diversification and the ultimate safety of your entire portfolio.
Should you be investing in Gold at this time? Being the contrarians that we are and looking at the current prices of gold stocks across the board. Some gold stocks appear to be looming buys. In the case of gold, it is a risky asset class and it would be unwise to invest all your money in it. However, because gold is viewed as a source of wealth, you shouldn't dismiss it as an investment option.
Investors tend to gravitate into gold when they are scared, which boosts its value when assets such as stocks start falling. It just needs to be paired with a more broadly diversified portfolio so you can benefit from the non-correlated nature of gold's performance. And, yes, that will require re-balancing your portfolio every so often, when allocations get materially out of line.
We at BullsToBears.com aren't in the business of buying physical gold, but we can point you in the direction of some gold stocks that appear attractive and might be worth dabbling in at this time and place. As always, were here to help you become a better trader by pointing you in the direction of a some great trades ahead.
So, if you haven't done so yet.. make sure you don't miss our next blog by signing up for our weekly newsletter.
Till Next time... Happy Trading!
