Investing in gold represents one of the favorite strategies in the investment world. Its price fluctuates depending on the supply and demand of the metal, but also in relation to gold as an investment asset.
As a safe haven asset par excellence, gold is one of the star products in times of panic in the markets or in times of inflation (due to its inverse relationship with interest rates), since its price is usually more stable than that of other assets
Gold; it can be used as a hedge or safe haven against inflation, stock market drops and falling currency prices. So what’s the best way to invest in this precious metal? Are gold mutual funds or gold ETFs good?
A gold fund is an investment fund or ETF (Exchange Traded Fund) that mainly invests in gold bullion or gold-producing companies.
The purpose of this fund is to generate an appropriate return on gold investments. If the fund primarily invests in stocks and bonds of bullion or gold producers and miners, the price of the shares in these funds will be largely attributed to the spot price.
Until recently, gold has been used as currency and as a standard for currencies. The gold standard is that the value of a country’s currency depends on the amount of gold the country has. A person who owns the paper money of a particular country can get it for gold by offering the money he has to the government.
The increase in demand for gold increases result in an increase in its price. And this is why, we all consider gold as a safe haven.
When making an investment in bonds India, you are not investing directly in the asset. The most common way to buy gold directly is gold bullion coins and the most common way to invest gold indirectly is through exchange traded funds (ETFs) such as gold stocks.
Mutual funds invest little or no investment in physical gold. Gold mutual funds, generally classified as “Precious Metals”, have stocks of mining companies.
Your banker may have already suggested that you invest in bonds, either through a securities issue or through a fund: but what is it exactly? Bonds are issued by companies, the state or local authorities who wish to borrow money on the financial markets and which, in return, generally pay regular income to investors.
Best practices before investing
Don’t invest the savings you need in the short term. To avoid the risk of losing money if you had to sell your bonds before maturity, be sure to choose a bond whose life is in line with your investment horizon.
When choosing an investment in gold bond in India, pay attention to the term of the investment and the type of bond offered (fixed rate, variable rate, indexed bond, zero coupon), so that it meets your investment objectives.
Be aware of the risks inherent in bonds (risk of default, interest rate, liquidity, etc.) and those related to the mode of investment (directly or via funds). Think of a high interest rate when issuing the bond denotes high risk.
To limit risks, diversify your investments, whether in the choice of your bonds but also by integrating other assets into your portfolio.