People have loved gold for centuries. Its use as a currency or raw material for jewelry or decoration has made it synonymous with luxury and abundance. Given such an important cultural scope, it is worth wondering if gold- or another raw material- can be a good investment.
Some investors believe that precious metals such as gold and silver act as safe havens during times of stock market instability.
The yellow metal is, in particular, the hedge considered the most efficient against rising inflation, as well as for diversifying and balancing an investment portfolio when volatility reigns in the trading floors.
This theory leads some to purchase physical gold, derivative instruments such as futures or options or exchange-traded funds (ETFs), gold bonds, and sovereign gold bonds.
If you search for price of gold in the last 20 years, you will get a graph having an upward slope, it means that right from the start of last 20 years, its price is rising continuously. It is true that in between this, the gold price has shown us some fluctuations, but despite this fact, it can be said that after some time, the price of gold has grown every time.
All this clearly proves that investment in gold is the best option available for an investor. Among the many options that exist to invest in gold are funds.
In good times many people buy gold, knowing that in the event of an economic crisis, the value of the metal they have bought could double.
The ways to invest in gold are somewhat complex, so it is not a market in which it is advisable to enter alone. The safest way to do this if you are not a specialist is through funds that invest in gold.
Invest in gold ETFs
The gold ETFs are exchange traded funds that seek to replicate the performance of gold. Although the fund is legally required to have all issued derivative contracts backed by gold, the ETF holder owns that derivative contract and not a proportion of the reserve of gold. In this way the investor, holder of the derivative, is exposed to the returns of gold.
Investing in a gold ETF and not physically gold has the advantage that it requires a lower cost, both for investment execution and storage.
In addition, as they are listed on the market like any other share, they have the advantage of having greater liquidity compared to investment funds, giving the possibility of liquidating the position at any moment in the market.
Investing in gold-backed ETFs is the fastest growing form of gold investment in recent years.
Invest in mutual funds that invest in gold
These are funds that develop their entire investment strategy around gold, either through the acquisition of companies that develop an activity within the gold sector, either through their own acquisition of gold in any of its marketable forms or through the acquisition of gold ETFs.
In addition, they are also often exposed to other precious metals, which increases the diversification of the fund.
The advantages of investing in gold through this form are the professionalized management of the fund, focusing on generating value for the participant. At the same time, it gives the possibility of investing in stocks or other funds in which individually it is not possible.
Invest in Sovereign Gold Bonds (SGB)
While investing in physical gold has a security risk, such as theft, resulting in additional cost of protecting the precious metal, investing in SGB is not only free from such risks, but investors get an annual fixed interest on their investment and also get the sovereign guarantee from the Government of India.
In times of crisis, it is a safe haven. During the recent financial crisis, gold markedly increased in value, as often happens every time there is an economic crisis.
The diversification of the investment portfolio reduces risk and increases the probability of profitability with respect to the different financial assets that are operated.
In the particular case of gold, this is an option to trade in negative times in other markets since it is likely that this metal will be valued and therefore, losses in other assets could decrease with their returns.