May 10, 2021 (Investorideas.com Newswire) Gold is an important pillar of any portfolio. It helps diversify your portfolio and also helps your portfolio maximize its geometric returns. Historically, gold is a great hedge against inflation, political instability and economic crises. Gold is important because it has a knowable intrinsic value, its supply-demand economics are understandable and it has industrial uses that ensure that it is not a pure speculative play.
Investors trade in gold for a number of reasons. There are people who invest in gold because they need it for productive purposes such as making jewelry or parts of machines. There are those who invest in gold as a long-term asset. Then there are people who have gold in their portfolios as a speculative play.
Exchange-Traded Funds
A popular way to gain exposure to gold is by investing in an exchange-traded fund (ETF). An ETF is traded on a stock exchange just like a stock. However, it is a security that tracks a commodity, sector, index or other asset, rather than a stock. So, you can buy an ETF that is invested in gold, gold futures contracts, or even the gold sector. At present, there are 9 gold ETFs in the United States, excluding inverse or leveraged funds and funds with less than $50 million in assets under management (AUM). These funds invest in gold bullion or gold futures rather than gold miners. Popular gold ETFs are, Invesco DB Precious Metals Fund (DBP), the
Aberdeen Standard Physical Gold Shares ETF (SGOL),
and the SPDR Gold MiniShares Trust (GLDM). Many investors like the idea of investing in ETFs because they are as liquid as stocks, and low-cost. This makes them more attractive to them than gold futures or shares in gold miners. Nevertheless, because an ETFs underlying asset is gold and gold is very volatile, a gold ETF will be subject to more volatility than stocks.
Buy on the Spot Market
It is possible to buy gold bullion on the spot market and take physical delivery immediately. This is the most direct way to get exposure to gold. The American Hartfold Gold Company, famously endorsed by Bill O'Reilly, is a great source if you want to invest in physical gold.
Futures Market
Gold is traded on what are known as futures markets. In the futures market, you trade standardized futures contracts to buy or sell specific quantities of commodities or financial instruments at a specified price with predefined delivery dates sometime in the future. Many investors choose to trade gold this way. Futures prices are, essentially, expected future prices. So, investing in gold futures is a game of predicting the direction of gold prices. An example is if you buy a futures contract that gives you the right and obligation to buy gold from your counterparty, at some predefined price. If gold at delivery time is above that predefined price, you make a profit. If it is below that predefined price, you make a loss. Both counterparties trade in the belief that they better understand the markets and know what direction prices are going.
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