Copyright 2006 Jason Chew
Tradionally, many investors shunt gold and invest in equities or fixed income markets. With the price of gold performing extremely well, alot of investors are turning their attention on gold.
The price of gold has topped US$700 recently. Gold has been in a bullish run since 2000. What is the implication? Will gold continue to rise in the future? Is it time to invest in Gold now? How to invest in Gold?
The rise in price of Gold is due to a number of factors. Some of them are listed below.
- International tensions and Bad times
During internation tensions and war, gold will always hold it values. Sometimes, investors trade currency for gold In recent Iran and US nuclear issues, price of gold was shot up to US$700 in fear of oil prices rising. US dollars and inflation along with high federal trade deficit and debt have make investors buying gold to heged against currency flunctuations.
Though now the price is fallen slightly, it believe that gold is a good investment tool to use as a safe haven in time of crisis and bad times.
- Supply and Demand Fundamentals
When the price of gold rise, more investors will buy gold. Since the supply and production of gold is limited, it will not be able to keep up with the increasing demand from the market. This will make the price of gold rally further.
- Stock Market Bearish vs Gold Market Bullish
Gold always perform opposite of stock market historically. When stock markets are performing badly lately, gold markets were bullish. With uncertain economic and global conditions, some analyst believe that gold will further appreciate its value and continued its bullish run for long term.
It is never too late to invet in gold now!
There are a few ways to invest in gold which are shown below.
- Gold Jewelery
Gold jewelery is a popular means of investing as savings in developing countries like India and Middle East.
- Gold Bullion and Coins
Gold Bullion are gold bars in 1g to 400g. Goid coins are legal tendar of issuing countries and usually sell at a small premium above current spot gold price. Popular investment grade coins are US Eagle, Canadian Maple Leaf,
- Gold Certifcates or Accounts
These are ownerships rights to gold bullion held by a financial instution such as a central bank for safe keeping.
- Gold Mining Stocks
These are stocks of gold mining and exploration companies. When price of gold rises, some mining stocks offer handsome dividends when the issuing companies profits.
- Gold Mutual Funds
These are funds that have gold in the portfolio managed by professional fund managers. Some funds are region specific (such as US) or spread across different mining companies.
No matter what kind of instruments you choose to invest in, you have to mix your portfolio with the right proportion with your equities. The strategy to investin gold is to have balance portfolio with diversification. The objective is to use gold as a hedge against flunctuations in fixed income market. The best strategy is to start with 10 % level of your portfolio to invest in gold and slowly varies you level of gold to increase your portfolio stability.
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