Formed at the heart of exploding stars, gold truly is stardust. This is the reason why it is so rare on earth. In addition to its rarity, gold has that magical quality to it that takes the breath away when you look at something made out of pure gold. Be it a gold bar or a piece of jewelry, gold can ensnare the senses. For these reasons and more, gold has occupied a central position in the world today. It is used across a wide spectrum of industries. Gold is used in industry for its excellent heat and electricity conducting quality, it is also used extensively in jewelry making which is perhaps the second most common use of gold after its use as an instrument of investment.
Investors, especially the prudent ones like to invest in gold because of its ability to hold value through economic turmoil. Especially in the United States, it is not uncommon for retirees to move their 401k or existing IRA into a dependable Gold IRA account. Gold is not only used as a mode of investment but it is also actively used to hedge the risk of loss. In this article, we will look at three of the most common modes of investment in gold in further detail to understand how gold is shaping our lives and the world we live in.
How To Invest In Gold Bullion
Bullion refers to bars, specialized coins, ingots or biscuits as they are sometimes known. Gold bullion is one of the most common modes of investment. This mode of investment is common with individual investors, especially people who have saved up their money and want to secure their savings by investing in gold. Investing in bullion saves wealth from being eroded by inflation over a long time. If we look at the historical value of gold we can see that at the start of the millennium the value of gold was almost $300 per troy ounce and today it is almost $1566 per troy ounce. This registers to a price increase of approximately 422%. Inflation hasn`t increased anywhere close to this level. This simply means that investors, who had invested in gold at the start of the millennium and held on to their investment for two decades, have experienced a 422% rise in their investment.
This capital appreciation, however, can only be realized when one sells off the gold bullion that they have, this is one of the disadvantages of investing in gold; it does not carry regular dividends like an investment in the stock of any company. Thus, any benefit from the price appreciation of gold can only come by liquidating the investment.
Nevertheless, gold bullion remains to be the preferred mode of investment in gold by many individual investors. It is a convenient form of investment because gold bullion comes in different sizes.
How To Invest In Gold Jewelry
In the west, investment in gold jewelry isn`t considered proper investment however in the South Asian cultures, in particular, investment in gold jewelry is perhaps one of the most common forms of investment in gold. This is more of a cultural difference than a substantial one as an investment in gold jewelry has its merits and demerits.
People in the West do not consider it is a proper investment into gold because gold jewelry is often not completely pure. There are different grades of purity of gold used in jewelry and most of the jewelry artifacts contain other elements as well. They may contain laces, locks or even precious stones such as diamond at times. While jewelry elements like laces and locks are not made out of gold and thus add on weight to the jewelry artifact but not much value, items like precious stones add a lot of value to the artifacts.
There is also the element of craftsmanship and for this reason, jewelry items also have value as a work of art, this value adds on to the value of gold and other precious elements used in the jewelry. The drawback here, however, is that gold jewelry is not the most liquid form of investment and care needs to be taken at the time of purchase to make sure that counterfeit imitation jewelry is not being sold like pure gold jewelry. Nevertheless, it remains one of the widely used forms of investment in gold in many parts of the world.
How To Invest In Gold Mining Companies
Investing in the stocks of gold mining companies is not exactly like investing in bullion because the investors never get to see any physical gold, nor is there any physical gold involved. At least not directly. Investing in the stocks of gold mining companies is just like investing in any other company, except the fact that this is a gold mining company.
Usual caveats of investment in any company apply to this category of investment in gold. Investors should carry out due diligence before investing in any gold mining stock. High declared dividend is no surety for high dividends in the future, investors should check the fundamentals of the companies, their profitability, liquidity, and financial gearing.
In addition to these fundamentals, investors need to see the earnings per share (EPS) and a price-earnings ratio (PE), in particular, to ascertain whether the company has the required fundamentals to distribute dividends at a steady rate in the future or not.
One of the advantages this form of investment in gold has over other forms is that gold stocks carry periodic returns in the form of dividends and thus, investors in gold stocks get annual or periodic returns that investors into gold bullion or jewelry do not get, in addition to this they can also benefit from capital appreciation by liquidating their investment in shares and cashing out.