How to invest in gold -Value over time
The supply of gold can only increase very slowly over time, as it is mined as a precious metal. It is one of the most popular investments, but the value of gold is constrained. Investors use gold as a hedge against political, social or economic upheavals. In the case of sudden, unexpected or catastrophic market declines, bank failures, social unrest, inflation or governmental disarray, gold still holds value. For that reason, gold has been used throughout history for financial exchange and to stabilize economies.
Subsequent to World War II’s turmoil, a gold standard was established, which fixed the gold price at $35 per troy ounce. This system held until 1971, when the United States discontinued the practice of directly converting dollars to gold. The current benchmark for gold prices is the London Gold Fixing.
Gold has occasionally been confiscated by ruling governments during times of war or crisis. This has led some to say that the only difficult thing about owning gold is holding on to it.
How to invest in gold-Golden Mutual Funds?
Gold investing can be relatively simple through what is known as an exchange-traded fund or ETF. An exchange-traded fund works much like a mutual fund which can be traded as stock. The benefit of an exchange-traded fund is that the storing of the physical gold is not done by the owner. The owner does not have to be concerned about keeping actual gold safe from being lost, stolen or somehow destroyed.
There is one drawback to the gold exchange-traded funds, which is taxes, as gold is treated like collectibles not like stocks or mutual funds. Unfortunately, collectibles are subject to special tax rules and if the owner holds on to the EFT for more than a year, the rate can jump from 15% to 28%. This can be avoided by putting the EFT in a Roth IRA. Roth IRA’s are tax free.
How to invest in gold—Coins
If an investor decides on buying coins, it is very important to do one’s homework first. They must be purchased by a reputable dealer. Some people have bought coins believing they were purchasing a pure gold coin, only to find they were in possession of a fraud cut and made worthless by the addition of other metals in the coins.
Buying gold coins also means that the physical security rests now entirely on the shoulders of the owner. The coins will have to be placed somewhere safe where they cannot be stolen, or lost. There is also the possibility of government confiscation as in 1993 when Franklin Roosevelt took all the gold out of private hands.
How to invest in gold—Don’t go overboard
When investing in gold, the investor should bear in mind they are converting cash into an asset with a value that rises and falls. If gold is purchased at a high price it is possible that a need to convert it back into cash could occur when gold is at a lower price. For that reason diversity is still the watch word for anyone considering investing in gold.