History has shown that gold can withstand a downward economy. For many financial investors and traders, it’s considered a buffer in their portfolio that serves to stave off inflation and depression.
If you’re interested in entering this market, here are some things you need to know:
What Makes Gold So Precious?
Forbes revealed that gold remained highly coveted largely because money in the US was backed by gold reserves. The 37th POTUS, Richard Nixon, abolished that policy. Still, many traders put their money into gold to serve as protection from recession that devalues the USD. While many equity investments are falling hard, the value of gold stays robust.
Different Types of Gold
Gold is traded in three main forms: bullion, stocks and collectible coins. The Federal Trade Commission defines bullion as a term for precious metals measured by units of mass (e.g. troy ounces or grams). Ingots and bars are two common kinds of bullion.
Gold stocks, meanwhile, are shares in mining companies that look for gold and mutual funds that allocate capital into gold. Collectible coins have historical significance on top of its gold content. These are usually traded in auctions or via coin dealers.
Where to Trade
To help you get started, The Telegraph says you can approach a dealer who buys and sells gold. Your dealer can be an actual person or an online platform.
Another option is to trade gold on the stock market. Traders use ETFs (Exchange Traded Funds) which can be bought or sold like equity stocks. The ETFs correspond to either actual gold stored in a vault, or ‘derivatives’ which pertain to a value of gold specified in a contract. Your best bet is the former, because you can indirectly own a portion of a tangible gold asset.
Be wary of “the spread” which is the difference between the price dealers sell the gold and the price they buy back the gold. Always expect that if you are selling gold to them, they will purchase it at lower than the market price. The type of bullion you sell affects how big the spread is. If you are selling ingots, the spread can be large. And when you sell a bar off, the entire value goes with it. But if you are selling gold coins, you can only retain some of its value because they’re made with a certain proportion of gold to other metals.
Advantages of Trading Gold
Aside from the aforementioned security it provides, gold is virtually tax-free. When you sell it, you do not incur capital gains tax. FXCM’s page about the gold market adds that it doesn’t expire like copper. Traders are free to deal with it on the market as long as they want. Gold does not offer an immediate return on your investment like trading equity shares, but its value stays firm while share prices can fluctuate wildly. In other words, it can be a “save it for rainy day” kind of investment.
For a relatively conservative way to hold your money, trading gold is a good option. Just remember to be mindful of the spread rule among dealers when trying to sell it.