Essentials of Gold Investing

Essentials of Gold Investing

In the current financial economic environment after the financial tsunami of 2008, more and more people are looking into the gold investment as a hedge against falling stock and real estate prices. This guide aims to look at various aspects of gold investment

1. The Basics

If you're given the choice, whether to buy a pound of sugar or a pound of gold, the answer will be clear. Unless you're stuck in an island and you've been craving for some sweet delicacies you can cook up with a local flora and fauna, you'd most certainly choose gold. After all, you can buy a pound of sugar for under a dollar or two. But a pound of gold? Alas! To buy gold of refined properties at such a weight will most certainly cost more, but you can sell the same gold for an even larger amount later on.
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The above analogy is a microcosm of modern day trading. Allow me to explain...

Sugar is abundant in the world. We can easily harvest sugar from sugarcanes and other novel and alternative sources of glucose. But gold is not as prevalent. People can try to mine gold for years and still come up short.

Hence, because of its scarcity, gold is more expensive. Whenever you'd want to buy gold, you'd have to offer a large amount.

But the amount of gold is not pegged. It fluctuates in value. At times, the value of gold is high, but there are certain days when its value if lower than average. The reason? It's because the scarcity of gold likewise fluctuates. There are perennial efforts to mine gold, and there are times when a lot of gold is harvested. Also, because the trade of gold has been going on for many years now, some owners hold on to their share, and offer the same to the market only when they want to trade. Hence, the availability of gold increases and decreases.

This is the basic law of supply and demand at work. The lower the supply, the higher the demand, the higher the price. The larger the supply, the lower the demand, the lower the price. This explains gold's steady market value. And this explains sugar's lower price.

People who have decided to buy gold and sell the same for a living have learned how to determine market trends. They buy gold when the value is low, and sell when the value increases. The increase, of course, is their profit.

Gold is a great commodity to trade since it does not suffer from substantial decreases in value. On the contrary, gold increases at a stable rate through the passage of time, and this has led to many investors concentrating on this mineral for some amazing long term profit. We will now look into the two most common forms of gold investing: gold bullion and gold bars.

2. Gold Bullion

Gold reserves have always dictated the value of a particular currency, and the same has been true for close to three centuries now. It's not really shocking to think that during the past World Wars, enemy states targeted gold shipments of a particular country to cripple their economy. This was done either intentionally, with the sinking of ships carrying a stash of gold bullion, or accidentally, as with the sinking of ships carrying a bullions of gold during the course of battle. Nonetheless, the effects to the nation's economy back then were immense, further compounding the woes brought about by the prevailing war.

Fast forward to now, and a great number of those ships that traversed the Pacific still remain sunk, and majority of them still remain undetected. What does this mean? That the search for gold bullion stashes is in open season for treasure hunters all around the world, of course!

Before you decide to start entering what could be a very lucrative opportunity in treasure hunting, do bear in mind the following things which many treasure hunters have to go through:

* You have to secure the necessary permit from the country that owns territorial jurisdiction over the waters. Minus this permit, you may be violating their laws. Worse, they may even confiscate all your finds.

* Some countries gather your finds, and would instead reward you with a finder's fee. Other countries will allow you to keep your finds, but they will also ask you pay some fees that will amount to 50% or more of the total market value of all gold bullion at the time it was discovered.

* There are treasure hunters that proceed with their treasure hunting even without complying with the above considerations. Some of them get away with it, especially in territories considered as open waters, where no country exercise jurisdiction, or in territories hotly contested by several countries, like the Spratlys where a lot of General Tomoyuki Yamashita's gold is said to have sunk, where a lot of states are barred from enforcing their rules pending the resolution of their dispute.

3. Gold Bars

More and more people are investing in stacks of gold bar these days, owing to the staying power of gold in the world market. There are many kinds of investors, and there are many kinds of gold bar. These investors are fueled by a variety of purposes. Let's take a look at the 5 most popular types of gold investors to illustrate this point:

1. Speculators. These investors study socio-economic trends to determine the rise or fall of the value of gold. As basic investment will teach us, the most profitable way to do some investing is to sell when a commodity is hot and to buy when it's not. And this is the mantra by which speculators earn their keeps.

2. Pessimists. These investors have the first Depression of the 1940s in mind. They fear that another depression era is forthcoming, and as such, are hoarding as much gold as they can. Gold, after all, retains its value more than currencies do.

3. Inflation hedgers. These investors are afraid of the effects of inflation. Since inflation is inevitable, they'd rather purchase gold to protect their assets, since gold only increases in value, and decreases are minimal and temporary.

4. Portfolio hedgers. These investors would like to protect their other assets, and the only way to do this, for them at least, is to invest on gold which is always considered as a safe investment.

5. Asset allocation investors. Diversification is the key for trade to flourish, and these investors invest on gold to diversify their assets among many solid commodities.

There are more kinds of investors, of course, but these are the more common ones in the gold market. These investors invest on many kinds of gold bar, but two types stand out in particular.

* The 400 oz. or 12.5 kg gold bar is required to have a 99.5% gold purity. The US Central Bank produces 150,000 of these bars every year.

* The 1000 gram kilobar is what traders usually handle. They have two common forms: flat and brick-shaped. Though both forms hold the same gold content, collectors and investors desire the brick-shaped bars more than they do the flat bars.

4. Conclusion

Gold is always a safe investment. It is a telling indicator of a particular country's economy and the value of its currency, a testament to how stable and strong a commodity gold really is. It isn't really a surprise why many investors have adopted the battle cry: "go for gold!"

　