The financial markets are huge and varied, with the potential for hundreds of different assets to be speculated on and incorporated into your portfolio. Some are more common and well known than others, and gold is almost certainly one of them. Even those who have no prior knowledge of the financial markets would know that gold is widely traded and invested in. For those that are unfamiliar, it’s good to know exactly why gold is so popular, and what you should do if you’re looking to include it into your budding portfolio.
Until quite recently, the precious metal was the standard to which most of the world’s currencies were held, which has made it an absolute staple of finance even to this day. There’s always demand and movement happening which means that it will probably always be an integral part of the markets, and a way of ‘measuring wealth’.
Because gold is held in such regard, it has a value everywhere and to almost anyone, which makes it an ideal trading product. Usually, it’s used as a method of diversifying a portfolio, which is to say that it helps a portfolio spread out its risk. The movements of the prices in gold are usually influenced by different factors than currency for instance, so if you’ve got money in gold you might be less exposed to a crash. For similar reasons, gold is often seen as a ‘safe haven’, or a way of avoiding negative market movements in a particular economy or economies.
This is not to say that there isn’t risk involved. Gold prices can be volatile, and there’s still plenty of opportunity for losses to be made when investors aren’t careful. If you’re thinking of starting an investment portfolio, you should certainly consider the precious metal, but it’s not generally something you solely rely on.
When it comes to actually doing the investing, there are numerous options. The traditional method would be to quite literally buy physical gold and keep it in storage until the price is at a level you want to sell at. You can still do this in many countries, but in others things are not so straightforward and this is a cumbersome method of investment. Most people will instead involve themselves with less direct methods.
ETFs are one such popular option – these are essentially funds that hold a lot of gold, which can be invested in by outside investors. This way you’re speculating on the price of gold, and owning shares in a fund that does, but you don’t have to deal with the asset itself. Derivatives such as options and futures are the other big market. There are numerous variations, but the principle behind them is that you’re buying and selling contracts whose value is intrinsically tied to the price of gold. You’re again speculating on the value of gold, but at no point do you actually own any of it.
There you have it; the world of precious metals investment is a large and complex one, but it’s integral to most investment portfolios, and if you’re thinking of starting one, whether personally, or as a business, it’s essential you look into gold.
This article was syndicated from Business 2 Community: Understanding Gold as an Investment
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