Recently, gold has enjoyed a heart-stopping bull run and this has drawn in more people into gold trading and investment. Many have heard of gold prices first resisting the $1000 per ounce level numerous times and then surpassing it rather violently. Proftis for educated gold investors have thus been quite heady and indeed gold trading can look very attractive to new comers.
This article introduces gold trading and answers the basic questions “Why invest in gold?” and “How to invest in gold?” To begin with, the value of gold is reflected in its spot price and this is determined largely by supply and demand factors. Primarily, gold is highly regarded both for its “protection” feature as well as for industrial and commercial use.
For example, countries like China and India are constantly in demand for gold, sometimes even hoarding it — such demands can bolster gold prices. However, when its price goes up too much, these gold hoards could be traded as profitable investments.
Currencies face the concern of devaluation when too much paper money is being printed or when there are economic issues. Gold does not erode in the same way in terms of its value as it is a physical asset with an inherent “stored value”. Often times, it is viewed as a hedge against inflation.
During economic crises, investors tend to shun currencies and other riskier investments, favoring gold as the preferred “hard currency”, if you will. This is how gold earned the reputation of a safe haven, something you might have heard on TV business news or read of in Gold Trade Forecast newspapers.
Recall the recent Eurozone trouble where some countries are being bailed out — you probably have witnessed how gold prices shot up fiercely over just a few months, creating new highs and upsetting them.
In fact, within a short period of 5 quarters, the magical $1000 per ounce level was breached after several attempts to go beyond it. Gold price has hit as high as $1426 just a few weeks back, which translates to a hefty 40% return for savvy investors who bought at the thousand dollar level.
Depending on your risk appetite and size of trading account, there are several ways you can play the gold market, as outlined below:
** Physical gold
You can buy either bullion bars or coins if you are an investor who prefers physical gold. Consider buying Krugerrands, which are South African gold coins that have decent investment value. Sometimes, older coins can also fetch good returns, but appraising their value may not be easy for beginners.
** Gold stocks
If physical gold is not your cup of tea, think about owning shares of stocks in gold mining and trading companies, or gold producers themselves. You can participate in increases in the value of gold tthrough higher stock prices. Some of these companies could be sitting on unexplored gold resources, so the potential for speculators driving up stock prices cannot be ignored too.