Different ways to invest in gold

For centuries gold has been the ultimate cushion against the dangers of stocks price falls, fluctuating rate changes, inflation, rising/falling real estate prices, natural calamities, wars and more. Gold has been the best way to safeguard your investments against unstable financial markets.

Why is gold such a good investment?

Whether or not gold is a good investment, is a question that does not have a simple answer. Gold has appreciated substantially over the past couple of years.

The growth rate of late has been much higher than the conventional rate of appreciation. However, if we look at the past 15-20 years record, it is seen that Gold is a hedge against inflation.

Over the last 20 years, the average return from Gold has been around 7%. So, if the past trend continues, one could expect around say 6-9% returns from gold in the long-term.

Why is gold such a good investment?
Also, another aspect that we should look at is a weakening currency. No matter which country you originate from, there is a chance that your country's currency will suffer a downfall at a particular point of time.

Gold, on the other hand, retains its asset value and can help you protect your riches because it does not rely on the state of the country's economy, whether it is on the up or downtrend. Therefore, investing a small portion of one's investment portfolio in gold would be a good idea.

How can one invest in gold?

Gold can be bought in various forms and the decision should be based on the reason you need gold. If you see this purely as an investment, you can either buy it in the form of physical gold - bars,

For most Indians, gold purchases usually mean buying jewellery. However, the disadvantage of buying gold in the form of jewellery is that its resale is not always a profitable proposition. Here are some other ways of investing in gold:

Gold ETFs

You can invest in gold by buying Gold Exchange Traded Funds (ETFs). Being ETFs, these funds are listed and traded on the stock exchange i.e. investors can buy and sell them like any other stock on the stock exchange, on a real- time basis.

All you need is a demat account and a share trading account with a broker or sub-broker who deals in stocks. These are traded in units of one. That means you can buy one or more units at a time. Each unit represents approximately the market value of one gram of gold.

Gold ETFs are traded close to real-time gold prices in the market, that is, ETF prices move up and down with the market price of gold in the conventional marketplace.

Your expenses in an ETF would be very low: you would pay securities transaction tax (STT), brokerage/service tax, and the like, which are unlikely to exceed around 1% of market price.

You'd hold gold in demat form in your demat account, just as you hold shares. If you decide to sell your ETF units, you can do so through your stock broker or sub-broker and the charges would be the same as what you paid while buying the ETF.

Thus an ETF is very convenient, and you need not worry about the purity of the gold, secure storage, insurance

This is the traditional way to invest in gold. Investors can buy gold and then store it in a bank's locker.

If you are one of those people who keep buying gold jewellery for a marriage of a daughter or son, a better option would be to buy gold ETF units now at the current price of gold, hold them in your demat account, and sell them in the future, whenever you want, and use the money to buy jewellery then.

In this way, you will be protecting yourself from rising gold prices, while also sparing yourself anxiety about the purity and safety of your gold. You can keep accumulating gold at a slow rate, perhaps even one gram at a time.

It is evident that gold is an asset class that you can rarely go wrong with. Hence it might be a good idea to give more thought to investing in gold as a significant part of your portfolio.

GOLD ETF Mutual Funds - Most Hassle-free Option To Invest In Gold

Gold has suddenly become a preferred investment option thanks to economic turmoil. Not surprising, as it was always considered a safe hedge against such developments.

However, it need not necessarily come into your investment radar only during uncertainty. According to investment experts, gold should always be part of the portfolio of a person who wants to preserve his wealth.

Diversification is an important to tool to preserve ones wealth over a long period. When we talk to our clients we tell them fixed deposits, corporate deposits, stocks, gold... all should be part of their portfolio , says a wealth manager with a bank. We explain to them that spreading their investments across asset classes will help them withstand the bad performance of a particular investment.

For example, recently investments in gold fetched handsome returns when stocks were faring badly , he adds. However, the new crop of investors have left financial advisors a worried lot. They say most new investors have unrealistic expectations from gold. Most remember that gold had given very high returns a few months ago. They believe it would happen often, says the wealth manager.

Transcend Consulting director Kartik Jhaveri says, Investors should not focus on such sporadic returns. It is mainly because of volatility. For example, the dollars weakness, crude prices going up, uncertainties in the global economy would have a positive impact on gold prices. He says, Over a long period gold would give around 6-8 % returns. If you look at the returns in 10 years, it would just about beat inflation. Another dilemma faced by investors, point out consultants, is that they dont have a definitive idea about which is the ideal form of investing in gold. Many investors apparently would still prefer buying gold coins and bars sold by reputed banks (if not jewellery) and safe-keep them in their bank locker.

This method, according to investment experts , is the least preferred and inefficient option . This because most banks dont buy back gold and the investor must then turn to retailers to strike a good deal. Meanwhile in the retail market, often jewellers prefer exchanging the coins or bars with ornaments itself rather than pay cash to such customers. So, if you are investing in physical gold, be prepared for some hiccups when it comes to liquidating it. Jhaveri says it is better for investors to go for exchange-traded gold funds, especially if they are looking for a hassle-free investment option. These are mutual fund schemes investing in gold that you can buy and sell in a stock exchange. Since you dont own gold in the physical form, you dont have to worry about liquidating it. You can sell the units of the scheme in a stock exchange at prevailing prices. Though it may look the most convenient form of owning gold, the idea is yet to catch up with common investors, say financial consultants.

If you are a bit more adventurous, then you may consider directly owning stocks of some gold mining companies. Sure, they carry more risk, but they can also reward you, says Jhaveri. If you have even more appetite for risk, you may even consider trading in gold futures in the commodity market.

Why Gold Looks Ready to Move Higher

I want to start off my first regular Money and Markets column with a simple statement: I am not a hardcore gold bug.

In other words, I am not always out looking for reasons to justify owning gold. I do not even believe gold is a productive asset!

However, I do think gold provides great insurance against political follies, especially those that will likely lead to inflation.

And while I consider life and investing most fun when there are no reasons to bet against the government, history has shown again and again that sometimes you have to take that position to protect your family and your wealth!

My point is simple: I think the only time to buy gold is when you're critical of current monetary and fiscal policy.

So up until 2001, I didn't see a reason to recommend the yellow metal.

Times were good, the financial markets were booming, the economy was doing okay, and the Fed and its international brethren were doing relatively little harm (other than fueling a stock market bubble).

As long as the bubble was holding together there was no need to look for a store of value or for insurance against bad economic policy outcomes.

Besides, gold was mired in a secular bear market that started back in 1980. So my technical market analysis confirmed the unattractiveness of precious metals.

In 2001, I knew it was time to bet on gold. And I turned out to be right.

Then, in 2001, I started to see an about-face happening …

The Fed implemented a highly inflationary monetary policy, and the Bush administration did the same in regards to their fiscal policy.

That was a clear starting signal for a brand new gold and commodities bull market. And when I looked to my charts for technical confirmation, it looked like there was a huge bottom forming. I knew then that it was one of those times to bet on gold, and I turned out to be right …

Gold's price quadrupled from $255 on February 21, 2001, to a high of $1,034 on March 17, 2008.

But Now, Many Are Asking If
Gold's Bull Market Has Run Its Course …

When the recession hit, stocks and commodities got clobbered. And gold's price fell 30 percent.

Now, everyone wants to know if gold's run is dead or if we're just witnessing a healthy correction in an ongoing secular bull market.

First it was Bush. Now Obama is pumping billions into the system.

My answer: What we are witnessing right now is just a healthy correction … one that is nearing its end. Remember, I'm not a hardcore gold bug. I have no preconceived idea that gold is the best investment in the world. Instead, I'm just looking at the facts before me. And here's what I see …

Last year was a remake of 2001, only it was a real estate bubble bursting instead of one in the stock market.

And the monetary and fiscal policy reaction has been the same … on an even grander scale!

The combined monetary and fiscal stimulus to combat the recession, the banking crisis and all the other aftermaths of the burst bubble already add up to 30 percent of Gross Domestic Product.

That's a new record by a HUGE margin:

• In 1974 it was 4 percent
• In 1982 it was 2.8 percent
• And in 2001 this figure was 7.2 percent.

The Fed and the government — first the Bush administration and now Obama's — are pulling all available levers hoping to heal what went wrong by doing exactly the same thing that was done in 2001.

The chart below, showing all the dollars getting pumped into the system, sums it up … Isn't that amazing? There seems to be no progress in politics or the financial markets!

In 2001, I interpreted these policies as a major signal for a gold bull market. So with today no different — but actually worse — I'm sticking to my belief that gold will continue to shine.

And I'd like to note that there are at least two more reasons to believe that gold will push higher …

Reason #1:
China says it's a gold buyer!

According to several news services, China has admitted to having boosted its gold reserves. Since December 2002 the Chinese central bank added 600 tonnes of gold to bring its reserves to 1,054 tonnes.

And while more than a thousand tonnes of gold might sound like a lot, it is a miniscule amount in relation to China's total currency reserves. Just look at my table and you'll see what I mean …

Official Gold Holdings as of April 2009
	Country	Tonnes	Percent of Reserves
1	USA	8,133	78.9
2	Germany	3,412	71.5
3	IMF	3,217	N/A
4	France	2,487	72.6
5	Italy	2,452	66.5
6	GLD (Gold ETF)	1,104	N/A
7	China	1,054	1.6
8	Switzerland	1,040	41.1
9	Japan	765	2.2
10	Netherlands	612	61.7
11	ECB	537	23.7
12	Russia	523	4.0
13	Taiwan	423	4.2
14	Portugal	382	90.2
15	Venezuela	364	35.5
16	India	357	4.2
17	UK	310	18.7
18	Lebanon	287	30.0
19	Spain	281	40.5
20	Austria	280	50.5

Source: World Gold Council

In other words, this may very well turn out to be just the beginning of a trend for China. For years China has been rumored to be adding to its gold reserves. But until now the Chinese government refused to comment and refused to publish its gold reserves.

The obvious change in this policy is important. I think the Chinese government is sending a message, maybe as important as the one the French sent back in the 1960s. Then, under the Bretton Woods System, the French demanded delivery of huge amounts of gold from the U.S. This eventually led to the demise of Bretton Woods.

Now China reveals its growing gold reserves. At the same time it has started to openly question the international dollar standard.

Doesn't this sound like the beginning of a new currency order? A currency order that is less dominated by the U.S. dollar and replaced with a currency order including gold.

I know the U.S. doesn't like the thoughts and understandably so. But reality seems to be shifting in this direction since the U.S. has unnecessarily and frivolously been risking the privilege of being the issuer of the world's reserve currency.

No matter where this development finally leads right now … it's bullish for gold.

Reason #2:
Gold's Charts Look Bullish

I use charts to confirm the fundamental picture. And when I look at a price chart of gold from 2001 to today I see a very orderly uptrend, interrupted regularly by healthy corrections. The current pattern since March 2008 does not deviate from this orderly trend. Take a look …

Source: www.decisionpoint.com

I interpret the action as an inverse head and shoulder formation, which is both very bullish and very reliable.

So given the strong fundamentals and an exciting chart pattern, you should expect a continuation of the gold bull market. A breakout above the resistance line of around $1,000 would send a very strong buy signal with a minimum price target of $1,300.

And in my opinion, the gold mining sector looks even more attractive because in relation to gold prices, the mining companies are extremely undervalued.

Again, I am not a gold bug. But if all the stars point to a bull market in gold and certain gold stocks, I definitely want to participate and so should you!