When you first decide to invest in gold, what is the most desirable way to make your purchase? Let’s looks at the options – at least a few to begin with. There are two main ways to buy physical gold – either by gold bullion or coins, also known as numismatics.
First of all, when you buy gold bullion you are getting a direct correlation to the value of the metal – nothing else. If the price of gold goes up 2% then whatever physical gold you are holding goes up 2% as well in this form. However, gold coins are quite different, since their value is based more on their relative worth to a collector rather than the gold itself. So if the value of gold goes up 2%, your gold coins may not go up even a penny! On the other hand, if they suddenly are more in demand due to some perceived or real shortage, the coins may jump in value even as gold stays the same in price. Other factors include scarcity, condition, and popularity.
One of the downsides to collecting numismatic coins is the added cost of dealer markups and the grading of the coins. The difference between wholesale and retail prices could be as much as 30% depending on dealer markup. Gold bullion has a much lower markup at around 2% or so, unless you are buying gold bullion coins which have a slightly higher markup since they are smaller and require more cost to make than gold bars. Gold bars are the cheapest of course, although since their size can be from 1 gram on up to a kilo or more depending on which dealer you chose.
The difference in the timing of these investments is that if you buy numismatic coins you will want to hang on to them for a much longer time period to get the maximum amount of appreciation from them, since you are paying a premium just to buy them. In the case of gold bullion you only need to wait until the price of gold has risen sufficiently to warrant your taking the profits, if you so wish. Either way, plan ahead and make sure you do your homework first before investing!
Are you tired of losing money in the stock market? Or do you just want to learn how to diversify your investments by adding gold or precious metals to the mix? Learn more by visiting us at online gold trading website.
Tuesday, March 16, 2010
Wednesday, March 10, 2010
The Pros and Cons of Online Gold Trading
You want to diversify your investments, you say? To some that means buying stock in something besides the usual blue chip, or whatever “bullet proof” sector is at the moment. Ever think about buying some gold, or maybe an ETF that is funded by gold? Here are some pro’s and con’s you may want to consider.
Of course you want to invest in something that has as little risk as possible, right? But what about inflation – you must also have something to hedge against inflation or your money will erode year after year. One of the better hedges against inflation is gold, which tends to go up in value whenever the dollar and other currencies are heading down. Right now in this country we seem to be enjoying a low level of inflation, but for how much longer? The way Uncle Sam is printing money, there is no way to stop inflation from coming back to bite us at some point. It’s just economics 101!
As a pure hedge against inflation, gold is right up there with the best of them. While the “official” inflation rate runs only about 2-3% per year, the unofficial rate as we all know is much higher, probably closer to 8-10%. Which means you must earn 8-10% on your investments each year just to break even! However, gold has been steadily rising in price for the past several years, going from about $320 per ounce in 2000 to over $1100 in late 2009 – not bad, eh? And when have you ever seen gold drop down to nothing? Stocks may, but gold will never do that. Unless they find a machine that can make it…just kidding.
Ok, so that covers a few of the pros of investing in gold – what about the cons? That really depends on how you are investing, the vehicle. If you are buying strictly gold bars, the downside may be that you have to store it for a long period of time, in a safe place of course. Storing it in a bank safe deposit box will cost money, adding to your expenses. If you are purchasing stocks in a mining company, your returns (if any) are at the mercy not just of future gold prices but how well the company is managed. Futures and options hold risk as well, depending on what exchange you happen to be purchasing them from. If an exchange decides to raise the minimum amount you need to put down to purchase a futures contract, you may not have the cash to go through with it. This could also dissuade others from purchasing contracts, and if you are trying to sell yours, the cost could rise and take away from your profits.
Another risk, although you may think it is small, is the political risk. In some cases, such as when the U.S. decided to make gold ownership illegal in the 1930’s with the Gold Reserve Act, the price of gold could be made a fixed price. A more likely scenario would be a foreign government suddenly nationalizing an industry to take it over, such as happened in Venezuela when they took ownership of a Canadian gold mining company called Crystallex International, whose shares promptly fell. This isn’t a regular occurrence, however it pays to do your homework and be cautious.
Of course you want to invest in something that has as little risk as possible, right? But what about inflation – you must also have something to hedge against inflation or your money will erode year after year. One of the better hedges against inflation is gold, which tends to go up in value whenever the dollar and other currencies are heading down. Right now in this country we seem to be enjoying a low level of inflation, but for how much longer? The way Uncle Sam is printing money, there is no way to stop inflation from coming back to bite us at some point. It’s just economics 101!
As a pure hedge against inflation, gold is right up there with the best of them. While the “official” inflation rate runs only about 2-3% per year, the unofficial rate as we all know is much higher, probably closer to 8-10%. Which means you must earn 8-10% on your investments each year just to break even! However, gold has been steadily rising in price for the past several years, going from about $320 per ounce in 2000 to over $1100 in late 2009 – not bad, eh? And when have you ever seen gold drop down to nothing? Stocks may, but gold will never do that. Unless they find a machine that can make it…just kidding.
Ok, so that covers a few of the pros of investing in gold – what about the cons? That really depends on how you are investing, the vehicle. If you are buying strictly gold bars, the downside may be that you have to store it for a long period of time, in a safe place of course. Storing it in a bank safe deposit box will cost money, adding to your expenses. If you are purchasing stocks in a mining company, your returns (if any) are at the mercy not just of future gold prices but how well the company is managed. Futures and options hold risk as well, depending on what exchange you happen to be purchasing them from. If an exchange decides to raise the minimum amount you need to put down to purchase a futures contract, you may not have the cash to go through with it. This could also dissuade others from purchasing contracts, and if you are trying to sell yours, the cost could rise and take away from your profits.
Another risk, although you may think it is small, is the political risk. In some cases, such as when the U.S. decided to make gold ownership illegal in the 1930’s with the Gold Reserve Act, the price of gold could be made a fixed price. A more likely scenario would be a foreign government suddenly nationalizing an industry to take it over, such as happened in Venezuela when they took ownership of a Canadian gold mining company called Crystallex International, whose shares promptly fell. This isn’t a regular occurrence, however it pays to do your homework and be cautious.
Friday, March 5, 2010
Online Gold Trading and Investing - the Basics
Welcome to my blog! The purpose of this blog is to not only educate those who wish to make money in gold and precious metals, but also anyone that wishes to find a way to diversify their portfolios.
Investing can be a frustrating endeavor, and nobody wants to go into it without learning as much as possible, right? With that in mind, I want to cover as much as possible about investing in precious metals, not only how to do it but the different ways you can manage your risk.
Join me in this learning process, and feel free to leave comments whether you like what I'm writing about or totally disagree with me. Hopefully we will learn something together!
Investing can be a frustrating endeavor, and nobody wants to go into it without learning as much as possible, right? With that in mind, I want to cover as much as possible about investing in precious metals, not only how to do it but the different ways you can manage your risk.
Join me in this learning process, and feel free to leave comments whether you like what I'm writing about or totally disagree with me. Hopefully we will learn something together!
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