Of all the precious metals, gold has been the most preferred as an investment over time. Investors usually purchase gold as a means of diversification in terms of risk, particularly through the use of gold derivatives and future contracts. As with other markets, the gold market is susceptible to extreme volatility and speculation. This has caused many investors to diversify their investments by choosing other metals such as silver, platinum, oil, commodities and others. Gold remains the best option when you want to have a stable investment that provides excellent returns.
Investing in gold investments can be done through gold mutual funds, gold mining stocks, gold mines, gold ETFs and gold coins. The latter are the more risky forms of gold investments, as they are less stable than exchanges. Gold mining stocks are those traded in the stock markets through major mining companies. Gold mining etfs are gold derivatives that allow for the purchase or sale of a specific quantity of gold. Gold mutual funds are registered investment funds, managed by professional financial advisors. In addition to providing regular dividends, gold mutual funds can be used as instruments of inflation.
Gold brokerage accounts, also known as foreign exchange or forex accounts, are considered among the safest forms of gold investments. Brokerage accounts give you a flexible option of trading in several financial markets across the globe. You are allowed to trade in major stock markets, the commodities market, the bond market and the index market. The advantage of trading in a brokerage account is that you get after-tax returns, which are calculated based on the price per share multiplied by the total number of shares outstanding. Gold brokerage accounts usually have lower commissions and charges.
Gold IRA allows you to invest in securities that are qualified by the IRS for mutual funds. In this case, you will be taxed on the gains, but your after-tax profits will be tax-deferred. Another form of gold IRA is the individual retirement account, or Individual Retirement Account. The main benefits of IRAs are that they are tax-deferred, so there is no need to pay taxes when you invest; the income is treated like a regular income for retirement purposes; and you are able to make additional investments after tax years ending with the account holder. Withdrawals from an IRA are not taxed either, although most brokers and banks charge fees for withdrawals.
Another common form of gold investments is in precious metal futures contracts. Futures contracts involve an agreement between the buyer and the seller to buy or sell a specific quantity of a particular asset, at a fixed price in the future. Gold futures contracts can be purchased from online financial institutions. Most investors use futures contracts for buying gold bars, bullion coins and numismatic coins. When investing in precious metal futures contracts, the investor should be aware of the commissions, minimum transactions costs and insurance charges involved.
Spot contracts are another type of gold futures investment. A spot contract is simply an agreement to sell or buy a spot of a certain asset at a pre-determined price within a set period of time. Gold futures contracts are similar to options. Investors who buy spot contracts usually have the right to sell the asset at a pre-determined price within a set period of time. Unlike options, however, spot contracts are more complex and are not as popular among individual gold buyers.
One type of gold investment that is popular among many is gold bullion and gold investment portfolios. If an investor has funds available to invest in gold products, he can buy them and place them in a gold investment portfolio. Most investors usually purchase this type of gold product through banks, brokerages and financial institutions. Banks offer the highest return on investment, as they do not require physical possession of the gold item. Brokerages and financial institutions also offer higher returns but require monthly transactions, maintenance and record keeping. Most gold products are purchased as part of larger portfolios and are therefore not sold directly to investors.
Although gold futures prices may fluctuate between the time of purchase and the time of sale, they generally rise and fall in line with the value of the dollar. Some investors use gold futures to speculate on the price of gold itself. When the speculation is done properly, the profits are quite significant. Whether an individual buys gold bullion or watches a gold investment fund, there is potential for a large profit.
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