Top 4 Gold Investment Strategies

Gold is a hugely popular investment for many finance-minded people.

Several hedge fund managers have publicly espoused their endorsement of this precious metal, especially since the 2008 economic crisis and subsequent recession.

It is non-corrosive and carries a weight and prestige, unlike any other asset.

With a remarkably constant price over the last 100 years, it is also gaining popularity thanks to the disillusionment of many investors with the Fed’s toing and froing.

If, like them, you are looking to use it to expand your portfolio, read on for the ways in which you can do so.

Physical Ownership

This can be done in the form of bullion, coins, or jewelry.

Bullion is gold before it has been coined or melted down into other shapes.

Having the physical item gives a security unparalleled by any other form of investment.

In any event, even a financial crash, the item cannot be taken from you.

That is unless your house is burgled.

But we can’t prevent that.

Even in other forms, it still mirrors the market price.

Gold brokers don’t mind what form it is in, be it a necklace, chain, ring or what have you.

Gold is gold if it is up to scratch.

On the flip side, you often have to pay a premium to obtain and store gold as well as insurance costs.

And since it is classed as a collectible, it comes under this tax burden.

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An Exchange Traded Fund or ETF

This is a form of indirect ownership that allows investors to obtain gold exposure easily.

There are many different ETFs to choose from.

One of them is SPDR Gold Shares, which allows investors to own shares in its gold bullion-holding trust.

Or, you could invest in an ETF that holds stocks in a basket (a set of) gold mining companies.

These are like the previous in that they allow a low-cost substitute for physically owning gold, but they do carry certain risks.

The main concern people have with this form of gold ownership is the one they have with any other investment inequities or intangible goods (as in buying a stake in something that produces gold rather than the gold itself).

These carry a basic risk, just as any investment in a company carries a basic risk: the security of the deposits that are backed by the shares, the performance of the company in question, the economy in which the company is located (a basket could have companies all over the world and in some unstable political climates).

Gold Mutuals

Gold mutual funds are for those who are comfortable and familiar with mutual fund investing, and in these, you can invest in the stocks of companies whose primary (but not necessarily only) revenue is gold mining.

One of these is the FSAGX, or Fidelity Select Gold Portfolio, which has a mixed bag of exploration, development, production, and marketing of gold.

Part of it is dedicated to holding gold bullion.

Again, these carry the same risk as equity investments; it could increase or decrease depending on outside forces.

Compared to ETFs, mutual funds have lower liquidity, as their shares can only be redeemed at the price of closing, the end-of-day price, and also very often carry high expense ratios when compared to ETFs.

Here is a list of 16 notable ETFs.

Futures

A gold futures contract essentially offers a very highly leveraged investment.

There could be $5k in margin money (money borrowed to make the investment) that will give the buyer the right to a futures contract in a set amount of gold.

There is an ability to make profits far beyond the original investment.

But you could just as easily lose more than the original investment, and these are quite volatile and advised against unless one is an experienced and capable investor.

Final Word

One individual positively sick of the Fed’s policy over the last ten months is Stanley Druckenmiller, who is the former chairman of the Duquesne Capital hedge fund.

He is bearish on the stock market and bullish on gold, which is reasonable in the light of Brexit, the British electorate’s decision to leave the EU.

He sees the Fed as having no long term plan and merely trying to prevent short term disaster.

Prescient as always, Druckenmiller predicted equity markets being elevated to higher levels thanks to increased Central Bank activity in 2013.

Since then it has changed, with quantitative easing reaching its limit.

Using gold as a hedge investment in this light is advised by David Einhorn, Greenlight Capital’s President.

Like Druckenmiller, he believes QE has gone on too long, and it will only have negative effects on the economy.

He uses an analogy of QE ending up being a session of gorging on biscuits and cream when a cup of tea would have done in the first place.