Buying Gold for Investment

Thanks to the instability of the global financial system and the growing distrust in paper money, investing in gold has never been more popular. Gold lasts forever, and will always hold its purchasing power. Analysts have calculated that the amount of gold needed to purchase a loaf of bread has remained pretty much unchanged since the reign of the Babylonian King Nebuchadnezzar! Not many paper currencies offer this kind of security.

Obviously there are downsides to investing in gold. The gold you buy online could get lost or stolen. It should also be regarded as a store of wealth, rather than an income earning investment. Unlike a share in a company or cash in a bank account, gold you've bought does not pay you a dividend and unlike a property investment you receive no rent friom your gold.

There are various ways of investing or buying gold. Some people like the security of being able to physically touch their gold. It is easy to buy physical gold online. Obviously gold jewellery is one way to invest in physical gold. It is also possible to buy small gold bars online. As well as gold bars, gold coins are always popular. When buying physical gold online, be wary of buying an item that is too far above the current spot price of gold. Needless to say you should always buy from a reputable dealer such as Monex or Amazon.

By the way, if you have lots of gold at home then you might want to invest in a household safe!

Obviously, even with a household safe, there is a danger associated with storing such valuable investments in the home. Buying small gold bars and coins can also be expensive as they are often priced at a high premium over the current spot price of gold as published by Bloomberg and other financial industry commentators.

Exchange Traded Funds (ETFs) are popular investment funds that invest in a wide range of shares, commodities and other items. Exchange Traded Funds are traded on stock markets like shares, and unlike unit trusts it is possible to trade in and out of them much more quickly.

ETFS Securities offers a wide range of gold investment ETFs to buy online, all of which are listed on the London Stock Exchange (similar ETFs are available in other countries). Care should be taken when buying a gold ETF offered by ETFS Securities, as there are a large different number of different gold ETFs on offer. These ETFs can be either paper based, or physical metal based. Paper based gold ETFs are derivatives, and they track the gold price rather than being a share in a gold bar. By comparison the physical gold ETFs actually invest in gold bars, so each share of the physical gold ETFs directly relates to a piece of a gold bar held in a bank vault. Most of the ETFS Securities gold is held in HSBCs bank vaults in the USA. If a USA based bank vault is not secure enough for your gold, then ETFS Securities also offers a physical gold ETF that store its gold in Swiss bank vaults!

To further complicate matters it is possible to buy gold ETFs priced in different currencies. When investing in gold, it is important to bear in mind that ultimately the gold price is heavily dependent upon the value of the currency is priced in. Due to currency fluctuations the price of gold in US dollars, pound sterling and Euros can change significantly as demand for these currencies changes on the global foreign currency exchange markets.

Feeling particularly bullish about gold? The leveraged gold ETF (stock ticker symbol LBUL) tracks the gold price by a multiple of two. This means that if the gold price goes up 3%, the leveraged gold ETF price will rise by 6%. Of course the reserse is also true - a 3% gold price fall will result in LBUL falling by 6% in value.

Is the gold price in a bubble? For investors who think the gold price is in a bubble, ETFS Securities offers an ETF that increases in value as the spot price of gold decreaes. This ETF is called ETFS Short Gold, and has the London Stock Exchange ticker symbol of SBUL. Obviously if the gold price soars then this ETF can theoretically fall in value to zero, but the advantage of ETFs compared to spread betting is that it is only possible to lose your initial investment, and not more than your initial investment as is the case with spread betting on the gold price.

As well as buying gold, then shares in gold mining companies are also popular. Note that the shares in mining companies do not always directly track the gold price. Investing in smaller mining companies can also be extremely risky, although there is always the chance of a new mine striking it lucky and sending the share price soaring!

Since investing in the shares of individual companies can be risky, it is also possible to invest in diversified mutual funds. Some UK based unit trusts that invest in gold as a theme are the BlackRock Gold & General fund, the Investec GSF Global Gold fund and the BlackRock World Gold fund. These funds mainly invest in shares of gold mining companies, although they may also invest in mining companies involved with other precious metals such as silver, palladium and platinum. Major precious metal companies include Fresnillo, Randgold Resources and Goldcorp. Gold and other precious metals are mined throughout the world but significant deposits are found in Canada, South Africa and China. As well as investing in companies, these gold investment unit trusts may also directly invest in the gold and other precious metal exchange traded commodity funds such as ETFS Physical Gold.

All three of these gold themed investment unit trusts may be bought within a standard funds supermarket account as well as a stocks and shares ISA or self-invested personal pension (SIPP). The funds have high initial charges of up to 5% although this fee is often refunded by discount brokers or fund supermarkets. The unit trusts also have comparatively high annual charges compared to the gold investment ETFs.

Finally it's also possible to open a gold investment account online - this is a nice way to buy gold online.

The author of this article is not authorised by the UK authorities to give financial advice. This article does not consitute financial advice. The value of investments described in this article may rise and fall and you may not get back your initial investment. Before making investment decisions consult an independent financial adviser.