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How to Buy Gold-based Financial Instruments?

January 17th, 2018 | by Ankit
How to Buy Gold-based Financial Instruments?
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People have been investing in the gold for thousands of years; the gold represents wealth and status, therefore, buying it will provide you a good option for saving. The other good thing about the gold is it increases its value after a period that is why it is considered as the best choice for investment.  But the time has changed now, and there are many more choices and options available for you, since investing in gold have some drawbacks such as its security concerns and storage issues as well as a significant problem is its authenticity. You might have bought and invested in gold but you need an authentic place and seller who can assure you that your bullion is original.

Therefore gold based financial instruments are the solution to all your problems and it doesn’t require any security, storage place as well as you don’t need to worry about the authenticity of the bullion.

Exchange Traded Funds (ETFs)

It is one of the best and safest options in investing in gold, ETFs are much similar to the mutual funds. The ETFs are operated by the fund manager where gold is bought on the commodities market. The ETF is invested through the stock exchange market which makes it an easy option for the investor especially the new ones to make alternative investments when they are buying the ETFs for the very first time.

The other best feature of the ETFs are its liquidity is quite high and therefore selling is very easy, all you need to do is call your broker and sell it. The process and values of the ETFs also fluctuate with the increasing and decreasing prices of gold, but the good thing about it is the difference is not much when compared to the commodities and goods since the profits of ETFs have expenses of funds managers as well.

Investing in Gold mining companies Stocks:

The other good option in investing in the gold-based financial instrument is investing your money in the mining company stock. The mining companies offer similar convenient trading and high liquidity like the ETFs. The other useful feature of investing in the gold mining companies that they provide you added security with the shares such as the owners of the stock will get the annual dividend even if the prices of gold drops in the international market.

But, unlike the ETFs, the stocks of the gold mining companies are much more volatile which means that the fluctuation of prices of gold affects the stocks more. When the commodity prices drop the stock value also decreases with the significant percentage and when the gold rate increases it booms the shares too.

Also, not every gold mining company follows the commodity prices since as being an individual business in mining they have their targets, success, and failures which do not depend on the gold price. In other words, if the company goes in loss or profit without the fluctuation in the prices of gold. The annual dividend is different for each company since they have different profits or loss even when the prices of gold remain same.

Buying Gold Futures and Options:

If you are not willing to buy the gold or ETFs as well as the stocks of the mining companies, the trading in the commodity market is a good option for you. Buying the gold futures and options is another financial instrument related to gold.

Capital.com is also launching their first desktop trading platform. Know more about this here.

Futures: the futures are an agreement binding that a person or company will buy the gold at a specific time in future at a particular price at the time of the agreement.

Options: the options are a nonbinding right which is set a date and prices and right to buy the gold.

In both cases of options and futures, the fluctuation in the price of gold will cause the increase or decrease in their values from a similar percentage. The option and futures are entirely risking and for those people who are investing for the first time can be tricky sometimes as it requires complete knowledge and observation on the gold prices. But as much as risk involves in these two, the potential reward is also high and pays off when the right trading is done.

The disadvantage in the options and futures are they require a more significant sum of investments initially than the other investments also both needs a specialized knowledge and expertise in the related field. Both of the options and futures are less liquid, and the investors who are willing to risk their investments can trade them in the international and national exchanges as well.

Buying in the allocated gold accounts:

There are many bullion banks and gold dealers which offers their customer a gold account which works with the gold deposits similarly like the currency accounts. In this account, the bank or dealer buys the gold on its customer’s behalf depending on their needs in ounces or grams. Then this gold is electronically book and transferred to the customer’s account.

There are many options for you to invest in gold based financial instruments but you need to know the details and have knowledge of who things work. Anyone can invest in gold base financial investments, but you must know which one is right for you and better option regarding risk, returns, and long-term profits. You can also seek advice from a financial advisor who can guide you better.

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