The gold investment is one of best wisely investments. There are too many fresh investors take part in the gold market without any investigation, which almost lead to purchasing the inappropriate gold product. However, the inappropriate gold product could cost thousands of dollars in the long term. Thus, choose a right gold product is really important for a investor. In that way, as a freshman the first is to acquaint the types of gold investment products and their characteristic.
Generally, physical gold is a part of most people's investment portfolio. Physical gold could be invested in the form of gold jewelry, gold coins or gold bullion. The advantage of physical gold: investor has the direct ownership, and keeps value. The disadvantage is: privately stored gold is with low liquidity, the costs are high which including delivery and processing fees. Relative to gold coins and gold jewelry, gold bullion is more preferable to invest, because of its lower costs and high liquidity.
Vaulted gold represents gold bullion, it is stored in professional bank vaults. The investor also acquires the vaulted gold ownership, but doesn't hold the gold in his own hands. Commonly, the vaulted gold pays lower costs and provides a high liquidity.
Gold backed securities are one of gold investment ways which indirectly invest gold. It combines the benefits of physical gold bullion with the liquidity of the traditional securities market. Usually, the gold of securities can be redeemed, but the redemption fee is relatively high to prevent gold trading frequency. Gold exchange-traded funds (ETFs) are an investment fund traded on stock exchanges, much like stocks. Different from the stock ETF, gold ETF is a financial derivative product tracking the spot gold price.
Advantage of gold backed securities is: first, the dealing spreads are comparatively lower than physical gold (such as gold jewelry, coins and small bars), commonly they are 0.5%; second, removed from the gold custodial fees, storage fees and insurance costs, only need pay a management fee of about 0.4%; at last, with high liquidity, it is convenient to trade. Disadvantages of gold backed securities: investor does not have gold ownership; some stock exchanges impose extra charges on each trading.
Gold mining stocks do not directly invest in gold but in gold mining companies. Compare with other gold investments, it is more speculative. Gold mining stocks carry risks, thus, as the investors would like to invest gold mining stocks should think again. This investment way need the investors have a broader risk tolerance, and can accept the possibility of gold-based losses in exchange for the potential for triple-digit gains.
Gold mutual funds are another way to invest in gold. It's suitable for those investors who would like to invest in physical gold, but still desire some exposure to the precious metal. However, be careful of high annual charges that may plus hidden charges, and analyze the offering prospectus prudentially.
Gold options and futures are the gold investment derivatives which are short term speculation on the future gold prices. The markets are more complex and trading in speculation but not in physical gold. Thus, those ways of investments are suitable for more experienced and sophisticated investors. To buy options is risky, more investors lose than win. The prominent advantage is that the investor can control a large investment with a small, and limited, amount of money. The disadvantage is that options expire within a fixed period of time. Gold options and futures may bring a large fortune; it also may be lost all in an instant.