If you’re thinking about buying gold as an investment, but don’t much care for the idea of storing gold bars in your home or renting a safety deposit box, you can buy gold stock to enjoy the benefits of gold investment without having to take physical possession of the commodity.
Investors have been flocking to gold over the past few years as its value continues to climb as the rest of the economy tanks. Gold has historically been a safe investment in times of economic turmoil and the present worldwide downturn is no exception. The price of gold per troy ounce has risen from just above $400 in 2006 to nearly $1,200 today.
While many investors decide to buy gold coins or gold bars, other investors may not want to have to bother with taking physical possession of their investment. For those investors, there are a number of “gold stock” trading options open to them.
For starters, investors can own a certificate of ownership. With a certificate of ownership, investors receive documentation that they own a certain amount of gold. The gold is held at another location by a third party who guarantees it’s presence. Investors can later sell the certificate to another buyer. Having the certificate removes the inconvenience.
Certificates of ownership for gold date from the 1600s when goldsmiths in Europe issued them to customers who kept deposits of gold in their shops. The certificates made commerce easier as it reduced problems with transporting gold and the risk of robbery. The U.S. government cracked down on the private ownership of gold during the Great Depression, but rules have become more lax in recent decades.
Many banks in Switzerland offer gold accounts, where investors can trade gold electronically. The actual gold is guaranteed and held by the banks. This allows gold to be bought and sold like stocks and bonds.
Another form of “gold stock” are the gold exchange-traded funds. The GETF allows investors to buy and sell gold for small commissions and storage fees charged by the GETF.
Shares in a GETF are traded investor to investor, or investors may sell shares back to the GETF which issued the shares. GETF shares are purchased not with cash, but with bundles of securities that closely resembles the GETF’s portfolio.
Gold is also traded on the derivatives market as futures and options. Investors can purchase a gold futures contract on the premise that it will either increase or decrease in value over a set period of time. If they bet correctly, investors will realize a profit. If they’re wrong, investors will lose money on the deal. Options allow futures traders to hedge their bets by paying a little more for the right, but not the obligation to take delivery of the underlying asset (in this case, gold).
The various options available for gold investors makes buying gold stock an attractive investment to folks looking for a good investment during the current economic troubles. The existence of GETFs and derivatives may appeal to investors more accustomed to dealing with those types of financial products.
