For investors looking for a way to buy into the gold rush without having to purchase physical gold, gold mutual funds may be the answer they’re looking for.
A mutual fund is a pool of money paid by individual investors that is used by a fund manager to purchase a variety of bonds and stocks. Each investor in the fund owns shares representative of part of the fund’s total holdings. The funds are managed by an investment professional that buys and sells stocks and bonds as needed to protect and expand the fund.
Gold mutual funds are funds that invest in companies involved in the mining, processing or distribution of gold. By investing in several companies, the funds reduce risk by diversification. However, gold mutual funds tend to be more volatile than owning physical gold, and the price of these funds swings up and down a lot quicker than the price of gold.
Investors make profits from their mutual fund investments via stock dividends and interest on bonds the fund purchases. They also make money whenever the fund manager sells a stock or bond for a profit. Investors can cash out of the fund by selling their portion of the fund.
Like gold stocks, gold mutual funds are considered by investment professionals to be leveraged plays on gold. The funds are considered leveraged plays because the companies related to the fund – gold mining and processing companies – have set costs and increases and decreases in the price of gold can dramatically impact the profit margins of the companies.
Recently, gold mutual funds have performed very well because of the increasing price of gold. Gold has been climbing in price over the past few years as the overall economy has tanked. Investors have a long history of turning to gold as a safe harbor investment when times are tough, and the current economic slowdown has proven no exception to this rule.
Recently, gold prices hit $1,300 per share. Many analysts feel that gold still has a lot of room for growth, and could eventually hit more than $2,000 per share, even if the economy improves because of the inevitable inflation a recovery will create. For holders of gold investments, the current situation may be a rare “no-lose” scenario.
For investors who believe that gold will continue to climb in value, a gold mutual fund is a good choice. Investors interested in investing in a gold mutual fund should check out Morningstar. Morningstar is a well-regarded investment research service. By using information presented there, investors should be able to find a fund that’s right for their individual investment needs.
