Trading in gold is a worthwhile investment. It can also be extremely difficult unless you have specialized knowledge and extensive experience in trading precious metals. Gold is regarded as a safe haven asset. The World Gold Council often produces reports that show gold outperforming all other equity, commodity, and bond indices. How then can you take advantage of this consistency?
Here are 4 tips when considering trading in gold.
- Don’t overbuy
Gold is a safe haven investment that will retain some value even when the market is not performing too well. Gold trading is mostly an insurance investment in the event that your other assets like bonds do not perform well. You should not buy gold expecting that its market will combust. You are advised to have gold as just 5% of your overall portfolio. Some of the more conservative experts advise that you maintain your gold trade at a level that does not exceed 3% of your portfolio.
If you’re looking to trade or invest in gold, understanding how to invest in gold effectively is essential to success. Some important tips to keep in mind include conducting thorough research on the gold market and the different investment options available, setting clear investment goals and strategies, diversifying your portfolio with a range of different assets, and working with a reputable gold dealer or broker who can provide guidance and support throughout the investment process.
- Invest using a gold exchange-traded fund
Gold exchange-traded funds (ETFs) are an easy and quick way of gaining exposure to the precious metals market. This fund is backed by physical gold where ETF securities and iShares can be bought and sold on a daily basis. This is a safe investment due to the physical gold backing, unlike other formats that depend on futures contracts. These funds are more of a short-term investment as they attract an annual management fee totaling 0.4% of your investment. If you would like to learn more about how to grow your investments, you can take a look at this portfolio comparison for ETF savings plans for further information.
- Ensure you hold actual physical gold
Knowing that you have actual physical gold in your name stored away in a vault by a specialist provider will give you peace of mind and security. This service is offered by providers like GoldCore and BullionVault.
The downside of holding physical gold is that there are high upfront costs involved when you decide to sell in addition to the fact that you cannot sell it quickly. Though most service providers do not charge an annual fee to store the gold for you, they will charge an initial fee totalling to 2% of the total value of the gold and an additional 1% when you decide to sell.
- Invest in gold miners
This helps you gain valuable knowledge on gold. Gold miners entail those companies that are involved in the extraction of precious metal from underground mines. The share prices of gold mining companies are a more promising investment compared to actual gold. Shares in gold trade at a better level compared to bullion prices. Volatility in gold mining companies’ shares is the source of their attractiveness. Trading in gold shares, however, is affected by broad sell-off equities, something that holding gold is meant to protect against.
Trading in gold is a way of safeguarding some of your investment against the volatility of trading in other indices. You should be wary, however, not to temper your expectations as returns from gold trading are lower compared to other trades.
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