The first part of investing in gold will be understanding the price of gold and what effects the price of gold. The price of gold is set by a benchmark known as the London Gold Fixing, a twice-daily (telephone) meeting of representatives from five bullion-trading firms. Furthermore, there is active gold trading based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day.
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Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand, including hoarding and dis-hoarding. Unlike most other commodities, the hoarding and dis-hoarding play a much bigger role in affecting the price, because almost all the gold ever mined still exists and is potentially able to flood the market at the right price.
Given the huge quantity of above-ground hoarded gold, compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production. Investors mainly buy gold as a method of diversification, while others might buy gold for emotional reasons like fearing a depression or supporting a political ideal.
How to Invest in Gold
There are several avenues for investing in gold: gold coins, mining stock, Gold ETFs, certificates, gold accounts, and options or futures.
To start out with Gold Coins are, as many experts believe, the best way to start investing in this precious metal. First, because of the simplicity of the gold coins. Starting out you need not worry about the complexity of many other types of gold investing like ETF expense ratios, undue leverage, option timing or futures speculation. Instead, by starting out with gold coins, you’ll skip all the complex forms of gold investing and move straight into holding an ounce of gold in your hand.
May 18, 2010
