The 4 Simplest Ways To Invest In Gold Today

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2 The 4 Simplest Ways To Invest In Gold Today You ve finally found it! Possibly the most useful investment vehicle at your fingertips. I m talking about Gold! There are tons of reasons why investors and traders pour their money into this popular commodity. It s a great risk management tool. Gold can protect your portfolio against inflation, against a financial collapse and even against the devaluation of a currency! Gold can protect you against macroeconomic and geopolitical risks, not to mention it can give your portfolio a helping hand during times of global uncertainty or crisis! If you ask me gold is a must-have! But how do you invest in gold, where do you even begin? Let me show you the 4 easiest ways you can become a gold investor today! 2

3 Gold Investing Everything You Need To Know! Throughout history, perhaps no other asset in the world has had the universal appeal of gold. It has its uses, as you ve read above, and believe it or not it s pretty easy to start investing in gold today. In fact, there are a number of ways to add gold to your portfolio. But here are the 4 easiest ways to do so. Grabbing Gold #1: The Hard Stuff Buying gold coins and bars is one way to go. Gold coins tend to be front of mind when most investors think about owning precious metals. Heck, you may even own a Kruger Rand or two yourself! But the best part about gold coins is that it comes in different weights, and this means building up a substantial gold holding over the years is not difficult and you can do so according to your budget. Most gold coins come with different gold content, and as such they mainly fall into two categories: Four nines/24 carat gold (the equivalent of 99.99% gold); 22 carat gold (the equivalent of 91.66% gold). One mistake to avoid when investing in gold coins is to steer clear of collectors coins. The problem is that you end up paying a premium for them, one which makes the coin itself more expensive than the gold contents worth. So which coins should you look at? Here are 3 you can consider. SA s Favorite: The Kruger Rand Did you know there are over 44 million Kruger Rands in circulation? There are active markets for them in Berlin, London and even New York. South Africa first minted the Kruger Rand back in 1967 and it was actually the first pioneer in the concept of Gold Coins! 3

4 A Kruger Rand weighs about 1.09 ounces, contains one ounce of gold, and its gold purity is 91.67% (22 carat gold). The best part about the Kruger Rand is that it s pretty easy to compare its worth with the spot price of gold because of its weight. The Loony Leaf Another gold coin you can consider is the Canadian originated Maple Leaf. It was first minted in Canada in 1979, weighs 1 ounce and has a face value of C$50. There are smaller versions available at 0.5, 0.24 and 0.1 ounces. Mexican Magic The Mexican Centenario is the third choice you have investing in gold coins. It was first minted in Mexico in 1921 to mark the centenary of the foundation of Mexico in It has a 9/10th gold content and has a face value of 50 Mexican pesos. The one drawback however is that it s not very liquid outside of Mexico. The second way to hold physical gold is through gold bars. They come in a number of different weights, so much like gold coins you can buy bars that suit your budget! One thing you need to keep in mind is that if you buy larger gold bars you need to keep security of them top of mind. Just because you re becoming a gold investor doesn t mean you can forget where you live. Keep your gold safe. So what makes physical gold a good investment? Simply put, it offers you diversification. Portfolio analysis has indicated that adding gold to your portfolio is a good way to diversify risk. This is because its price tends to move in the opposite direction to shares and bonds and is totally independent of the factors such as company profits or a company s creditworthiness (which could influence shares and bonds). 4

5 Gold is also extremely liquid. So if you need to, you could convert it to cash very easily in a matter of hours. Grabbing Gold #2: The Easiest Way To Invest In Gold Some investors and traders get put off by having to hold physical gold to achieve the benefit of doing so. That s why if you want to get the benefits of buying physical gold, but aren t keen on looking after it yourself, then possibly the easiest way to invest in gold is through ETFs. ETFs also provide a seriously cost effective way to invest in physical gold. That s why I m a big fan of Gold ETFs. They give you an easy, cost effective way to get physical exposure to gold and are a great option for conservative investors. One of the most popular, and my favorites, is the ABSA NewGold ETF. This ETF simply replicates the price of gold in rand. It s also pretty liquid, meaning you can sell or buy it fairly easily. That s why I think this ETF is perfect for building a long-term holding of gold. The ETF is backed entirely by physical gold as well, and it all lies in a vault in London, and each ETF equates to around 1/100th ounces of gold. So unlike many ETFs on the market it actually has a physical backing! The thing is, quite a few commodity ETFs are backed by paper notes, and these assure you that the ETF issuer will give you whatever the commodity is should you want it. With ABSA s NewGold ETF in a vault in London, it means its 100% safe. (Bar any Fast & The Furious type heists of course!) This gives the ETF a number of reasons you should put your money into it: You don t have to worry about storage with the bullion lying safely in a vault in London If you hold enough of the ETF, and have the necessary permits, you can redeem your ETFs for actual gold Compared to buying other forms of gold, the spread is less. For example, the spread on gold coins and bullion is much larger for the retail gold investor. The bottom line is if you re looking for the easiest way to invest in gold, this ETF is worth keeping your investment-eye on. 5

6 Grabbing Gold #3: The Classic Route Another way to avoid investing directly into gold is through gold stocks. When the price of gold starts to rise, shares in gold miners tend to do the same. But one thing you need to keep in mind is that these shares are volatile, and in recent times quite a few of these businesses are battling to stay afloat due to higher costs and with the gold price trading low after a few years There are different types of gold stocks you can consider. The most important thing you have to keep in mind though is that these stocks come with leverage if you so choose and their fair share of volatility. Gold stocks tend to fall into 4 categories: Major Gold Producers In order to be classified as a major gold producer a gold miner needs to produce at least 1 million ounces of gold per year. Intermediate Gold Producers These producers have an output in-between the region of 200,000 and 1 million ounces per year. They re seen as they next step down from Majors. When it comes to intermediate producers you want to find companies that mine in geopolitically stable regions and have room for growth. These businesses also tend to run a number of mines. Junior Gold Producers These producers have an output less than 200,000 ounces per year. When it comes to junior producers you want to find existing operations or new projects that give these companies room for growth in production. You ll also find that these producers tend to own just one mine. Junior Gold Explorers Easily the most volatile gold stocks to invest in. Which is why you need to watch the volume when it comes to this type of stock. 6

7 Some companies may already have assets in the ground whilst others purely explore and are still looking for the yellow metal. Companies like these may have plans to become producers once they discover new sources. You can also invest in individual gold stocks that you think are primed for growth. But remember that this increases your company-specific risk. Another way to limit the risk of investing in gold producers is to put your money into a fund that invests in a number of different gold miners, to give you some diversification. This gives you a broader range of stocks and reduces your risk slightly, but keep in mind it s still high. There are also a number of unit trusts on the market that invest in gold stocks and other mining companies. But again you need to remember that you re shouldering a lot of risk by investing in the sector whilst you can also expect your fair share of volatility along the way. Investing in gold stocks has its advantages but it s also risky. The performance of gold stocks is down to more than just the gold price you see If you re comfortable taking on a higher level of risk, then gold stocks could reward you immensely, but it might be a somewhat bumpy ride! Grabbing Gold #4: Leverage Your Gold Profits With This Instrument You can trade gold using futures. More specifically precious metal futures contracts. When you put on a futures trade you enter a legal obligation that commits the delivery of the commodity (in this case gold) in the future at a set price. However, by trading them through the JSE the contracts are settled in rands. Futures contracts on precious metals come with a standard time and place of delivery, the amount of the commodity and the quality. The only varying factor is the price of the contract. 7

8 When you trade precious metals futures contracts on the JSE, it trades through COMEX, the Commodity Exchange on the New York Mercantile Exchange (NYMEX). So how do you trade these futures contracts? You need to open an account with a broker that offers commodity derivative trading. Bear in mind you trade on margin, meaning you only put down a small amount of the cost of the product. This means your gains as well as your losses are magnified. Apart from the price movements, some traders even use these futures for hedging a physical position. This works as the price of a futures contract correlates to the spot price of the underlying metal, meaning you can offset a loss in one with a gain in another. For instance, if you want to invest in physical gold but haven t done so yet, you could buy a futures contract on gold. If the gold price falls, you ll lose money on the contract, but you can still buy physical gold at a cheaper price. But if the gold price rises, you can use the profit towards buying physical gold at a higher price. If you re considering futures you need to understand what you re getting into. Because your positions are leveraged and your outcomes are magnified, trading futures is probably only best for the short term. Especially as metals like gold can be volatile. Another thing to keep in mind is that futures contracts also have quarterly expiry dates, so if you want to stay in a trade, you ll have to roll over into the next futures quarter, which comes at a cost. 8

9 Bonus Gold Tip: The One Ratio That Can Tell You How Much Gold You Should Hold In Your Portfolio It s said that the general rule of thumb is you should hold between 5% and 10% of your portfolio in gold. But is this really the right amount? Calculating the best amount of gold to hold can be tricky, let alone how much gold to hold is right for you. That s why you should look to own R1 of gold for every R10 you have in bonds. Think of it as a ratio of 1:10 in gold and bonds. This is possibly the best way to hedge your risk in the financial markets. Let s say you have R550,000 in bonds. Using the ratio, this means you should hold R55,000 in gold. This could be from any one of the various methods outlined above. Once you ve calculated how much you should own you need to rebalance your portfolio every year. If your gold holdings have risen above the ratio, you can sell enough to bring it back into the correct weighting. If your holdings have fallen below the ratio you can buy more gold or put more money into bonds to maintain the ratio.

10 PLEASE NOTE: The Money Lab is a research house and not a registered financial services provider. We provide investment ideas, but do not give personal investment advice. Before investing please seek professional advice from your stockbroker or financial adviser.