13 Ways To Invest In Gold And Their Pros and Cons. [part 2]

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edited February 2016 in About Gold

Continue from: 13 Ways To Invest In Gold And Their Pros and Cons. [part 1]

7) Gold Accumulation Plans (GAP)

GAPs are a type of saving plan which allows individuals access to incremental saving in the form of gold. This allows individuals access to small sized gold investing without the associated premiums. Each month a specific amount of money is deposited by the investor which in turn is used to buy gold in the account. Over time this amount builds up and can be cashed out for physical coin/bar delivery, jewelry, or even money if one wishes. Another advantage of gold accumulation plans is the diversification benefits it offers that most traditional savings plans are left without.

Pros:
+Small incremental gold investing without premiums
+Buying over a long period ensures an average cost that shields the investor from buying at the peak of a bubble
Cons:
-Slow & steady investment style could result in missing opportunities of buying more on dips in the gold price

8) Gold Bullion Pensions

Similar in mentality are gold based pensions, which are becoming more popular and widespread in an age of stagnant financial markets. Citizens in the UK can invest in gold through Sipps (Self-Invested Personal Pensions) and Americans can do the same through Gold IRA investment opportunities (Individual Retirements Account). These type of gold pension investments have the advantage of tax reliefs but certain rules do apply, such as the gold generally not being allowed to be in your possession. Therefore ETFs, allocated accounts, and e-gold would all qualify.

Pros:
+Tax free gold (for US citizens)
Cons:
-Needs to be arranged by yourself

9) Gold Mining Stocks

So far the gold investment types mentioned have more or less revolved around gold itself. Gold mining shares take a different approach for investors optimistic about the prospects of gold. If gold prices go up, then the ‘producers’ of gold will naturally benefit as well. Gold stocks generally have higher risk than gold itself because even if gold prices do go up, other things could go wrong related to the mining operation, management of the company, general stock market movement, as well as unforeseeable risks like nationalization of mines.

Investing in gold mining can be highly profitable however as they have been undervalued recently and those who are well operated can rise faster than gold does (up to 2 or 3 times higher gains). There is also the added benefit of investing in a company however as dividends can be gained (which gold itself does not) and a human element is present giving investors more control than investing in the same homogeneous commodity as everyone else.

Gold mining majors are the established companies who already have established operations and are actively digging gold out of the ground. Junior mining companies are the riskiest of the bunch with the most upside, because essentially they are prospecting and looking for areas which could contain gold and such discoveries, when they are found, can lead to huge profits.

Pros:
+Can outperform gold in good times
+Dividends
+Diversification to other forms of gold investing
Cons:
-Management and operational factors could result in decoupling (move in opposite direction) from gold price
-Risk of nationalization

10) Options, Futures, Forwards

Gold futures and options are probably the best way to make money if you know what you are doing. This realm of investing is reserved to experienced and often large size investors in the form of institutions or banks. Gold buyers, sellers, and speculators all partake in this market – the first two with hopes of locking in prices through contracts with made at future dates and hedging their costs in this way (miners and gold fabricators like jewelers). Others on the other hand speculate and try to make money from gold price movements and being able to anticipate the direction better than others. The main opportunity for speculative investors here is that leverage can be used (money can be borrowed to invest) – thereby amplifying any gain (or loss) made. Often in this market no gold actually trades hands as contracts are resolved monetarily before expiration.

Gold forward contracts are similar to gold future contracts except that each contract is custom negotiated specifically by the two parties in question, and it is done in the over-the-counter market (OTC) which is off the exchange markets. Gold warrants are another form of options but are issued by private organizations and not necessarily exchange traded. It should be reminded that options, futures, forwards are extremely risky and should only be conducted by advanced investors.

Pros:
+Potential for exponential gains
+Can speculate future prices at fraction of cost of underlying asset
Cons:
-Highly risky
-Physical gold often isn’t in the equation and paper gold contracts don’t guarantee gold ownership

11) Jewelry Investing

One of the best ways to invest in gold in India is in the form of jewelry. Gold buying traditions run strong in the country and jewelry especially is in high demand. Gold Jewelry in India trades at a low premium over spot prices, which gives it a distinct advantage over other countries where the creation costs can be significant – and therefore makes gold jewelry a fine form of investment. Other advantages of gold jewellery as an investment include the fact that you can give it as a gift if necessary (and this is always useful in Indian culture), it shows material wealth openly, and is easily transportable.

Pros:
+Flexible uses
Cons:
-Higher cost than bullion, especially in western markets
-Unlikely to get equal value when trying to sell due to person preferences

12) Numismatic Coins

Certain types of gold investors like to own historic or rare gold coins, these are called numismatic coins or semi numismatic coins. They often trade at much higher prices than the value of gold inside them and are attractive to collectors. Selling or buying gold coins on eBay of this type is certainly an investment technique worth exploring for those interested in it.

Pros:
+Can be acquired for cheap from uninformed sellers
+Holds additional worth beside its gold worth
+Pre-1933 coins are immune to government confiscation risks in the US
Cons:
-Illiquid and imperfect market, resulting in possible losses if one wishes to sell even during times of static gold prices.
-Requires extensive knowledge.

13) Scrap Gold

Investing in scrap gold is an alternative route, often for smaller investors who can trade in their time and expertise to make modest profits. Using services like eBay, Craigslist, or directly asking friends and relatives around them, it is possible to buy gold plated items or broken gold jewelry at a discount to what they are actually worth. Gold refineries or cash-for-gold shops can pay you their value in gold near spot prices if negotiated properly.

Pros
+Possibility of making money without gold prices going up
+Low risk
Cons
-High effort
-Hard to assay the amount of gold in the item

Summary of Gold Investment Types



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