Gold Trading Across Global Markets
Gold, often perceived as an ancient metal with little relevance in modern society, is proving its worth and experiencing a surge in value. This begs the question: How can one obtain gold in today’s world?
Gold is actively traded in various markets worldwide, establishing current market prices around the clock. Among these markets, London and New York hold particular significance.
The London market, one of the oldest and largest for physical gold, has been setting the price of gold since September 12, 1919, through “the London gold fix.” This price serves as the basis for contract arrangements globally. The gold fixings occur at 10:30 am and 3 pm, providing official pricing used by producers, consumers, and central banks.
The New York market opens as the second London fix takes place, and gold continues to trade throughout the day. Notably, the New York market is recognized for its volume of “paper gold transactions,” such as futures contracts, traded on exchanges. Other important gold markets exist in Zurich, Tokyo, Sydney, Hong Kong, and elsewhere, ensuring that gold is traded somewhere worldwide 24 hours a day.
Diverse Investment Vehicles for Gold
Investing in gold offers numerous avenues, each with its own advantages, disadvantages, and risk levels. Here’s a summary of various investment options:
Gold Bullion Bars & Coins: Gold bars are available in different weights and sizes, and owning physical bullion is a cost-efficient means of possessing gold due to low broker commissions. It’s crucial to obtain gold from internationally recognized refiners to facilitate ease of selling.
Gold bullion coins, another popular option, allow individuals to physically own gold. These coins, issued by countries, carry a guaranteed gold content. The face value of the coin is unrelated to its actual worth, which depends on the gold content and prevailing market price. Bullion coins are minted in affordable weights, such as 1/20, 1/10, 1/4, 1/2, and one ounce, and can be easily bought and sold worldwide.
Gold Statement Accounts: Gold statement accounts represent an institution’s obligation to deliver a specific quantity and fineness of gold upon demand. These accounts offer safe storage and enable investors to buy gold in convenient dollar amounts.
Allocated accounts function like safety deposit boxes, where specific bars assigned to individual investors are identified by hallmark, weight, and fineness. Investors pay for storage and insurance. Unallocated accounts resemble foreign exchange accounts, where investors do not have specific bars assigned unless they opt for gold delivery. While unallocated accounts don’t incur storage and insurance charges, they expose investors to the creditworthiness of the bank or dealer offering the service.
Gold Accumulation Plans (GAPs): Gold Accumulation Plans resemble conventional savings plans, but with a unique twist: a fixed amount is invested in gold each month. These plans are set up similarly to savings accounts, with automatic monthly withdrawals from the investor’s bank account.
GAPs allow investors to buy gold every trading day, adjusting the quantity based on the prevailing price. At any time during the contract term or upon closing the account, investors can obtain their gold in the form of bullion bars, coins, or even jewelry, or opt to sell it for cash.
Gold Options: Gold options provide the right to buy or sell gold at a fixed price on a specified future date. While it’s uncommon for investors to take physical delivery of the gold, these contracts allow margin trading, where only a fraction of the contract’s value must be paid upfront. This leverage makes futures contracts highly sensitive to gold price fluctuations.
Futures contracts are traded on regulated commodity exchanges, such as the New York Mercantile Exchange Comex Division and the Tokyo Commodity Exchange. Gold options give holders the right (but not the obligation) to buy (call option) or sell (put option) a specified quantity of gold at a predetermined price by an agreed-upon date. The cost of an option depends on factors such as the current spot price of gold, the strike price, interest rates, volatility, and the remaining time until the agreed-upon date.
Mutual Funds: Several mutual funds and investment trusts specialize in investing in the shares of gold mining companies. The appreciation potential of these shares depends on market expectations of the future price of gold, mining costs, potential discoveries, and other factors. Gold mining equities tend to be three to four times as volatile as the gold price. They carry similar risks to other equities but also have industry-specific risks associated with mining operations.
Gold mutual funds offer diversification as they hold shares in multiple companies. Some funds focus on international mining stocks, while others concentrate on specific regions like North America, Australia, or South Africa.
Diversify and Seek Professional Advice
When incorporating gold into your portfolio, consider the aforementioned investment options. However, it’s crucial to discuss your specific circumstances and goals with a broker or financial advisor. They can guide you on the most suitable approach for your needs.
Regardless of the path you choose, remember the importance of diversification. Investing in gold can provide stability and serve as a hedge against inflation and economic uncertainties. By diversifying your investments, you can manage risk and potentially benefit from the rising value of gold in today’s society.
Article Source: Adapted from http://EzineArticles.com/475616
