All about: Gold investments

This article gives a snapshot of the international trade in gold that has seen tremendous growth in recent times as the world struggles to overcome the effects of the global economic crisis.

Basic trade methods

The global economic turmoil has taken a toll on international and local equity and foreign exchange markets, causing a flight to safe investments in gold. This is evidence of a waning risk appetite as investors seek to protect their assets. As a result, commodities in general and gold in particular have become the investment vehicles of choice with the price of the latter seeing an unprecedented rise over the last three years. The main reason why gold options attract investors in times of economic upheavals is that trade in it involves transacting in real, tangible assets rather than perceptions, as is the case when dealing with equities. Today, there are several options for those investing as outlined below. Firstly, there are gold mining stocks linked to firms that mine gold. This method involves investing in shares traded in the equities market. The technique is quite accessible to ordinary investors but is quite risky because the equities market is subject to perceptions rather than the actual performance of gold in the real world. Secondly, there are exchange traded funds (ETFs), traded in a manner similar to mutual funds on equity exchanges. This method is stable because traders link each ETF to actual tangible gold owned by institutions and is convenient for investors who have small funds.

Institutional options

Thirdly, there are gold investment accounts designed for investors who want to avoid the inconvenience of dealing in the physical commodity. Account holders can make sales and purchases of gold held in their accounts without physically transferring anything. Fourthly, there are gold certificates similar to those used in equities that target moderate to small investors. They are a representation of tangible gold held by a government or an institution and can readily stand in for the actual physical metal. Fifthly, bullion coins such as the Krugerrand, the Gold Eagle, the Gold Buffalo and the Gold Maple Leaf are popular in this segment; they are best suited for investors who have moderate amounts of capital. Lastly, gold bars are the primary mode of investment in this metal, but popular among institutional investors. Investors who have substantial capital and understand their country’s financial regulations well, are the ones best suited to trade in gold bars. A more recent method that accommodates online trade is the dematerialised account (demat) for individual investors. This option is currently available in a few countries around the world and allows the flexibility in other investment areas such as foreign exchange.