How to invest in gold

Gold is one of the most valuable and desirable substances known to man. For many years it has been a status symbol as well as a form of currency since the days before money. It is also the most popular material for making jewellery, with roughly half of all gold being used in this way.

Gold prices

For many years, the price of gold was a relative standard for currencies around the world. This started to change in the 1970s when the value of the US dollar stopped being linked to the price of gold and ended in 2000 when the Swiss Franc was the last currency to remove the link.

Like all commodities, it is possible to treat gold as a short-term and long-term investment. Over hours, days or weeks, the fluctuation in the price of gold on an exchange allows traders to buy and sell for (hopefully) a profit. With luck or skill, a gold trader can buy some gold at a low price, sell it at a higher price and buy more when the price drops. Repeating the process allows an investor to make a lot of money, but if it goes wrong they could make a loss on each trade.

During the recent financial crisis many people turned to gold as an alternative way of saving. Most experts recommend gold as a rainy day investment, like an insurance policy that should be kept until you absolutely need to sell.

Gold coins/ bullion

One way to invest in gold is to buy gold bullion coins. These cost slightly more than the spot price of gold, but are easier to buy, trade and store than larger pieces. Typical sizes include 1/10oz, 1/4oz, 1/2oz and 1oz. The governments of the UK, USA, Canada, China and most other major world powers mint these coins, so they are very reputable.

Mining stocks or close-ended funds

Apart from investing in physical gold itself, one can also invest in the mining companies that are involved in gold production.  There are also certain funds that invest in various mining stocks.  One of these close-ended funds is Gamco Global Gold & Natural Resources Trust which pays out a monthly dividend.

Storing gold

Many major banks will store gold for customers, as will specialised gold exchanges and trading houses. You can even walk in to some banks and hand over your money in exchange for a gold ingot. Once you have carried this heavy bar home, you need somewhere secure to store it. If you do not have anywhere secure enough then most banks will have a vault that you can use for a fee.

Every major bank and most of the governments in the world store gold. Since the start of the economic woes in 2007, the world's central banks have become net buyers of gold.

This desire for gold and its scarcity and it being difficult to obtain means that it should continue to keep its value, but like anything the price of gold is not immune to market fluctuations and could even crash.

By Financial Freedom, a Singapore personal finance blog whose founder is a contributor to CPF's IMSavvy. Posted via www.MoneyMatters.sg, your guide on how to make more money, save smarter, invest intelligently, and enjoy your money like a pro. Click here to get our free report on what you must know about financial freedom.

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