Investing in Gold
Gold can be useful in balancing a portfolio. In the range of five percent or less, it can add a sense of counterbalancing particularly when the world or regional events cause public concern. It has properties that reflect economic conditions such as the strength of the dollar( generally gold goes opposite the dollar’s strength) and world conditions like trade balances, news, and events. Many experts call for five to fifteen percent of portfolio assets in gold.
Gold comes in bars and is called bullion; it also comes as collectible coins and legal tender coins. Owning physical gold is a way for many people to feel a certain form of financial security; they feel that gold will nearly always translate into wealth and value. The tip on bullion is to keep it rather than sell it. If purchased as a hedge against some future events, then one should treat it as an insurance policy and keep it rather than sell it. The spot and contract commodity markets set the daily price of gold bullion. Those who wish to buy and sell coins and bullion for profit exceed the tip or idea recommended here of limited exposure to gold for balance.
Gold Backed Funds and Stocks
Gold-backed ETFs are an excellent way to invest in gold, like the SPDR Gold Trust (NYSEMKT: GLD). These daily traded funds represent the commodity but trade like a stock. They track the price of gold. The other approach is to buy stocks of companies engaged n the gold business such as mining and discovery companies like AngloGold Ashanti (NYSE: AU) or Goldcorp (NYSE: GG). As examples, these companies illustrates the internal volatility of gold mining. AngloGold Ashanti is in South Africa, and it has experienced events that affected its value, a long bitter labor dispute tied to national politics. Goldcorp mines metals other than gold. The commodity swings of other metals adds to the volatility of gold mine stocks unless hedged by the issuer. Hedged gold stocks reduce the upward growth potential since it has already been taken by announcing the future (hedged) contract terms.
Gold is Highly Volatile
Those who wish to invest beyond the five to fifteen percent of portfolio range should do so with an awareness of the wide swings that gold prices can take. It is subject to sudden and sometimes unexplained rises and falls. Whether in bars, collectible coins, or legal tender coins, one should be prepared to work for long periods of lower than desired prices.
Tax Treatment of Gold
Gold bullion and coins can add a factor to tax time. The IRS rule on gold bars makes them collectibles and the capital gains rate is 28 percent as opposed to the treatment of other commodities at a maximum of 15 percent. This rule applies to the gold backed ETFs too.