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The
reasons for investing in gold have remained much the
same throughout history. Gold is a safe haven in times
of economic and financial instability. It is a proven
asset-diversifier that, when included in domestic portfolios,
reduces the portfolio's overall risk. And gold is an
excellent hedge against inflation over the long term.
Gold is the only asset that is negatively correlated
against the price of the dollar.
Investment
in gold can take many forms. What follows is a summary
of the World Gold Council's Guide To Investing in
Gold outlining various investment vehicles, their
advantages, disadvantages and levels of risk.
| GOLD
BULLION BARS & COINS |
| International
refiners make it convenient for investors to own
bullion by offering gold bars in a variety of weights
and sizes ranging from 1 gram to the popular kilobar
(32.15 troy ounces) to the international "London
Good Delivery" bar (400 troy ounces).
Broker
commissions on buying and selling gold bars are
minimal, and in most cases, purchasing bullion
is the most cost efficient means of owning gold.
Bars bearing the "hallmark" of internationally
recognized refiners are the easiest to sell.
Buying
gold bullion coins is popular among medium and
small investors. Gold bullion coins are legal tender
of the country of issuance and their gold content
is guaranteed. The bullion coin bears a face value
that is largely symbolic, its true value depends
on its gold content and the day-to-day changing
price for gold plus a small premium of approximately
4 to 8 percent.
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| GOLD
STATEMENT ACCOUNTS
Gold
statements are obligations of the issuing institution,
usually a commercial bank, to deliver upon demand,
a stated quantity and fineness of gold in accordance
with the issuer's terms and conditions. An investment
in a statement account provides safe and convenient
storage and allows investors to buy gold in convenient
dollar amounts. Usually the gold held by statement
account holders is "pooled" with the gold of other
investors in a depository.
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| GOLD
ACCUMULATION PLANS
Gold
Accumulation Plans function as a savings vehicle
whereby customers invest a certain amount of money
at regular intervals, regardless of changes in
the gold price. Accumulation plans are offered
by selected banks, brokerage firms and precious
metals dealers. As in the case of the gold statement
account, an investment in gold in an accumulation
program is "pooled" with other investors.
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| GOLD
MINING SHARES |
Many
investors are familiar with the equity market and
are consequently more comfortable accessing the
gold market by way of buying stock in gold mining
firms. The capital appreciation potential of a gold
share is dependent not only on the future price
of gold, but also on the future prospects of the
company based on its management and operating strengths.
Mining shares offer capital appreciation opportunities,
as well as the opportunity to earn a dividend. Generally,
if the price of gold rises, so do earnings and dividends.
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| GOLD
OPTIONS
A
gold option provides an investor the right to
buy or sell gold at a fixed price at some specified
future date. The price of an option is called
the premium which is a means by which the buyer
compensates the seller for granting the option.
With options, the buyer's downside risk is strictly
limited to the cost of the option - i.e. the premium
plus any transaction costs. Gold futures options
are traded on recognized commodity exchanges.
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| MUTUAL
FUNDS
Many
mutual funds offer investment programs in gold.
With gold mutual funds, the investors is buying
general market risk instead of company-specific
risk. Mutual funds diversify their holdings among
dozens of companies. Some funds offer a broad
mix of international mining stocks, while others
invest in specific regions such as North America,
Australia or South Africa.
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