Many investors are keen on the precious metals market. So many seem to be looking to buy gold - a time-tested, safe-haven asset - especially as COVID-19 continues to mesmerize the markets with volatile swings. The 2008 global financial crisis was a tsunami that collapsed several huge financial institutions. However, it led to introspection, with many investors deciding to take greater control of their financial future. It appears, though, that the coronavirus has succeeded in upping the ante. Bullion-buying is a new investment hotspot, with notable nuances that investors need to consider before buying gold.
Many investors without the requisite experience are seeking ways to hedge their investments against financial turmoil. It's not really simple, but this article will clarify a few things about investing in gold and using CFDs to trade the market without actually buying the gold.
Gold investments: what financial experts think
Paper currency is the modern economy's money of choice. Throughout history, gold has remained a reputable store of value. There was indeed a gold monetary standard until the US Dollar (USD) became the de facto international currency. But gold is making a comeback, and interested persons want a huge slice of the action. Despite the positives around this resurgence, some people believe that gold no longer commands the value it did a short period ago.
Rich Elliot, chief executive of the gold supplier, My Gold, said an unexpected number of kiwis have been learning how to invest in gold since the coronavirus showed up to disrupt the life we once knew and loved dearly. Mr. Elliot says market volatility has reinforced his belief in gold's stability. Plus, with interest rates reaching record lows, people continue to be wary of the real estate market. He says people turn to gold because of its pedigree as a safe haven. More notably, Elliot says the present demand for gold far outweighs its supply. It’s a similar situation for its precious shiny cousin, silver. The pandemic has helped increase its value by more than 60 percent.
Gold isn’t just stuff for jewellery. It’s an asset with unique intrinsic qualities that make it a portfolio necessity for the modern investor.
Caveat for investors
Regardless of your circumstances, the golden rule of investing is to diversify. The gold market is safer than many other asset classes, but it’s not entirely fail-safe. If the market goes bust, you’ll be putting yourself at serious risk.
However, if gold forms part of a diversified portfolio, it may work as a hedge against volatile currencies. So, how can a New Zealand investor add gold to their portfolio?
Gold is old: it’s one of the world’s earliest forms of currency. As a result, there are many ways to hold gold investments in New Zealand. As an investor, it’s essential to decide why you want to own gold. There are two possibilities here:
- for return potential
- for portfolio diversification
Here are some ways to begin.
How to get started investing in gold?
- Gold Bullion
- Gold CFDs
- Gold Coins
- Gold Companies
- Gold ETFs
- Gold Futures
- Gold Jewelry
- Gold Mutual Funds
Before trading gold CFDs, an investor must weigh the factors that influence the price of gold. These include central bank policy, financial and political instability, supply and demand, and the US dollar.
Buy physical gold
Gold in bulk form (bars, coins, and ingots) is known as bullion. Online and on-premise gold dealers are two places a gold investor may buy their gold stock from. Expect extra costs such as insurance, transportation, and storage, however. Gold and other precious metals trade at a premium to the market price, making gold more expensive to buy as demand can fuel this discount.
It's also possible to buy gold from a bullion brokerage, which moves the gold to a vault. If you own an allocated account, bars or coins are your own through identifying hallmarks and numbers. The gold remains yours even if the company overseeing it – the custodian – encounters problems.
It’s also possible, through unallocated accounts, to sell a set quantity of gold stored in a vault, even when you don’t own identifiable bars. This gold may be lent out. You’re to pay for neither insurance nor storage, significantly bringing down the cost to the investor. However, if the company encounters problems, you'll be a creditor, and it might become impossible to recover your investment. Two New Zealand companies offer bullion accounts:
- NZ Mint allows investors to open an allocated gold account.
- NZ Gold Merchants allows investors to open allocated and unallocated accounts.
Physical gold coins and bars are the most traditional ways to own gold. It’s easy and liquid to buy the asset in one place and sell it in another. Banks are among the common places to buy physical gold assets.
Paper gold or gold-related stocks
A second option is to invest in companies that mine gold, produce gold, and other associated companies. Investing in gold mining companies means you’ll benefit as profits tend to rise along with their share price. The rising demand pushes the price of gold higher. It’s essential to research companies before investing in gold stocks. Crucial parameters include:
- the pedigree of the management team
- a company’s previous market performance
- the quantity of its gold reserves
- whether it is merely exploring for gold or actively producing it
Note that gold stocks and gold-related stocks may not be immune from stock market swings. They may thrive in a bull rally, and by the same measure, dip with pullbacks.
Gold etf and exchange-traded commodities
Investors can also get on the gold train by investing in exchange-traded funds (ETFs) and exchange-traded commodities (ETCs). These vehicles enable investors to track the underlying price of gold without being required to hold the asset physically. Gold ETF options are now popular for people who only want to play the gold price.
Alternative vehicles like gold-backed forex trades and cryptocurrencies provide yet another way to buy into gold. You’ll need some advanced investing chops to explore these, though.
In order to trade various financial markets, many traders resort to CFDs or Contracts For Differences. They eliminate the need to simultaneously hold accounts several brokers. HFTrading offers gold CFDs, for instance. It means you don’t need to hold gold, but you get exposure to the market from the platform with excellent spreads and educational materials.
In addition, higher-tier accounts on the platform (Gold and Platinum) offer great leverage, swap discounts, news alerts, free VPS, and a dedicated account manager.
What moves the price of gold?
As with almost any asset, the price of gold is an aggregate of supply, demand, and investors' behavior. Inflation and fear don’t exactly influence gold prices. Gold has a positive price elasticity: the price goes up as more people buy the commodity (leading to a greater demand). It means that it’s only as investors buy more gold, regardless of the economy or monetary policy, that the price of gold rises.
Central banks nudge the gold price needle the farthest. Large foreign exchange reserves mean central banks tend to reduce their gold holdings because gold generates no return. But demand is also low at such times, so the price of gold falls. Other factors include the value of the US Dollar and the desire to use gold to hedge against inflation.
Should you invest in gold today?
One way to explore if gold is a worthy investment is to measure its performance against the S&P 500 over the past ten years. Gold has lagged in the 10-year period ending January 26, 2018. The S&P GSCI index generated 3.27% compared to the S&P 500, which returned 10.36% over the same period.
However, gold did much better in the ten years spanning November 2002 to October 2012. The total price appreciation was 441.5% or a princely 18.4% annually. The S&P 500 only appreciated 58% over this period, a whopping seven hundred and sixty-one percent (761%).
One needs to consider the returns along with other important factors (such as overall negative sentiment) to invest in gold. Knowlegdeable traders will often consider the price of an asset and whether it provides a substantial upside potential when things become favorable. A bullish outlook might suggest high potential returns down the road. But, if prices sit at multi-year highs, it automatically means that there are significant entry costs.
It's good for every investor to have some gold in their portfolio. According to a CNBC report, many financial advisors recommend 1 – 5% of your overall portfolio . Some, like Bridgewater Associates’ Ray Dalio, advocate as much as 15 % for gold ETFs. In any portfolio, a small proportion is usually significant. So, the question isn’t really when to buy, but how much to buy.
Is gold an investment option?
Gold is like any other investment, with unique benefits and downsides. You can buy shares in a gold-producing or gold-mining company if you’re not comfortable holding physical gold. On the other hand, physical gold (bars, bullion, coins, or jewelry) is for you if you want to use it as a hedge against inflation. You can set off to gold-based prosperity using this path. Finally, you can use gold to leverage profit from rising gold prices through the futures market. It’s advisable to learn how to deal with the risk of any leveraged products. However, gold remains an investment option.
Tips to be mindful of to invest in gold and silver
An investor needs to be sure that their investment is safe no matter what happens. Here are a few helpful tips for investors considering adding gold to their portfolio:
- Always remember your investment objective. It’s crucial to maintain short-term and long-term objectives to guide you in making appropriate investment decisions and ensure you stick with your plan. It’s advisable not to let the temptation of daily market swings make you abandon your otherwise viable strategy.
- In contrast to a business where things could go wrong, and shareholders lose everything, bullion is an imperishable investment. An ounce of gold is always the same, no matter the scale or measure. Riskier investments offering quick returns in a short period cause people to ultimately lose out.
- It’s difficult to tell the outcome of any investment with absolute certainty. Gold prices have risen in recent years, and the tendency is to expect the trend to continue. However, how an investor interprets the economic markets and their intentions for investing ultimately determine if they should invest.
- Keep your commitment manageable, only investing as much as you can bear to lose. Investing smaller amounts in building up a position over the long term. Dollar-cost averaging can help you ensure not to commit at any one price.
- Buying gold is only one part of the investment equation. Gold is a US-denominated commodity, so you need to be aware of the associated currency risk. If an investor is holding gold, they essentially have a long US Dollar exposure. The relationship between the US Dollar (USD) and the NZ Dollar (NZD) is crucial in calculating your investment value. That's why it's advisable to learn how to eliminate currency risk.
- Remember that he who makes the gold makes the rules. There's only one market in gold. It's easy to own paper certificates of gold that have lost significant value. The 2008 Global Financial Crisis taught investors to stay wary of counterpart risk.
- As a gold investor, buy and sell through a reputable dealer. However, buying directly from a refiner may offer peace of mind and a better price.
- It's advisable to hold 10-15% of your investment portfolio in precious metals. It broadens the extent of diversification and protects your portfolio from fluctuations in the value of any asset.
- Buying physical gold means you need to think about insurance, storage, and transportation issues. However, small coins or ingots such as sovereigns and Krugerrands are easy to move around because they are portable and easy to store. They are a physical asset that can provide comfort during times of uncertainty.
- Gold is a long-term investment and a store of tangible wealth. There's no point fretting over the day to day movements of the metal.
Gold is a highly valuable commodity and gold investments in New Zealand are on the rise. The brilliant metal is also used as a currency. As a small percentage of your portfolio, it’s excellent for diversification and as a hedge against inflation. However, gold rises and falls like any other commodity. It also doesn't earn any interest and could cost you money for insurance and storage.
Those who speculate on gold prices are likely to pay a tax when they sell, but they won’t if it’s a holding investment. To learn more about how to invest in gold in New Zealand, you can find plenty more information on HFTrading.com. Our products help you to trade gold derivatives to diversify your investment portfolio. You may begin by trading CFDs, and you can hop over to our website right away to learn everything you can about investing in this timeless commodity.
FAQ: how to trade gold in 2021
How much to invest in gold? Investors are often eager to invest some fraction of their net worth in gold. However, it’s worthwhile to also consider what percentage of your net worth is in other asset classes. It’s important because if one asset dips in value, you need a corresponding rise in another asset to break even.
Where can i trade gold in new zealand? There are several places you can trade gold in New Zealand. You can buy through online dealers (even on eBay). Some New Zealand companies that can help you trade gold include: New Zealand Mint, NZ Gold Merchants LTD, My Gold