While there are a number of ways of investing in gold, the basics are to buy low and sell high. But how do you buy gold for investing, and how to know when gold is likely to go up or down?
Note: Investing in gold and silver involves risk and can result in loss, just like any form of investing. This article will high light the various options. But does not guarantee profit. The risks should be evaluated before proceeding.
Investing in Gold Bars or Gold Coins
In the past people had to go to collectors’ stores or banks to buy minted gold coins or gold bullion bars. These investment grade gold products are 99.9% gold and can be bought and sold if you know where to go.
The issue with buying a selling from collectors’ stores and banks is the margin or commission they take from each sale. There is usually a large difference in the price they will sell a gold product and the price they will buy it for. This is not good from an investment point of view as your investment must increase more to cover the gap between what you can buy and sell for. This is not what you want if trying to make money (for yourself…)
Now there are highly professional bullion gold coin and gold bar sellers on the internet which offer much smaller differences. They offer quite small margins in the prices they buy and sell for at a given market price for gold. This improves the ability to profit in any increase in the price of gold should you decide to sell.
These gold retailers will also offer services to securely store your gold, or you can have it delivered to you by certified transport so you can actually have your gold in your hands.
If they hold your gold you can sell it again much faster as they just debt it from your account with them. This is very popular for those looking to be a more active gold trader. However those looking to invest for the long term prefer to store their gold themselves using a home safe or a safety deposit box.
A 401k rollover account is a form of IRA (individual retirement account) where funds from a 401k can be transferred into a professionally managed account. These are enabled to invest in precious metals like gold and silver bullion. Gold 401k rollover accounts have positive tax advantages for investors, and it is all 100% legal!
You will not be given this option from a traditional financial advisor because it is very difficult for them to get commissions from customers who set up and invest in a 401k rollover account.
There are services online that will setup and manage a gold rollover account in line with legal requirements. They will also store the gold for you.
Buying Scrap Gold and Jewellery.
This method of making money from gold jewellery has an entire post here already.
Basically the spot price of gold has risen so much recently that the value of gold jewellery has likely risen much higher than when it was originally bought. People will often be willing to sell their old or unwanted items for a healthy percentage lower than the current gold price. These items can either be held long term, or sold at a price closer to the spot price with a gold refinery and pocket the difference. This can be made into a viable full time income once you have learned the ins and outs of buying and selling scrap gold.
Predicting the Movements of Gold and Silver Markets
There are two major factors effecting the floating price of gold
- The value of that currency on global markets
- Supply and demand of gold on global markets
As a currency fluctuates on the global market, the price that must be paid for gold will also fluctuate. Typically if a currency drops in value against other international currencies, more must be paid in that currency to buy gold, and visa-versa.
Predicting the movement of currency values is what Forex trading is all about. Most traders look to economic indicators that have a significant effect off different currencies. These can be found at Investing.com on their economic calendar where they track announcements and release of economic indicators.
The potential effect on the most relevant currency is indicated by the number of “bull heads” next to each item. The trend is that if a report comes out worse than expected (red) for highly influential economic factors, then the relevant currency will be negatively affected on global markets. This will result in gold increasing in price against that currency. The opposite usually happens if the economic information comes out better than predicted.
Global Gold Pricing
The demand for gold independent of any currency is also affected by global economic factors. Events that effect global economic sentiment can send gold up, or cause it to slide in value.
The uncertainty of the economic effects of Brexit resulted in gold climbing in value. Especially against the British Pound – which plummeted. Larger traders like hedge and retirement funds were worried that business instability would result in stock markets dropping. So they pulled money out of risky assets and placed it into Gold Bullion increasing the price of gold.
Also at the start of 2016 the Shanghai stock exchange experience large drops again, and again, despite the Chinese government trying to prop things up. Eventually this started to affect other stock markets, and gold climbed as a result.
Events such as 911, elections, and outbreaks of war, have also resulted in the price of gold going up. The Global Financial Crisis triggered by the US subprime mortgage collapse caused an unprecedented multiyear surge in the price of gold.
As you may expect, when world economies are thriving, and political environments are stable, gold prices start to slide again as gold investors start to move their investments back into markets that will generate more profit for them.
Reading the markets to profit from movements in gold prices can be a good method for sophisticated traders to profit when the stock markets are not strong. But just like the stock markets, if prices head the wrong way you can lose out with gold investing as well.