Where Did Gold Come From?
According to the National Mining Association, people used gold as an ornament thousands of years ago. The ancient civilizations such as the Sumerians, Egyptians, Babylonians, and Greeks started to use gold as a decorative piece and jewelry. However, it was the Egyptians who started to mint gold and use it as a form of currency in the form of “Shekels”.
People deemed gold as an attractive metal because of its luster and malleability. Its properties as a metal allowed progressive societies to use it as a medium of exchange. This form of barter or trade continued for centuries and gold became a standard medium of exchange.
How Gold Influenced Today’s Currency
A milestone in gold trading was passed in 1792 when the United States Congress legislated The Coinage Act of 1792. This law clearly defined the gold to Dollar ratio which was equivalent to 1USD:24.75 grains of fine gold. The Coinage Act of 1972 also defines the silver to Dollar ratio which was equivalent to 1USD:371.5 grains of fine silver.
This law gave way to a broader market for gold and further increased its potential for investment. This law also implied that gold was more valuable than silver, making it the most desired metal during the 16th century and gold continued to hold this status until modern times.
Can I Still Invest in Gold?
Yes, modern investors who take interest can still invest in gold. Today, gold may not be used as a main currency, but it can be a profitable form of investment. Gold can be a viable investment as its value appreciates over time. It can also be used as an emergency fund because data shows that gold prices tend to rise up in times of crisis.
Gold attracts many investors for various reasons. Gold generates high returns, sometimes higher than stocks and bonds. However, it has a different mechanism with the stock market and gold prices may go down if the stock market prices are high. Gold is also a highly liquid asset which means that gold is readily convertible to cash.
As mentioned above, gold has also a different mechanism with the stock market making an additional gold investment less risky for the investor. Gold diversifies your investment portfolio and makes it more stable, especially at times when the world economy is down.
How Can I Invest in Gold?
There are many ways in which you can invest in gold. Like any other investment, it comes in physical and non-physical forms too.
Bullion refers to physical gold that is of high karat. It comes in the form of bars, ingots, or coins. It is also held by banks and investors as reserves to hedge their investments against inflation.
The Central Bank holds approximately 20% of mined gold worldwide. The Central Bank then lends gold to bullion banks to generate profit. Bullion are traded in the bullion market which is an open market. Most transactions happen online or electronically. The price of bullion is influenced by the demand from gold. Economic perception also has a big role in the price of billions as gold investments are more in demand when the economy is unstable.
One can buy bullion through a dealer. One can also buy it using an allocated account at a bank, which holds the bullion for the client. Most bullion banks are members of the London Bullion Market Association (LBMA) these banks include: Bank of Nova Scotia (BNS), UBS Switzerland AG, Citibank, JPMorgan Chase & Co., Morgan Stanley, Royal Bank of Canada (RBC), Merrill Lynch, Goldman Sachs, Bank of Montreal (BMO), BNP Paribas, HSBC or the Hong Kong and Shanghai Banking Corporation, and Standard Chartered Bank.
Gold Coins and Jewelry
One can buy gold coins from dealers and pawn shops. One can also purchase through local collectors or through vintage shops that sell gold. Although there’s no guarantee for the gold’s authenticity.
Some investors also like to buy gold from jewelry shops as it can serve as an ornament while having it as an investment piece. Gold in whatever form increases value over time that is why some newbie investors choose to start from buying small pieces of gold
Exchange-Traded Funds and Mutual Funds
ETFs are types of funds that can hold either stocks or bonds or any type of securities. Investing in ETFs allows investors to own assets related to gold. Although ETFs and mutual funds are non-physical assets, it allows investors to earn using a little amount of money. One can buy and sell ETF funds similar to equities. Investors receive gold or silver certificates instead of the physical bullion. Interested investors can check the top ETFs for gold online.
Futures contract is a formal agreement bind by law in which both parties agree with an exchange of goods for an agreed price. It involves the pre-selling of gold in which the investor contracts the seller to buy a bullion or a piece of gold.
Futures are legal contracts that specify the quantity and amount of the underlying asset and are subject to trade on a futures exchange. The buyer claims the responsibility of buying the underlying asset while the seller claims the responsibility of delivering the asset on the said time.
An investor needs to register in an online brokerage account for futures in order to start trading. Once the investor has a brokerage account, he/she can already start trading and buying futures.
Why Should I Invest in Gold?
Gold is an appreciating asset. That means that its value goes up as time goes by. The rate at which it increases value depends on the current demand and economic perception. Gold in the form of physical assets are also easily tradable and liquid. The demand for gold is always high and investors are always willing to buy gold. It is also easily tradable as you can have dealers and buyers from different countries. However, like any other investments gold also carries risks and experts in the industry recommend not investing more than 10% of your portfolio in gold.