Decision to invest in Gold is made, this was the first big step. Or maybe not?
Many people get this day the idea to invest a part of their wealth in gold. Most likely because the grandparents told them so when it seems like a crisis appears on the horizon.
For example like the north-Koreans which shoot a missile over the territory of the Japanese.
The first step is done, or better the decision is made to invest a part of the wealth or a fix amount will be invested in the asset class of gold. Why do I call it an asset class?
Because I would define it as one by its own. Of course we could include it in the one of commodities or it is maybe more likely a currency? After the decision is made to invest a part in gold we get stock in the first question what is gold or more precisely which kind of asset class is it. Of course this matter is more a question which will keep your banker or portfolio manager busy. But let me loose a couple of lines on the answer of that. As in one of my sooner articles mentioned our system of currencies is somehow based in gold or is also based on gold. From this side of view it could be counted as currency. On the other side hole industry areas are working with gold or maintain require it for their products. Otherwise gold is a kind which values is dominated by two mature actors on the global markets, first the central bank and second are professional investors.
This mixture of a bit currency and commodity on the other side with the value depending investors gold should be defined as an own asset class.
Also the factors in the history which had a mature impact on the price of gold were mostly found during crises. The explanation is found in the reason that gold is seen as save heaven. This save heaven is explained in the fear that the paper-money-system could collapse and currencies will be changed. This works mostly because the fear of it is still present in the heads of each one of us, because the last crises which had the described as a result was after the second world war in Germany for example.
Both shows for a separate asset class instead to include the gold in the currencies or commodities.
Lets focus on the investment of gold as easy as it possibly sounds it cannot be. Simply some person says lets buy gold. Sounds simple but the first question which appears do you want to buy bars or coins. Or should be it better granules?
Do you want to invest in physical gold or you only want to participate on the value of it?
Okay if it should be physical gold, which size should have the bars and where do you want to store it?
As we can see we get stuck immediately after getting clarification of the asset class in which we are investing.
Best way would be to open the hole box. First it has to be answered if the investment should be in physical gold or just in the participation of the value.
Physical investments in gold will have all advantages and disadvantages of it. This option will suits best in the case of fear about the currency-system and the requirement of a protection against it. Back-up currency would describe it at this place best. I will be recommended in such case to have something which is tradable and you can hold in your own hands. Physical investments can be split out on real physicals as coins and investments with the right to exchange it into physical gold.
Forms of investments which are underlined by physical gold, such as for example exchanged traded commodities, I would classify as hybrids between physical and fictional.
Here it depends strongly on your motive of the investment. If you are searching for protection as mentioned the form of a hybrid would be only exactable if it has the right of exchange in physical gold in form of coins or bars.
If the hybrid does not have this right it will be categorised as a fictional.
Investing in physical can be also tricky in picking the right size of gold-bars or coins. Because the small sized once are mostly not economical for investment. The spread / difference between the buying price and the price for the sell is high. Sometimes up to 40.0 per cent.
As higher the weight as smaller are normally the spreads. On the other side will be a 1kg sized barre of gold difficult to split in the event of a currency-break-down. At this point it is again the question of the intention of your investment.
A diversified investment could be a well balanced solution.
Investing in the participation of the gold price is also in several forms possible. The gold-price which are traded / published through the exchanges are not investable. A tradable vehicle is required. Such one as the mentioned form of exchange traded commodities (ETC), bonds or derivatives. At this point we have to split also the securities in a group which relays on physical gold, like some ETCs, and in the second group which just participates on the gold-price, like derivatives.
As I described sooner there are hybrids which count legally as security but with the right to switch the amount invested in them in physical gold.
Other securities are mostly just there to participate on the price of gold and they do not have any rights to switch them into some. They are a cheap way, because the spread between buying and selling price is small, to follow just the price without the intention to have the physical gold. It also means that this kind of gold is more likely not usable for the reason of protecting you from a currency change or when the paper money goes down.
So if your investment will be made to invest and diversify your wealth and participate on the gold price, securities could be a possible vehicle for doing it. But please consider the special forms and risk which is going hand in hand with investments such as derivatives.
Of course a general recommendation is to understand in what you are investing, especially the construction of it. I agree sometimes it is not necessary to understand a vehicle until the last part of it, but sometimes the details are it that can cost you your investment also when the underlaying (target of your investment, here the gold-price) goes in direction which you thought it will.
Excursion: Stocks from gold mining companies
Yes, a typical topic which experts have a big disagreement in it. Are stocks from gold mines to find in the asset class of stocks or of gold?
The first idea is that the value of gold mining corporates are highly depending on the actually gold price. But in the same time the stock price depends also on the management, sector, political environment and how the market just goes.
Of course there is a correlation between the gold price and gold mining stocks, as well as it is one to find between the oil price and oil factories or between steel producer and the price of iron.
But on the other hand the oil prices does not react if one of the factories management makes a wrong decision.
Depending on that short excursion I would suspect the gold mining stocks in the asset class of the stock. Also from the legal aspect by buying a stock we invest in the capital of the company and by this we are a shareholder with a voice.
Conclusion
As an investment I would prefer the way of direct investments in gold and in a diversified way. Meaning to buy some bars in a bigger size, smaller coins and of course some granules. Securities I would more likely consider for investments which are short term and not with the intention of protection against a new currency.
Also when investing in the form of securities I would consider some which first of all I can understand and I know how the construction works. To make sure that now negative surprises turn out of it. As a standard quote should be something fine between 10 to 15 per cent of the assessable wealth.
Many people get this day the idea to invest a part of their wealth in gold. Most likely because the grandparents told them so when it seems like a crisis appears on the horizon.
For example like the north-Koreans which shoot a missile over the territory of the Japanese.
The first step is done, or better the decision is made to invest a part of the wealth or a fix amount will be invested in the asset class of gold. Why do I call it an asset class?
Because I would define it as one by its own. Of course we could include it in the one of commodities or it is maybe more likely a currency? After the decision is made to invest a part in gold we get stock in the first question what is gold or more precisely which kind of asset class is it. Of course this matter is more a question which will keep your banker or portfolio manager busy. But let me loose a couple of lines on the answer of that. As in one of my sooner articles mentioned our system of currencies is somehow based in gold or is also based on gold. From this side of view it could be counted as currency. On the other side hole industry areas are working with gold or maintain require it for their products. Otherwise gold is a kind which values is dominated by two mature actors on the global markets, first the central bank and second are professional investors.
This mixture of a bit currency and commodity on the other side with the value depending investors gold should be defined as an own asset class.
Also the factors in the history which had a mature impact on the price of gold were mostly found during crises. The explanation is found in the reason that gold is seen as save heaven. This save heaven is explained in the fear that the paper-money-system could collapse and currencies will be changed. This works mostly because the fear of it is still present in the heads of each one of us, because the last crises which had the described as a result was after the second world war in Germany for example.
Both shows for a separate asset class instead to include the gold in the currencies or commodities.
Lets focus on the investment of gold as easy as it possibly sounds it cannot be. Simply some person says lets buy gold. Sounds simple but the first question which appears do you want to buy bars or coins. Or should be it better granules?
Do you want to invest in physical gold or you only want to participate on the value of it?
Okay if it should be physical gold, which size should have the bars and where do you want to store it?
As we can see we get stuck immediately after getting clarification of the asset class in which we are investing.
Best way would be to open the hole box. First it has to be answered if the investment should be in physical gold or just in the participation of the value.
Physical investments in gold will have all advantages and disadvantages of it. This option will suits best in the case of fear about the currency-system and the requirement of a protection against it. Back-up currency would describe it at this place best. I will be recommended in such case to have something which is tradable and you can hold in your own hands. Physical investments can be split out on real physicals as coins and investments with the right to exchange it into physical gold.
Forms of investments which are underlined by physical gold, such as for example exchanged traded commodities, I would classify as hybrids between physical and fictional.
Here it depends strongly on your motive of the investment. If you are searching for protection as mentioned the form of a hybrid would be only exactable if it has the right of exchange in physical gold in form of coins or bars.
If the hybrid does not have this right it will be categorised as a fictional.
Investing in physical can be also tricky in picking the right size of gold-bars or coins. Because the small sized once are mostly not economical for investment. The spread / difference between the buying price and the price for the sell is high. Sometimes up to 40.0 per cent.
As higher the weight as smaller are normally the spreads. On the other side will be a 1kg sized barre of gold difficult to split in the event of a currency-break-down. At this point it is again the question of the intention of your investment.
A diversified investment could be a well balanced solution.
Investing in the participation of the gold price is also in several forms possible. The gold-price which are traded / published through the exchanges are not investable. A tradable vehicle is required. Such one as the mentioned form of exchange traded commodities (ETC), bonds or derivatives. At this point we have to split also the securities in a group which relays on physical gold, like some ETCs, and in the second group which just participates on the gold-price, like derivatives.
As I described sooner there are hybrids which count legally as security but with the right to switch the amount invested in them in physical gold.
Other securities are mostly just there to participate on the price of gold and they do not have any rights to switch them into some. They are a cheap way, because the spread between buying and selling price is small, to follow just the price without the intention to have the physical gold. It also means that this kind of gold is more likely not usable for the reason of protecting you from a currency change or when the paper money goes down.
So if your investment will be made to invest and diversify your wealth and participate on the gold price, securities could be a possible vehicle for doing it. But please consider the special forms and risk which is going hand in hand with investments such as derivatives.
Of course a general recommendation is to understand in what you are investing, especially the construction of it. I agree sometimes it is not necessary to understand a vehicle until the last part of it, but sometimes the details are it that can cost you your investment also when the underlaying (target of your investment, here the gold-price) goes in direction which you thought it will.
Excursion: Stocks from gold mining companies
Yes, a typical topic which experts have a big disagreement in it. Are stocks from gold mines to find in the asset class of stocks or of gold?
The first idea is that the value of gold mining corporates are highly depending on the actually gold price. But in the same time the stock price depends also on the management, sector, political environment and how the market just goes.
Of course there is a correlation between the gold price and gold mining stocks, as well as it is one to find between the oil price and oil factories or between steel producer and the price of iron.
But on the other hand the oil prices does not react if one of the factories management makes a wrong decision.
Depending on that short excursion I would suspect the gold mining stocks in the asset class of the stock. Also from the legal aspect by buying a stock we invest in the capital of the company and by this we are a shareholder with a voice.
Conclusion
As an investment I would prefer the way of direct investments in gold and in a diversified way. Meaning to buy some bars in a bigger size, smaller coins and of course some granules. Securities I would more likely consider for investments which are short term and not with the intention of protection against a new currency.
Also when investing in the form of securities I would consider some which first of all I can understand and I know how the construction works. To make sure that now negative surprises turn out of it. As a standard quote should be something fine between 10 to 15 per cent of the assessable wealth.
