Wednesday, December 01, 2010

All That Glitters IS Gold

All That Glitters IS Gold
Guest Article

With the recent turn of events in the global economy since late 2008, a number of investors who have relied on stock trading to make their fortunes have now turned to the precious metals market as a hedge against inflation and to help secure their financial portfolios. Investors have long been aware of the fact that gold and silver can be excellent investment vehicles, especially when stock trading markets become as unstable and volatile as they have in the past couple of years.

How Gold and Silver has Reached an All-time High Value in Recent Years

In the past couple of years since the U.S. stock market suffered during the 4th quarter of 2008, the price of both gold and silver has increased dramatically. The performance of gold and silver as investment vehicles can often be compared to stock trading because of their fundamental differences. However, to understand the effect of how investing in precious metals affects the stock markets, you have to understand how a stock market crash affects the price of the metals. Typically, the fears that are generated by a major market decline affect the price of gold and silver in a positive fashion.

You have to remember that the price of gold and silver is driven by supply and demand as well as pure speculation like most stock trading commodities. Conversely, and unlike other commodities, the disposal or hoarding of precious metals plays more of a significant role in how the price decreases or increases than what the actual consumption of them does. Most of the mined gold that is still available is found in the form of either bullion or jewellery.

By the end of 2004, about 19% of the world’s global reserves of gold were being held by the central banks and other official organisations. Additionally, there are other factors that come into play where the price of gold and silver are concerned. In the past, political tensions and the trade deficit have devalued certain currencies, especially the U.S. dollar. When this happens, people will shift their investments to precious metals to give them an advantage over what the economy and the stock markets are doing.

Gold Investment Options

Where gold and silver are concerned, there are a number of investment vehicles that an individual can consider. The primary ones are bars, coins and ETF’s or Exchange Traded Funds. The most traditional form of purchasing gold is in the form of bars. These are easily purchased at the major banks and typically carry a lower premium than gold coins, hence their popularity. On the other hand, gold coins are the most common way of owning gold.

These are priced according to what is referred to as their “fine” weight. They are influenced by supply and demand factors as well. Gold ETF’s are investment products that are traded much like stocks but with considerably less investment risk attached to them. ETF shares can be sold by the investor to other investors or the investor can sell the shares or units back to the ETF.

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