Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to fall. Although the price of gold may be volatile in the short term, it has always maintained its value over the long term. The point here is that gold isn't always a good investment. The best time to invest in almost any asset is when there is negative sentiment and the asset is cheap, providing substantial upward potential when it returns to favor, as stated above.
Buying gold may make sense for some investors, but it might not be something you want to rush into. Take the time to consider your options, and if you want to invest in gold, you can find out how that fits with your overall investment strategy. In addition to gold bars, investors can choose to purchase gold jewelry or any other physical gold product. This means that the value of mutual funds and ETFs in gold may not fully match the market price of gold and that these investments may not perform as well as physical gold.
Investors can invest in gold through exchange-traded funds (ETFs), buy shares of gold miners and associated companies, and purchase a physical product. In some cases, investing in gold literally means buying gold coins or ingots, although that's not necessarily the most liquid, safest, or easiest way to invest. Depending on your preferences and ability to assume risk, you can choose to invest in physical gold, gold stocks, gold ETFs and mutual funds or speculative futures and options contracts. Gold mutual funds, such as the Franklin Templeton Gold and Precious Metals Fund, are actively managed by professional investors.
Investing in gold ETFs and mutual funds can expose you to the long-term stability of gold while offering more liquidity than physical gold and more diversification than individual gold stocks. Possession of physical gold entails storage problems, insurance and other costly fees, and gold mining companies can be a speculative investment. Since you don't own gold when you use a gold derivative, it may be a more effective opportunity for short-term trading than for long-term investing. Other investors may want to diversify their portfolios by buying a gold ETF, for example, that is backed by physical gold, but that doesn't require investors to store gold ingots themselves.
Alternatives to investing in gold include buying shares in gold mining companies or gold exchange-traded funds (ETFs). A relatively small increase in the price of gold can generate significant gains in the best gold stocks, and owners of gold stocks tend to earn a much higher return on investment (ROI) than owners of physical gold. This means that investing in individual gold companies entails risks similar to those of investing in any other stock. Investing in the shares of companies that extract, refine and trade gold is a much simpler proposition than buying physical gold.