Although the price of gold may be volatile in the short term, it has always maintained its value over the long term. Over the years, it has served as a hedge against inflation and erosion of major currencies and is therefore an investment worth considering. The point here is that gold is not always a good investment. The best time to invest in almost any asset is when there is negative sentiment and the asset is cheap, which provides substantial upside potential when it returns to favor, as stated above.
Of all the forms of investing in gold, the riskiest is trading futures or options contracts, a form of speculative investment. Futures and options are derivatives, meaning that their value is based entirely on the price of an underlying asset. Many supporters of gold suggest that it is a good hedge against rising prices. However, the facts do not support this statement.
Gold is usually a better protection against a financial crisis than a protection against inflation. In times of crisis, gold prices tend to rise. However, this is not necessarily the case during periods of high inflation. If there is a financial crisis or recession on the horizon, it would be wise to buy gold.
However, if the economy is in a period of high inflation, it would be wise to approve. Because gold prices tend to be less volatile than stocks, gold is considered a comparatively safe investment. People use gold and other precious metals to diversify their portfolios and as a hedge when the value of other investments falls. For example, if you are investing in gold mining companies, the share price may reflect the company's financial health and market position more than the price of gold.
While this value may change, a key reason investors opt for gold is because physical gold is easy to liquidate. Investors can invest in gold through exchange-traded funds (ETFs), buy shares in gold miners and partner companies, and purchase a physical product. Gold mining stocks tend not to fluctuate as dramatically as the price of physical gold because they represent an investment in a company. With an assigned gold account, the investor owns specific pieces of gold that the bank cannot use for other purposes.
This means that the value of gold mutual funds and ETFs may not fully match the market price of gold, and these investments may not have the same return as physical gold. Depending on your preferences and risk aptitudes, you may choose to invest in physical gold, gold stocks, gold ETFs and mutual funds, or speculative futures and options contracts. There are also several gold savings plans managed by different jewelers in which you can invest a certain amount on a monthly basis and exchange it for gold jewelry on expiry with certain discounts offered by jewelers. Gold mutual funds, such as the Franklin Templeton Gold and Precious Metals Fund, are actively managed by professional investors.
Investing in stocks of companies that extract, refine and trade gold is a much simpler proposition than buying physical gold.