Ravi shankar,editor,mumbai,wwwmcxbaba.com
Successful investing is all about diversification and management of peril. In layman’s terms this means not having all your eggs in one basket. We know from history that markets can and do impact and if you are not diversified your entire nest egg can be wiped out.
Gold is one such asset plain for its unique blend of near indestructibility, beauty, rarity and because of its status as a universal currency. Individuals have used gold as a store of wealth and as an insurance against the fluctuations and depreciation of paper money and other macroeconomic and geopolitical risks.
In a globalised economy and increasingly integrated economy investments in gold is a must and should be based on current macro-economic fundamentals. However, the deviations, in the financial markets have given the investors variety of options to invest in this asset class.
The options available to the investment in gold ranges from physical gold, bullion coins and bars, numismatic coins for its rarity, jewellery and exchange traded funds. Investing in physical gold has its own benefits and losses. Physical gold is worth holding because it’s a universal conditioned currency, held by most central banks. On the other hand, physical gold ownership involves a number of costs, including boutique and insurance costs, and the transaction fees and mark-ups associated with buying and vendible the commodity.
One can also invest in gold via financial products such as decisions, futures and spread betting. With all of these products, you’re betting on the future schedule in the gold price. You don’t own any gold, and you don’t have the right to take possession of any gold.
All of these products give you the opportunity to ‘leverage’ your investment. In other words, you can borrow to boost the size of your bet. That will boost your profits if the gold price goes in the right direction, but it can also increase your losses if things go wrong. You could end up losing all of your original investment, or potentially a sum greater than your original investment.
High net worth individuals should take exposure to gold futures rather than physical gold because it can be held in a demat form. Since futures trade boosts the leverage of the bet, it advances the returns from the investment. In addition, benefits like ease of transactions; extended trading hours in commodity markets is the benefit that HNI investor can enjoy. It is equal as easy to initiate a short position or a long position, giving participants a great amount of flexibility. This benefit is not possible with physical gold except the investors owns physical gold and then liquidates it.
All the records on investments in gold futures are electronically maintained with the broker whereas physical gold is either stored at home or generally in bank lockers leading to hidden property costs and security risks. A note of caution though, although there can be significant profits for those who get involved in trading futures on gold and silver, remember that futures trading is best left to traders who have the expertise needed to succeed in these markets.