Investing in gold

People of the developing countries often use as investments the investments in jewels. But in economically developed countries there are more favorable mechanisms of investment in precious metals.

Ingots and coins

Purchase of gold ingots is a widespread method of investment, which varies only depending on the legislation of one or another country. Thus, in USA ingots and coins are free to purchase through big banks and broker’s offices, and also through the specialized “gold”-dealers. The investor chooses the ways of purchasing and storing of metal and the size of the ingots (from 1 gram to several kilograms) himself. One of the few minuses of this method of investment is that it is not easy to invest small sums: most of the banks that operate with gold ingots do not make bargains with the volumes less than 1000 ounces (or 25 kg).

Investments in so called ingot-coins or investment-coins are very popular. Its market price develops by the sum of the value of gold contents and the small compensation (not more than 4-8%) for stamping and distribution (it depends on the weight of coin). In many countries purchasing of the investment-coins is free of VAT taxation. The investors can choose from the variety of gold coins produced in various countries of all over the world. American “Eagles”, Canadian “Maple leaves”, English “The Great Britain” are popular. Such coins are stable in price, they are always easy to buy or sell.

The main volume of derivate contract exchanging belongs to the futures and gold options, where the basic active is precious metals. These instruments are used basically by the manufacturers of gold with the purposes of protection against risk of adverse change in price and by speculators trying to make profit from the correctly guessed price development in the spot-market. Precious memorable or numismatical coins can also be considered as object of investments. Their price mostly depends not on the contents of gold in the coin, but on its rarity, stamping quality and the historical value. Coins that are numismatically valuable do not loose their price during the lowering of prices on gold in the market; they are sold with increased (numismatic) price comparing to the investment-coins. Rare golden coins have been liquid for a long time – thousands of certified coins are sold and bought on the electronic numismatic exchange. They can also be sold directly to a dealer or on the open auction.

“Metal” securities and accounts

One of the most productive instruments of investment is the securities ensured by gold. Using securities allows you to avoid the commission fees for the purchase of physical gold (that can reach 7%) and to use risky operations with futures. Individual investors can sell and buy securities through usual broker companies. One more plus is that that account can be opened through the company’s electronic site. On London Stock Exchange (LSE) security trading is made by The World Gold Council (WGC) created by number of the largest gold mining companies. Each security guarantees for its holder an opportunity to purchase 0,1  of troy ounce (3.11 g). The gold ensuring securities is located in HSBC Bank storehouses in London. The other method to earn on a rise in prices for metals is share purchase of the gold-mining and mining companies. Shares of the large companies like American Newmont Mining, Canadian Barrick Gold, Britain-Australian BHP Billiton, etc., bargain in New York. Here it is possible to include the shares of the Russian company «Norilsk nickel».

Shares of the gold-mining companies – paper investments
The investor risks to lose all means invested in them at the company's bankruptcy or a slashing of cost of its shares. The shares should not be considered as the protective asset performing the financial insurance function. More possibly, it is the speculative instrument, capable to bring in the quite good income under condition of correct risk and the potential yield estimate. The stock value growth potential mainly depends on the issuing company financial indexations, not on the price development of gold.

On the other hand, investors have possibility to receive the income not only as the capital gain (as a result of market price growth), but also the profit as dividends. However, when gold prices hardly grow, the companies usually start to develop low-profitable mines and to modernize the equipment when it was not possible during the period of low prices for metal. That reduces their profits and the growth of shares. Another method is to open the "metal" accounts which are subdivided into accounts of safe keep and depersonalized accounts. In the first case the concrete ingots (or coins) are stored at a depository bank, and the investor pays their storage costs. Joint accounts which also named as depersonalized counts of storage, are of the kind of deposits where precious metals without their concrete characteristics are placed.  Each buyer becomes the holder of some share in the general pool of precious metals stored in bank, and he can sell it without any additional commissions fast and easy. Also, he has the right to receive physical gold in the form of ingots or coins after paying the small award and the delivery costs.

The plus of that method of investment is that all operations are simple and easy: they can be made through the Internet in real-time. Holders of the depersonalized accounts do not bear costs on storage – and this is the main advantage. However, it is a risk of not-returning of ingots in case of insolvency of the bank. The “Gold” certificates are intended for the investors that want to purchase less than 1000 ounces of precious metals. The certificate confirms the purchase of gold and assigns to the buyer the property right for the precious metal deponed on the personal or depersonalized account. Certificates can be acquired through the network of the accredited international dealers.