PowerZone Trading Blog

Should You Have Gold in Your Portfolio?

Jean Folger - Friday, January 30, 2015

Should you have gold in your portfolio?

Gold is one of the most important commodities in the world of finance and for good reason. The precious yellow metal moves differently from other types of investments, making it the hedge of choice among investors in times of uncertainty.

Gold prices go up when there’s high government spending, bad central bank policies, or inflation. Before the 2008 financial crisis happened, gold was merely priced at around $670 per ounce. But after the most recent economic slump, gold’s prices shot up and peaked at around $1,800 per ounce in 2011.

Gold prices are highly volatile, which is the very reason why investors don’t put a lot of their money in it. Money managers allocate only 5% - 10% of their assets in gold, and some of them do this not to gain returns for the short term but to have something to look forward to in the long term.

Two ways to invest in gold
Physical gold
Buying gold bars or coins is the most direct way to own gold. Having physical gold stored in your personal vaults preserves wealth, and ensures that your future generation has something to spend even if currencies collapse.

Buying physical gold means shouldering a lot of things such as premiums, taxes, shipping, and storage fees. Investors who don’t want to worry about storing their gold back home open allocated gold accounts from banks and let bank personnel handle their gold storage. Tech-savvy investors can now also buy gold online and move their gold anywhere around the world with a click of a button. Purchasing gold from online brokers is very economical since investors can literally have gold investments in different parts of the world like Germany, U.S., and France without paying for middle man fees.

Gold ETFs
Gold ETFs are a very popular investment vehicle for private investors who can’t afford to pay gold’s spot price. Gold ETFs cost just 1/10 of the physical metal’s actual price and investors make money from them by tracking the prices of gold. The SPDR Gold Shares (GLD) is the most popular form of Gold ETFs since its shares are backed by the actual metal.

Keep in mind though that owning Gold ETFs doesn’t make you automatic owner of physical gold. The SPDR Gold Shares is like one, huge unallocated gold account where only Authorized Participants can withdraw physical gold in order to cater to their clients. Gold, no matter how much its prices depreciate, will always be legal tender in many countries. Since currencies can sometimes fail, having the precious yellow metal in your portfolio can give you peace in times of economic unrest.

This educational article was contributed by one of our partners.