Gold: The leading precious metal

In this article, we won't talk about investing in gold in the sense of buying a gold bar from the Central Bank or Fort Knox. Specifically, we will discuss trading with an online broker offering instruments with this precious metal as their primary reference.

In general terms, investment professionals use financial instruments related to gold and shares of gold miners to diversify and complete an investment portfolio. In other words, gold diversifies an investment portfolio because, historically, it has been used as a store of value. What does this mean? When the economy goes bearish (downturns), most financial assets tend to go down, yet gold tends to go up. We say "tends" because in extreme cases where everything drops recklessly, gold also does, although these situations are exceptional. It is also important to emphasize that it is probably the first financial instrument to settle back at a higher price in these situations. Historically, gold has maintained its value against inflation (The current worry in the global economy). In real terms, gold allows intertemporal savings (You save value today and enjoy the same amount of it in the next period, which inflation erodes). And this means? That gold tends to keep a stable value compared to other materials; in other words, it has had a price and has been desired and treasured since the dawn of history.

Which Financial Instruments are related to gold?

There are four ways to invest in gold-related instruments:

• Physical Gold: This means that you would have to go to a bank and buy a golden coin, a golden bar, or gold bullions. It is an expensive option since spreads are usually huge (The difference between buying and selling prices).

• Derivatives on the price of refined metal: Derivatives are an excellent option for all types of traders since they allow trading on gold prices effectively. They have meagre initial capital requirements. However, you never own the physical raw material; you speculate on its price. If you wish to trade gold, this would be your primary option. If you desire to save in gold, go back to the physical material.

• Stocks: The next option is to trade securities of companies directly or indirectly related to gold mining. For example, you may buy Goldcorp, Barrick Gold or Newmont Mining shares, three of the top gold miners trading in a stock exchange (You will find most of these companies trading in New York, London, South Africa's and Australia).

• CFDs on ETFs: Another option is to trade exchange-traded funds or ETFs that track both gold prices and companies involved in gold-related activities, like mining, intermediation, or even jewellery producers. There is an infinity of possibilities to invest in gold-related ETFs. Among others, we could name the SPDR Gold Trust (GLD), which invests in physical gold, or the VanEck Gold Miners ETF, which invests in companies that extract the mineral. These are only two options, but an endless list of providers and investment portfolios is available.