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.
Brokers like AvaTrade allow trading Gold Assets in a straightforward way
Online Brokers - Your pathway to Gold Assets
As the reader of this article probably already knows, CFD means a contract for difference, that is, it is a financial instrument that allows you to trade changes in the price of futures and options, but without the need to handle contracts. A CFD on Gold follows, and it's directly related to the metal's spot price, without the need to trade physical gold bars. It is then an efficient way to invest in gold, if you want to trade the rise and fall of the price of this raw material, and not save it in the metal itself, which is costly, requires a higher initial investment. Not to mention, it may be unsafe to keep gold bullions at home.
Online Brokers platforms allow you to invest in Gold-related financial instruments straightforwardly through optimized applications that facilitate financial markets access. In fact, most apps resemble a social network or any other application on a mobile device. They are designed so that the investor can learn and start trading quickly, without the need for prior trading experience (Disclaimer: You do need to be knowledgeable since investing is inherently risky). Note the pic above that shows one of the most popular trading platforms available in South Africa.
And how do I invest Online in Gold-related assets?
To buy an asset with exposure to gold [or any other commodity or stock at the Stock Market], you literally must:
Choose a Broker which is available in South Africa (Not all of them are),
Depending on the Broker, accounts may be opened in US Dollars (USD), Euros (EUR), Pound Sterling (GBP), Swiss Franc (CHF), Australian Dollar (AUD) as the base currency. Most of them offer the option to open the accounts in either Dollars or Euros.
Open an account with the Broker; usually requires you uploading an ID and a proof of address through their app or via email.
Search for "Gold" or "Gold" on the Broker's platform, choose the financial instrument to be traded, and
Press the "Buy" button.
And officially you have invested in financial assets related to gold.
What's the minimum amount to Invest in Gold-related financial instruments from South Africa?
Many Brokers do not have a minimum deposit (or a meagre amount of money). Many others do not charge a commission for the purchase and sale of Commodity. So, you do not need to be an investment banker to start trading gold-related assets.
Best Brokers to Trade Gold Assets available in South Africa
Store of value, historical currency and precious metal: gold has been an object of veneration and coveted throughout history. Know the process to start investing in it from 100 USD.