The following is a guest post from John Border, a banker who authors a blog where he writes about basics of stock market investing.
Editor’s Note: This guest post provides some balance in terms of enthusiasm for gold, after my post last week on Buffett’s skeptical comments on gold.
It is never too late to think of investing in gold, the reason being that gold is your hedge against everything which is wrong with the economy, and one of the best investments available today. It will act as a hedge against inflation and the weakening of the dollars. If you have a portfolio then gold should be about 3-10% of your portfolio. There are ways to invest in gold, and I would suggest that whatever you do it is always better to go for a disciplined buying spree, which means do not invest all your money at one go; rather make sure that you average out the costs.
You can buy physical gold in variety of styles, which include gold coins, gold bullion or bars or even gold jewelry. The easiest one of course is gold coins, which you can buy from any authorized dealer. I will suggest physical gold for those where the main intent is to have physical gold as a safeguard against anything wrong which can happen to the economy. The physical gold will help them tide over the bad times
Gold ETF or gold stocks
Gold ETF is for those who need to lock in the price of the gold now and then make money by selling at a later date. The gold ETF will move in accordance with the price of gold. These ETF’s either have the physical gold as the underlying asset or they benchmark against a derivative product.
One of the best gold ETFs is the SPDR Gold Shares(GLD_) .The GLD is the best known and even George Soros has invested in this one. And the other one is the iShares Comex Gold Trust(IAU)). Another one is the ETFS Gold Trust(SGOL). This is a very good passive method of investing in gold. The other thing with these is that for tax calculations, this physical gold backed ETF’s are considered as having physical gold which means that your tax outgo can be very high, and as the tax will be treated as income tax rather than long term gains tax.
You can also invest in gold stocks as mostly the gold stocks move with the price of gold. The simple reason being that these gold refiners or miners have a fixed cost of mining the gold or refining the gold; however, they can sell at higher prices. The good one is Kinross Gold.
You will need to weigh pros and cons of having physical gold vs. a gold ETF and then go ahead and buy the gold.
Editor’s Questions: What are your thoughts on the guest poster’s enthusiasm for gold as a hedge against problems with the economy? Do you have any comments to add on methods of buying gold?