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A comprehensive overview of gold investment, exploring its historical significance, key properties, and various investment methods. It delves into the factors influencing gold prices, including inflation, interest rates, and geopolitical events. The document also highlights the importance of diversification and long-term investment strategies when considering gold as an asset.
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Andrea Lopez ● Gold has been one of the oldest assets. ● And beyond being a currency, it’s a ‘prized’ product since it is used to make jewelry, watches, and more. Even gold coins that are no longer in circulation are collected for their rarity and their ability to act as an economic “insurance policy” of sorts. ○ This is because gold is traditionally considered to be a hedge against market instability, or even the devaluation of the US Dollar ● Although Gold is no longer plays a central role in the global monetary system it remains a symbol of wealth and valuable precious metal because of its following properties: ○ Diversification : Gold is not correlated to the equities and bond markets-in fact, the price of gold is considered to move inverse to that of traditional asset classes ○ Inflation Protection : The price of gold, at least in theory, is said to grow in line with the inflation rate over time ○ “Safe Haven” in Recession: Gold prices typically rise when the outlook on the economy is negative, and investors fear a recession is on the horizon ● How to invest in Gold? ○ There are numerous methods to invest in gold ■ Physical Gold ● One of the most traditional ways to invest in gold is by purchasing physical gold in the form of coins or bars. These tangible assets offer a sense of security and are an excellent option for those who prefer to have a direct control over their investment ● Gold Bullion is perhaps the best known form of direct gold ownership. Many people think of gold bullion as the large gold bars held at Fort Knox in Kentucky ○ Actually gold bullion is any form of pure, gold that has been certified for its weight and purity ● While purchasing physical gold may involve additional costs such as storage and insurance, it provides a tangible and reliable means of holding value. Physical gold can also be used in a gold IRA to prepare for retirement, which comes with lots of unique benefits as well ■ Mutual funds and (exchange traded funds) ETFs with Gold Ownership
● For investors looking for a more convenient and liquid option, gold exchange traded funds (ETFs) are an excellent choice. These funds are traded on stock exchanges, providing an easy way to buy and sell gold without the hassle of physical ownership. And gold ETFs track the price of gold and offer investors exposure to the precious metal without the need for storage-making them a simple option, especially for beginners ● Mutual funds that focus on precious metals, specifically gold, provide investors with a diversified portfolio of gold-related assets. These funds are managed by professionals who make decisions based on market trends and individual company performance. And while gold mutual funds come with management fees, they offer diversification and professional management, making them an attractive option for those looking for a hands-off approach ■ Gold Futures and option ● For experienced investors willing to take on more risk, gold futures and options can be viable investment instruments. Investors will be allowed to speculate on the future price movement of gold. However, it’s crucial to note that futures and options trading can be complex and may not be suitable for everyone, as they require a deep understanding of the market and a higher risk tolerance ● Gold price- it is the current market price at which gold can be bought or sold for immediate delivery. It’s the main reference price for gold globally ● Gold index- tracks the performance of gold futures contracts
Andrea Molina -I think its important to highlight that gold is not an asset that produces income, and it doesn't necessarily represent growth in a sector or in a specific company. Rather its value comes from its scarcity and the historical, social and cultural significance. -This is one of the reasons why investing in gold is typically a strategy to diversify portfolios because investors are purely compensated by price appreciation, not through dividends and returns like it happens with stocks and bonds.
● The investment outlook for gold remains positive overall, with expectations of continued strength in the market. There are many factors to gold's appeal as a safe-haven asset. ○ One being interest rate cuts by the Federal Reserve. Low interest rates make bonds and other fixed-income assets less attractive, since they yield lower returns. Gold, which doesn’t provide interest but preserves value, becomes a more attractive investment alternative in such an environment ○ With inflation being an ongoing issue, Gold is traditionally viewed as a hedge against inflation. This means that when inflation rises, the purchasing power of paper currencies declines, which often leads investors to have more interest in gold as it tends to retain value better in these environments. ○ When the U.S. dollar weakens, gold becomes cheaper for foreign investors because gold is primarily traded in U.S. dollars on global markets. This means people in other countries typically need to exchange their currency to US dollars to buy gold, and if the dollar is cheaper, for example, people in Europe would be able to spend less Euros to exchange into dollars in order to buy gold. ○ During ongoing geopolitical conflict investors often move assets into gold to reduce risk as traditional currency could be at risk during conflicts such as war or economic uncertainty. Although this is the case a lot of times it isn’t always true. For example, during the 2008 financial crisis, gold initially fell before recovering. ○ Therefore looking at these factors you can not solely assume that lower interest rates, increased inflation, or geopolitical conflict will increase the value of gold as it is a complex asset that has lots of minute factors involved. ● Now looking into more of the economic aspects of gold such as supply and demand. ○ Mining new gold is becoming more challenging and costly. This is because there is less gold so new technology needs to be made to find more gold as old methods have become out-dated ○ Consumer demand in industries like electronics and jewerly will continue to influence gold production and prices. ○ Limited new supply, along with rising demand, often leads to higher prices ● Conclusion:
○ Gold has long been one of the oldest and most respected assets, valued not just for its historical use as currency but also for its wide range of applications in industries such as jewelry, electronics, and investment. ○ You can invest in gold through physical ownership (bars or coins), gold ETFs and mutual funds, futures and options for those who want to be aggressive and have a deep understanding of the market. ○ The key properties of gold include - diversification, protection against inflation, and its role to be a potential safe haven during economic downturns ○ Gold is ideal for portfolio diversification rather than for aggressive long-term growth. This is because it doesn’t offer more competitive returns since it doesn’t generate income, such as dividends or interest ○ Gold is risky for short term investments because of it’s high volatility