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Gold has been used as a store of value and as a smart way for investors to preserve their wealth for several millennial. The precious metal remains one of the most popular today with 1 oz gold coins for sale costing more than $1300 dollars. However, not everyone who desires to invest in gold wants to buy hard gold coins or bullion bars. Fortunately, if you are in this category, there are a number of other profitable ways to invest in gold without holding the coins physically. Here are some of these other alternatives you can explore:
The practice of depositing gold in exchange for a paper receipt that can be redeemed for physical gold in the future has been around for centuries. Today, some mints still offer Electronic Tradable Receipts (ETRs) for gold stored in their vault to interested investors. ETRs can be traded on an exchange or simply transferred to another party privately. Their value depends on the price of the coin that backs it. Thus, if you don’t want to buy physical gold, you can consider investing in Electronic Traded Receipts.
Derivatives (Forward contracts, Call Options and Futures)
Receipts are backed directly by gold and you can redeem it on demands. Derivatives, on the other hand, are merely contracts that guarantee delivery of the gold at a particular time in the future. They come in various forms and include options such as Forward contracts, Futures contracts, and Call options.
A forward contract is a contract that guarantees its holder the right to buy physical gold on a specified date in the future at the current price of gold. These contracts can be customized with specific terms between the seller and buyer and are traded over the counter. Since forwards trade over the counter, each side of the deal is exposed to risks since it is possible that one party doesn’t deliver on the agreement.
Futures are similar to Forward contracts. The only difference is that unlike Forwards, Futures are not traded over the counter. Instead, they are purchased and sold on an exchange. Also, the terms of the contract are determined by the exchange and cannot be customized. The advantage of trading over an exchange is that Futures are free from the risks typically associated with Forward contracts.
These are contracts that give the holder the right to buy gold in the future. However, holders of this contract are not obligated to do so if the conditions are not favorable. The premium paid for this contract is a deposit that gives you the right to purchase gold in the future for a price already specified today. The holder will only exercise this right only when the price is favorable. But the contract will be left to expire if the specified price is higher than the price of gold on the set date on the contract.
Click here to learn more about the various types of derivatives and how you can invest in them.
Like Derivatives, Gold funds make it possible for investors to gain exposure to Gold. Gold funds can be in the form of mutual funds or gold ETFs that can be traded like shares on stock exchanges. Other options include leveraged ETFs, Proshares UGL and so on.
Gold Mining Stocks
Another option available for investors is to buy stock in gold mining companies. This gives you as an investor exposure to the company’s operating profit margin. These companies make their profit based on the cost of mining gold against its selling price rather than speculating on price fluctuations like the other options.
Holding physical gold can be costly and cumbersome. For those looking to avoid these issues can there are a lot of other investment options to consider as valid alternatives. But while they do not require you to hold gold physically, they still require a solid understanding of the gold investment market. You can read up more about each of these options and speak to a qualified broker to find learn more about the industry and its dynamics.