How to invest in gold
Data from 70’s to 90’s show that gold has no correlations against macroeconomic variables, such as; stock index, bonds. This fact proved that gold can be effective investment tool as a portfolio diversifier. Also there is a common notion that gold is the only hedging tool against inflation.
Its in our culture, to measure a family’s wellbeing is to see the hands and neck of the missus. If she is adorn with lots of glittering yellow stuff, then the family is well off. This usually happens during social events; like weddings, gatherings or something similar.
It’s a rather old fashioned way of investing in gold. Ornaments, like rings, necklaces or bangles will be reduced in price if they are being sold. The workmanship usually costs about 20-30% of its price. Even if its being pawn, the maximum it will yield is only about 70% of the weight in gold.
So, how to invest in physical gold? My suggestion is to start small. The dinar. It’s the ancient Islamic currency. Very affordable, and its available by pieces. You can collect it a piece at a time. When the price of gold goes up, you can sell off easily. The dinar is standardised throughout the world to be 4.25 grams of 22k gold.
Of course, there are also gold bars that range from 10 grams up to a few kilograms. The bigger the gold bar the harder it is to liquidate. Unless its for a long term investment or as a collateral tool, then my preference is always, start small. Some banks do offer gold deposits accounts. The beauty of such an account is that you may be able to get a credit line based on your gold deposits.
Securities or commonly known as shares, are an alternative investment tool. By investment, I meant, buying shares of gold mining companies. Whenever gold prices go up, the share prices of gold miners go up too.
Also, shares have another cultured aspect that proves it popularity. Owners of shares have that pride that they ‘owned’ part of that company. This is the aspect that many shares owners would rather hold their losing shares rather than sell it at a lost.
The answer to the last question is, trade gold futures. We already have gold futures contracts in Bursa Berjangka Jakarta. When the worst case scenario happens, futures will be your hedging tool. Please see the section on futures trading. Below is the contract specifications of Rolling Gold Futures.