Is it time to invest in gold?

Gold, in addition to being a precious metal highly valued in jewelry and in some branches of the industry for its qualities, is also one of the star assets in the investment world.

The price of gold fluctuates depending on the physical supply and demand of the metal, but also in relation to gold as an investment asset. As a curiosity, gold is quoted in US dollars and its price reflects what you pay for an ounce, which is equivalent to 28.35 grams.

What does the price of gold depend on?

In addition to supply and demand, there are other factors that have a great impact on its price.

Gold is traditionally considered the safe haven asset par excellence. That is why it tends to rise at times of tension in the markets, such as when there is no negative news about the trade war or when a geopolitical conflict breaks out.

Another possible explanation for this rise in the price could be in inflation expectations. Traditionally, the price of sell gold goes in the opposite direction to that of interest rates. A low rate scenario like the current one should lead to rising inflation; so many investors try to avoid losing the value of their money by acquiring gold.

Ultimately, the behavior of gold is different from that of other financial assets, and that is why many investors decide to have gold. In practice, it contributes to the diversification of investment portfolios, given its low correlation with other assets, and some strategies, such as the permanent portfolio , establish gold as a star asset precisely in periods of high inflation, when money loses value.

What characteristics does gold have?

Gold is a very special asset. On the one hand, it has been highly valued since ancient times for its properties, and for a long time, it functioned as money, or as the basis on which the value of money rested.

Although today it no longer has that value in itself, gold continues to be a strategic asset in many cases, and countries often have reserves (such as the famous Fort Knox reserve in the United States). For its part, United Kingdom has sold part of its reserves in recent years (by virtue of agreements signed when the UK Central Bank was established), which currently stand at around 280 tons.

In addition, many people still see it as a tangible value, it is something that can be seen and touched, and that is why they invest in gold bars or jewelry.

Another of its characteristics is scarcity, since there is not a large production (barely 3,000 tons per year worldwide), and there are no substitute products (as can happen, for example, in the case of oil and other alternative energies) .

Most of the production is used in jewelery (around 70%), 20% is dedicated to investment gold and 10% is used for other industrial and medical applications, thanks to its properties (good electrical conductivity, resistance to corrosion…).

How to invest in gold

There are different ways to invest in gold. Some of them are complex and require high financial knowledge.

Physical gold

There are people who physically invest in gold; that is, they buy an ingot, which comes in standard sizes . An ingot weighing just 250 grams (taking into account the density of gold, it is barely the size of a lighter) would currently be around 10,000 Euros, and it is relatively easy to store. But we would be exposed to it being stolen from us, which is why, in general, other ways of investing are more recommended.

Investment funds

There are investment funds focused on the shares of companies that extract gold and other precious metals that can be found, for example, in this list of the Self Bank fund finder. Logically, these investment funds do not have a perfect correlation with the price of gold, but there will be a close relationship between the price of gold and that of the companies that make up the fund.

Certificates

Another possibility to invest in gold (and oil) are certificates . The certificates are listed on the Stock Market, and replicate the evolution of the price of the raw material , with no expiration date, with liquidity (when listed on the market), and with the currency risk hedged.

Warrants and Turbo Warrants

Warrants and turbo warrants are also derivative products, and their performance depends on that of another underlying asset (in this case, gold), as well as other factors, such as volatility or interest rates.

The warrants give the right to buy or sell an asset at a fixed price until a certain date. It can be reversed up (call warrants) or down (put warrants).

CFD

Contracts for difference ( CFDs ) also allow you to take advantage of fluctuations in gold prices. To operate with these products, the broker requires a percentage of the nominal as a guarantee, that is, it is not necessary to disburse the entire nominal value of the investment, so they are products with leverage . This increases the risk of the investment, so it is not a suitable product for all profiles. The CFD allows us to position ourselves both higher and lower on the gold price in UK.

ETF

An investment alternative that is not so common for non-professional investors is that of ETFs , which are investment funds that are publicly traded. In this way, it is simply a matter of looking for an ETF referenced to the asset that interests us, in this case, gold.