Gold as a dividend-paying asset Gold stocks tend to be more attractive to growth investors than to income investors. Gold stocks generally rise and fall with the price of gold, but there are well-managed mining companies that are profitable even when the price of gold falls. Here are three reasons to consider gold as an investment. However, investing in gold and other precious metals, and particularly in physical precious metals, involves risks, including the risk of loss.
While gold is often considered a safe investment, gold and other metals are not immune to price drops. Learn about the risks associated with marketing these types of products. Gold traders usually charge more than the “spot” price of gold, or the price at which it is listed on a commodity exchange. You can, for example, invest in physical gold by purchasing the above-mentioned gold coins or ingots, as well as gold jewelry.
Gold is reputed to be a recession-friendly investment when the stock market retreats sharply and the price of gold often rises. Every gold coin has two sides. Investing in gold is a lucrative idea, and investing in gold is a losing idea, and then there's the truth. Gold futures contracts are agreements between two parties to trade a certain amount of gold at a fixed price at a future time.
Gold futures are more liquid than physical gold and have no management fees, although brokerage firms may charge a trading fee (also called a commission) per contract. Investing in gold mutual funds means that you own shares in several gold-related assets, such as many companies that mine or process gold, but you don't own real gold or individual stocks. Gold mining can have a significant impact on the environment and mining practices have raised human rights concerns, as many gold mines are located in areas affected by conflicts. You can also invest in gold by purchasing gold mining stocks, gold futures contracts, and gold exchange-traded funds (ETFs).
Gold mutual funds, which pool the money of several investors and manage it on their behalf, usually invest in the shares of mining or gold refining companies, although some also have small amounts of ingots. Adding gold to your portfolio can help you diversify your assets, which can help you better weather a recession, but gold doesn't produce cash flow like other assets and should be added to your investment mix in a limited amount and with caution. While you probably want to buy ETFs that actually hold physical gold, there are funds that invest in companies in the gold industry, often gold mining stocks or gold streaming companies that offer funding to gold miners. Gold-traded funds or mutual funds have more liquidity than those that hold physical gold and offer a level of diversification that is not offered by a single stock.
Gold interest rates tend to remain unchanged by inflation because they retain their value longer than other investments backed by dollars. Owning stocks in a gold mining company or a gold ETF exposes you to the gold industry and, since gold doesn't necessarily move in conjunction with the stock market, it can help to further diversify your shares.