Before we learn how to buy gold stock, we should ask ourselves why do we want to buy gold stock when gold has already risen 27 percent since 2001? The question that investors are asking themselves after this rally in gold over the last several years is “is there any further upside potential for gold?”
Supply And Demand For Gold
Let begin our discussion by examining the supply and demand for gold. Each year, about 2500 metric tones of gold is produced from gold ores. Despite this huge supply, the demand for gold is still far greater. Some experts estimate that about 4000-5000 metric tones of gold is sold each year and in countries like India and China, the demand for gold is mind-boggling.
Fortunately, with the scrapping of the gold standards in many countries, more gold is made available in the market as the governments sell off their gold reserves over the last few years in order to gain more control over their national currencies. This helps to meet the shortfall of gold demanded by the market for now. It is however expected that the demand is quite likely to continue to exceed supply for some years.
Hence, unless there is a massive sell-off by gold reserves of various countries, we are likely see a continuing rise for some time.
So What Can We Expect?
This only means that the value of gold will likely to continue to rise especially when you take into account of the inflation that is gripping most nations presently.
Gold values are also expected to continue to climb as investors search for safety and security in their investments, as equity markets tend to be volatile, and investors look for a hedge against risk.
So How To Invest In Gold?
There are many ways to invest in gold. You can invest in stock, derivatives or buy actual gold and if you want to take advantage of the current bullish trend. Gold stocks can be easily purchased through your brokers while actual gold can be bought from your bank or goldsmith.
But before you commit yourself, do consider a few factors such as your tax and your risk aversion. When you buy gold stock, you can expect tax issues to crop up. Buying gold coins and bars and ‘stock’ them away will eliminate such concerns.
In fact, they usually has no tax implications for most countries. When investing, you should always consider the proportion of gold in your own investment portfolio. I definitely would recommend no more than 10%.
If you are considering investing in physical gold, keep in mind that you will need to securely store it, and many companies and banks will allow you to store your gold for a nominal fee. Keep this in mind when purchasing physical gold, as this will amount to an added expense over the life of your investment.
There are also ETFs that invest in gold, and these can be an excellent, low-cost option for investing in this valuable commodity. There are also derivative plays on gold, such as investing in the stock of a gold-mining company, which stands to profit from increased demand for gold.
Hopefully, this article has introduce to you the basics of buying gold stock. Do check out with your broker if you are interested to find out more.