Investment in gold can be done openly through bullion or coin ownership or indirectly through gold exchange-traded funds, certificates, accounts, spread betting, derivatives or shares.
Why investors buy gold
Investors usually buy gold for two main reasons :
- To financially gain from increasing gold prices,
- As a hedge or safe haven against any economic, political, social or currency - based crises.
Investors using fundamental analysis to analyze the macroeconomic situation which includes international economic indicators, such as GDP growth rates, inflation, interest rates, productivity and energy prices. They would also analyze the annual global gold supply versus demand. While gold production is unlikely to change in the near future, supply and demand due to private ownership is highly liquid and subject to rapid changes. This makes gold very special from almost every other commodity.
As with stocks, the gold investors may base their investment decision partly or solely on technical analysis. Normally this involves analyzing chart patterns, moving averages, market trends and the economic cycle in order to speculate on the future price.
Investors may choose to leverage their position by borrowing money against their on hand gold assets and then purchasing more gold on account with the loaned funds. This method is referred as a carry trade. Leverage is also an essential part of buying gold derivatives and unhedged gold mining company shares. Leverage via carry trades or derivatives may increase investment gains but also increases risk as if the gold price decreases the investor may be subject to a margin call.