Even if the U.S. economy is showing signs of recovery, trading of securities in financial markets is still shaky, as central banks are only pumping money into the system. Consumer spending to keep businesses running profitably is still limited due to continuously rising prices. That is why investment experts and wealth managers are giving advice that now is the best time for clients to move some of their money in gold. .
After all, gold in particular, is regarded as the safest asset in which to invest one’s wealth because it can provide the best protection against market volatility and uncertainties of global events. Yet there are different approaches to investing in gold, being a high value investment commodity with limited supply. .
How Does One Invest in Gold
The standard allocation of gold investment in a wealth portfolio is up to 10% to 12% of one’s total investments, especially if used as hedge against high-risk investments. Yet physical gold like coins and bullions command a higher price, which at the same time require costly storage costs. Besides, there is greater difficulty in disposing this investment commodity at a high price value once the economy returns to normal.
That being a likely possibility, Investment managers advice against overloading one’s wealth portfolio with gold.
As an alternative option to buying physical gold, wealth investment managers recommend investing in Sovereign Gold Bonds (SGBs) instead.
Sovereign Gold Bonds are bonds floated around by governments. Governments issue bonds to raise additional funds needed to sustain federal spending, especially if the government is running with a budget deficit. Instead of selling physical gold being held as backing for the money being printed and circulated, governments issue debt instruments in the form of bonds.
SGBs are therefore government debt instruments, to which the central bank commits a certain amount of gold reserve as guarantee that the holder of an SGB will receive full payment upon maturity.
That being the case, each Sovereign Gold Bond is denominated as 1 gram of gold. The minimum SGB investment therefore is 1 gram, valued at the current nominal value of gold; or the value stated in the SGB bond scheme. The maximum is up to 4 kilograms per investor on an annual basis.
Generally, investments in SGB earn interest at the rate of 2.5% per annum, and are paid every six months, throughout the 8-year term of the debt. The 2.5% will be calculated based on the nominal value of the total grams of all SGBs held by an investor. Moreover, SGBs can also be sold in the financial markets, to which the proceeds received by the selling investor will be subject to Capital Gains Tax.
If you are looking to invest in gold on your own, have awareness that some investment brokers merely offer CDFs or Contracts for Differences as another way of investing gold.
What are CFDs?
CFD relates to a social type of trading that does not involve the acquisition of securities or physical assets. Here, trading simply involves placing one’s money on a proposition that forecasts the behavior of an investment asset like gold, or a commodity like oil or security product like ETFs. Contracts are based on propositions about the resulting difference between a forecast and the resulting actual, or real value of the investment within a specific short period of time.
To learn more about CFD social trading, AstrTraders, a team of expert investment analysts recommends reading their review of Tradeo. Tradeo is a CFD investment broker and provider of a social trading platform, offering various propositions covering a wide range of investment products; including gold and other precious metals, foreign currency exchanges, equity securities and commodities like oil.