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Most people are used to thinking of gold as one of the standard safe investments during times of economic uncertainty or political turmoil which it can well is. Many would still want to find a gold investment that provides really ultra safe gold trading.
The truth of the matter is that that old familiar relationship between investment risk and return applies to gold. Higher investment returns are accompanied by higher financial risks and safer investments are accompanied by lower financial risks. For an investment to be ultra safe would mean receiving ultra low returns on it.
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Physical ownership of gold is different from securities in that it doesn't pay any interest or dividends. The only return that it provides is the appreciation of its intrinsic value as its market demand rises, and the investor is encumbered with the costs of security and storage. In a way it could be considered ultra safe as any investment could be because it cannot be destroyed or become completely worthless due to bankruptcies, extreme political upheavals or economic events. This still doesn't mean that losses can't be incurred when investing in it.
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Closest Thing to Safe
The closest that an investor could get to really ultra safe gold trading would be to shift his focus from a single investment to an investment portfolio strategy. This would involve making an investment portfolio comprised of the gold commodity and other gold investment securities that offset each other as much as possible during economic fluctuations and are continually being monitored and adjusted for this.
If an investor wanted to keep his portfolio based on gold investments there are only a few to choose from. Some of them are gold jewelery, gold coins, gold bullion, securities offered by gold mining companies, and gold funds (ETFs and mutual funds).
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The demand for gold jewelry makes up 50% of the gold market. These items can be purchased in retail stores, antique or collectibles shops, and at estate or online auctions. The purity of gold in jewelry varies and is measured in karats. Their most common grades are 14 karat, 18 karat, 22karat, and 24 karat (.999 fine).
The market prices for gold jewelry don’t actually correlate with the market price of gold, as jewelry is also used for personal adornment. Other factors than the amount of gold in a jewelry piece enter into its price, such as, workmanship, and uniqueness.
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Bullion Coins and Bullion Bars
The most common forms of gold that can be kept in one's own physical possession for strictly for investment are gold bullion coins and bullion bars. Gold bullion coins made up 14.4% of the market demand in 2009 and are minted by governments in various denominations and in the United States are considered legal tender as currency. But their real worth is in the market price for their gold content which can vary between nations.
Bullion bars are the most economical way to purchase gold especially in large order quantities. This is the most common form that is delivered to central banks and held in their gold reserves. The usual size is 1000 grams or larger that is .995 to .999 pure. Smaller bars are sold to the general public through coin dealers and precious metals brokers, mints, government outlets, and even on eBay or other online auctions.
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Gold Mining Companies
Gold mining companies issue bonds and shares of common stocks for investors who want investments that don't directly track the price fluctuations of gold itself. Purchasing these securities is the same as purchasing from companies in any other industry and should be researched similarly. The financial soundness of the company is the important factor in this kind of an investment when considering the risk and return. What to look for are competent management, profitability, and other indicators of a company’s financial strength.
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Mutual funds and exchange traded funds (ETF) are an alternative to investing in gold or mining company securities that offer the advantages presented with the investment strategies that each type of fund embraces. Mutual funds are a portfolio of securities that are actively managed by a professional manager. There are few mutual funds that rely solely on a gold based investment strategy but the ones that do offer the advantages of low costs and initial investment requirements, investment diversification, and professional management. There also fees involved like sales commissions, and various management fees that could cut into investment gains.
Commodity ETFs that specialize in gold are like mutual funds in that they offer an alternative to investors who would not care to buy gold bullion. They are bought and sold as shares on the stock exchanges just like common stock and incur the same kind of brokerage fees, as well as management and rebalancing fees. These fees can be considered burdensome for long-term investing.
There are also other ETFs that are based on gold market investment strategies like volatility (leveraged ETFs), and the stocks and bonds of gold mining companies.
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There is no single gold investment that affords an investor ultra safe gold trading. The approach to "ultra safe" would most likely be an investment portfolio of various gold investments that is relatively well balanced and monitored for occasional adjustments to the investment mix for overall safe investments.
For more tips and advice, be sure to check out Bright Hub's Guide to Investing in Precious Metals.
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Tim Parker, "A Goldbug's ETF Plays," Financial Edge, 2010. Investopedia. Retrieved December 12, 2010 from the World Wide Web: http://financialedge.investopedia.com/financial-edge/1010/A-Foldbugs-ETF-Plays.aspx
Daniel F. Meyers, "Getting Into The Gold Market," Articles, 2010. Investopedia. Retrieved December 12, 2010 from the World Wide Web: http://www.investopedia.com/articles/basics/08/gold-strategies.asp
Emanuel Balarie,"Does It Still Pay To Invest In Gold?" Articles, 2010. Investopedia. Retrieved December 12, 2010 from the World Wide Web: http://www.investopedia.com/articles/basics/08/invest-in-gold.asp#12923640026822&close
Images: public domain from Wikimedia.