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Smart Investor Tip of the Day
Despite being Canadian the fervor of Americans and their fascination in buying gold does not go unnoticed, especially because popular news outlets like Fox News in the U.S. kowtow to the idea of it as the sole savior to all of one’s problems. But why exactly is it special? In this article I will try to unravel the unknowns about investing in gold.
We all know what gold is and where it comes from but most don’t realize it is a commodity like oranges, soybeans, and milk. Although it has a charming visual allure to it most people think its pricing comes about due to its rarity. In fact, there is plenty of gold in the world but a lot of it is horded by the Central Banks all across the world so as to control its pricing. Gold prices are undisputedly linked to the rising and falling of an underlying currency. The world makes use of the U.S. dollar as that currency. Because gold is more tedious to trade physically we use paper money as the alternative to do our daily purchases.
But because paper money and its value is linked to economical and worldly events it can fluctuate in unusual ways. Gold does not give provide investment interest. It simply serves as a form of insurance against catastrophic events hitting global financial markets because it holds its purchasing power significantly better than paper money. Despite these assuring thoughts gold has continued to decline slowly for decades. But still in times of economic stress people will always look to alternatives to paper money which creates demand for gold — making its price rise.
Buying gold can be done in many ways. One fun way is as coins which are commonly sold at Canada Post. But most investors do so at discount brokerages across Canada, like Questrade, as gold stock. The problem with this approach is that you aren’t actually buying gold you are buying into a company that says it has gold in the ground. However, there are ways to buy physical gold and have it delivered.
Gold tends to be volatile in the short-term but it is a perfect investment path as a hedge against an eroding purchasing power of paper money. Investing into gold is an efficient way to diversify ones stock portfolio so as to protect your investments. The reason being gold is a negatively correlated asset against stocks — meaning if your equity investments decline gold will rise, helping to buffer an out-of-control loss you may be experiencing.