In the early days of television advertising, McDonalds brought out a revolutionary new food group – the filet of fish sandwich. The ad for this product portrayed a young woman who marched to the beat of a different drummer in all thing, including lunch.
The equivalent choice in the investment world is gold. While it has univerally been the heart and soul of wealth since the beginning of recorded history, modern investors prefer stocks and real estate. But a select few opt for gold in various forms in the belief it is a good hedge against inflation and in the hope that it is immune to the fickle winds of the stock market.
Forms of Ownership
Gold may be owned directly, in the form of bars and coins, or it may be own through certificates, shares, derivatives and various types of accounts. Those who own it directly are also responsible for storing it, creating a risk of loss through theft that doesn’t exist with stock certificates, since gold bars and coins are the very essence of bearer instruments.
Sometimes gold can be held on account at a bank or investment firm, which, like stocks held in street name, exposes the investor to the risk of the holder’s financial stability. But unlike those stocks, there is no federal insurance program for gold.
Gold bars are the predominant form of ownership. Gold coins, however, are quite popular for their portability and aliquid market. The most famous coins are the South African Krugerand, the Canadian Gold Maple Leaf, the American Gold Eagle and Gold Buffalo, and the Australian Gold Nugget. These and other brands of coins from around the world each containing one troy ounce of pure gold bullio, making them a global trading commodity.
Banks and some investment firms make a market in both gold bars and coins, providing a source of bid and ask resources and a means of liquid exchange.
Indirect Ownership
Another option are the gold exchange-traded funds, which trade like shares of stock on the New York, London and Sydney stock exchanges. The first fund was launched in 2003 on the Australian exchange, with each share representing exactly one-tenth of a troy ounce of good. This amount is now slightly less, and each share is backed by a storehouse of pure gold on deposit with a regulated bank.
With all of these markets and the cross-format commoditization of gold, trading is easy. Current prices are published everywhere and are available on line.
The new investor would be wise to study the historical price of gold in relation to global and domestic economic trends and stock markets, to get a feel for the relationship and the risks of this form of investment.
But one thing seems sure – as long as there are dollars, there will be gold that trades for them. And if history proves to be consistent, gold doesn’t seem to care what the dollar is doing, in either direction.
