Gold has been of value for many years, and it’s valuable today. No wonder, many investors out there desire to hold gold to store value as well as a hedge against inflation. However, it can be hard to hold large quantities of money, so it makes sense to find a gold IRA company to handle your investment options. The good news is that investing with a Gold IRA Company that can put in place great security efforts to prevent its theft is a good idea. This article explains the best ways of investing in gold without holding it.
1. Gold Receipts:
There have been stories suggesting the earliest type of credit banking was through goldsmiths who usually stored the gold for members of the communities. In return, the people depositing gold would then get a paper receipt that could be exchanged for their gold in the future. Because these goldsmiths knew that only a small percentage of these receipts could be redeemed at any given time, they would then offer receipts for larger amounts of bullion than they kept in their storage facilities. As a result, this was the rise of a credit system. Based out of Delaware, Lear Capital lets you buy gold and silver coins online. We can check Lear Capital reviews and securely invest through their platform.
Nowadays, you can still invest in these gold receipts that you can redeem for physical gold. Many government mints usually don’t handle privately in gold any more, though some private companies do. You can find some of these companies on the market offering electronic-tradable receipts that are backed by their vaulted gold and collectible coins from precious metals. You can trade these electronic-tradable receipts by changing hands privately or on an exchange and track the gold price backing it.
While gold backs gold receipts and you can redeem it on demand, derivative markets utilize gold as underlying assets and contracts that can allow for gold delivery at one point. A forward contract on gold usually gives you the right to purchase physical gold later at today’s specified price. You can trade forward contracts over-the-counter and can even be customized between the seller and buyer to arrange specific terms like contract expiration and type of the underlying such as the amount of ounces of gold that needs to be delivered.
Keep in mind that futures contracts work in quite the same way as forwards. The only difference is that you can trade the futures on an exchange and their terms are predetermined by the exchange. Because you can trade forwards over-the-counter, they can expose you to credit risk if the counterparty fails to deliver.
Exchange traded futures don’t have this risk. Quite often, you cannot hold futures contracts or forward until expiration, meaning physical gold cannot be delivered. Instead, the contracts can either be sold or rolled over to get another new contract that has a later expiration.
Investing in Gold: Summing Up
You can also decide to choose call options to get an exposure to gold. Call options give you the right, though not an obligation to purchase gold. Therefore, you can only exercise a call option when there is a favorable gold price and there are good chances that it can expire worthless if you fail to exercise it.