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Gold Mutual Funds Investments
You can invest in gold through the gold mutual funds and the gold ETFs. The gold mutual funds offer a diversified portfolio of gold mining stocks.
There are varied open-end and closed-end funds from where to choose. The American Century Global Gold Fund and the Vanguard?s Precious Metals and Mining Fund outstood in the stock market in 2003. Both funds own low expense rates which is one of the great factors to search when choosing a mutual fund.
Gold ETFs (Exchange Traded Funds) offer a very convenient way of owning a gold bullion without having to worry for the storage and insurance costs.
ETFs shares are negotiated in the stock exchanges. The first gold ETF offered by state street in 2004 is negotiated in the New York Stock exchange under the ticker symbol GLD.
State Street serves as custodian of gold bullions and the expenses of storage and insurance and transport of the same is paid with the sales of fractions of the amount of gold kept by the fund.
This form of payment reduces the life of the fund. It can also use gold options to assure the existing investment in gold or to speculate with the changes in the prices of gold. If you have any expectations that the price of gold is going to raise you must buy call options on gold, and if it is expecting for prices of gold to drop, you should buy put options on gold.
The gold futures contracts also allow you to speculate or hedge with your positions on gold. You can hedge your position in gold bullion in the following way: if you are expecting that gold fall in its prices, you should sell short the gold futures contract. If the gold?s price really falls you could negotiate your futures contract and get a benefit that compensates some of your losses in the price of the gold bullions in storage.
The opposite position would be a long position. If you believe that gold prices will go up, you will buy gold futures contracts, and if gold prices would raise you could negotiate the contract at a profit. Gold speculators do not keep gold bullions and take positions in futures contracts with the intention to get benefits of their positions in these contracts. The overriding feature is the leverage that gold futures contracts offer. For example, if the price of gold is $400 per ounce and you buy on gold futures contract which consists in 100 troy ounces the value of the contract is $40,000. If the required margin for a gold futures contract is $4000 you can control the value of the contract that is $40,000 with a small investment. If gold increases its price in $1 per ounce the value of the contract will be increased in $1000 with a total value of the contract of $41,000. The opposite is also true with leverage. If gold decreases $1 per ounce in price the value of the contract is reduced in $1000 to $39,000.
Volatility of gold price is fit to make greater benefits as well as substantial losses at investing in gold futures contract.