Seen as one of the most popular investment and savings tools in many countries, gold is the safest haven for many investors in protecting the value of their savings against the risk of inflation and depreciation of paper money. In this post, we will find out how gold investment works and how you can start doing it.
Gold Investment 101
How are gold prices calculated?
Gold prices are determined in US dollars per ounce (1 ounce = 31.10 grams) in international markets. Although gold investment seems simple, unlike other investments, it has high volatility in the short run, as it is simultaneously affected by the value of your country’s currency against the US dollar and the changes in the value of gold in terms of US dollars.
How to buy gold?
For those who want to use their savings by investing in gold, a wide range of investment products is available today. Until recently, investing in gold meant only physically purchasing gold from the market. However, in addition to the traditional gold investment, which consists of physically purchasing gold from jewelers for safekeeping in bank vaults or at home, investors are now able to purchase gold over the internet, purchase gold-linked lease certificates and bonds, gold participation funds, or deposit, demand or cumulative gold in banks. They can invest in gold by opening an account.
Buying Gold from a Jeweler
Those who buy physical gold for investment generally prefer to shop from jewelers for convenience. Gold coins in the form of quarter, half and full coins and ornaments, minted by the jewelers, are produced by the country’s mint. Certified gold bullion of various sizes, called gram gold, produced by many companies, can be purchased.
Buying Gold Online
Buying gold online has become an increasingly common method. Investors can buy physical gold over the internet as well as buy intangible gold to open gold accounts or invest in gold-based capital and money market instruments. Just as physical gold can be bought from online trading sites, gold can be bought by opening a gold account in banks for investment purposes, by purchasing gold participation funds.
Opening a Gold Account at the Bank
Many banks open a gold account just like they open a time deposit or demand deposit account. Investors who want to invest in gold and store physical gold assets securely can open a gold account at the bank. Time deposit accounts provide interest income over the specified interest rate according to the maturity period. On the other hand, demand gold accounts do not generate any interest, they only ensure that the gold is safely stored in the bank against the risk of being stolen or lost without paying any account maintenance fee or any other fee.
Investing in Gold with Gold Futures Contracts
In your country’s Futures and Options Market, gold investments can be made with derivative instruments whose underlying asset is gram gold. 1 gram gold purchase or sale contract is made in return for a contract.
Investors take long or short positions in gold forward contracts, according to the prediction that the underlying asset, that is, the price of gold, will rise or fall within the contract maturity period, as in other futures contracts, and in case the gold prices move in line with their predictions, they earn a profit in return for a commission of 0.05%. Investors who anticipate that the price of gold will rise within the maturity period of the relevant contract open a long position with a forward gold contract, that is, they buy a purchase contract at the contract price. If it rises in line with the expectation, the investor will make a profit in proportion to the contract size and as much as the difference, otherwise, if the gold price drops, he will lose as much as the price difference. In the opposite case, if the investor predicts that the gold price will fall within the contract term, he takes a short position and if the gold price falls in line with the expectation, the investor will make a profit equal to the difference, otherwise he will lose as much as the difference.
Gold mutual funds, called gold participation funds, also allow investing based on gold without buying physical gold. Gold participation funds can be purchased via internet banking or the websites of issuer institutions.
Gold Bonds and Lease Certificates
Gold bonds and gold-based lease certificates, which are usually issued by your country’s Ministry of Treasury and Finance and offered for sale through banks, aim to bring savings under the pillow into the economy. These products, which can be purchased online, provide tax exemption and an annual interest of 2.40% with semi-annual payments as well as gold investment.
How to Open a Gold Account in the bank?
Among the banking products offered by many banks, there is a gold account option under various names for investors who want to save and invest in gold. Investors can open a gold account by buying gold in grams or centimeters from the bank or by taking the physical gold they have to the branch. Gold accounts can be opened as time deposits or demand deposit accounts. Time deposit accounts also provide interest earnings to their investors. No interest is charged in demand gold accounts, only the purchased gold is kept securely.
If you want to open a time deposit or demand gold account at a bank, you can go to a branch of the bank where you have your account in person or open a demand gold account through telephone banking and internet banking. To open an account, you can open an account by transferring the amount of gold that you will buy from the current local currency or foreign currency account in the bank.