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Gold is a raw material that belongs to the group of precious metals. It is widely used and, contrary to appearances, it is not only used in jewelry.

Gold is a raw material that belongs to the group of precious metals. It is widely used and, contrary to appearances, it is not only used in jewelry. Gold is used as an important raw material, e.g. in industry or electronics. It is also an investment value, which is especially useful when there is a bear market on the world stock exchanges. With market turbulence, many investors decide to allocate their funds using safe investment havens, which include gold. How to invest in this precious metal?

Paper and physical gold

In terms of investment, gold can occur in its standard physical form, mainly in the form of bars, bullion and collector coins, and even jewelry. However, the second way of investing in gold consists in choosing the so-called paper gold, where the investor does not buy the actual precious metal, but documents that will allow him to conduct investments using, for example, the price of gold on world markets. Let's see how to choose the right instruments for investing in gold in practice.

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Investing in physical gold

A common way to invest in gold is to choose its physical form. Compared to investments in other types of raw materials, it is possible here. In particular, this mode of investing their funds will be recommended for those investors who treat gold as a hedge for the future or want to introduce it to their investment portfolio to protect themselves against a decrease in the value of money over time.

Most often, when investing in physical gold, bullion bars or coins are chosen for this purpose. Collector coins or gold jewelry are not the best investment method because they do not reflect only the value of the pure gold that was used to create them.

Amateur and novice investors who are not familiar with numismatics or jewelry should not buy gold in the form of jewelry and collector coins. It is much easier for them to invest in bullion bars and coins, but they should always come from well-known suppliers, e.g. from the mints of the countries that provide certificates of authenticity for the offered gold.

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When conducting investments using physical gold, however, there is a problem that such investments are not characterized by high liquidity and it is difficult to withdraw from them, e.g. partially. If there comes a moment when an investor wants to sell some of the gold, and he only has quite large bars, then they cannot be divided. In addition, physical gold must be stored in secure conditions to protect it from thieves.

Investing in gold on paper

In addition to gold bars or coins, investors can invest in gold without having to buy its physical form. First of all, ETF investment products, i.e. Exchange Traded Funds, are used for this. Investing in gold in this form consists in purchasing units of mutual funds listed on the stock exchange. These funds have in their portfolio physical gold, shares of gold mining and processing companies, as well as gold futures contracts from the derivatives market.

There are not only ETFs that buy physical gold or those that buy gold futures, but also ETC or ETN funds. The former is otherwise Exchange Traded Commodity, and the latter is Exchange Traded Notes. The investor may choose shares of mining and processing companies. It consists in selecting on the domestic or foreign stock exchange the shares of companies that are associated with the extraction and trading of physical gold.

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Investments in OTC market instruments, including currency exchange rate (CFD) contracts, due to the use of the leverage mechanism, entail the possibility of incurring losses exceeding the value of the deposit. It is not possible to make a profit on transactions on OTC instruments, including currency exchange contracts (CFDs) without risking a loss, therefore contracts for exchange differences (CFDs) may not be suitable for all investors.

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