How to Invest in Gold Market – How Precious is Gold?
Gold is a precious metal that doesn’t corrode, decay or rust. It is very shiny and catchy. This has led to its immense value in the market of precious metals. People are attached to it both physically and emotionally due to its distinct properties, even a gold plated metal draws so much attention compared to gold in its pure state.
Because it doesn’t age, corrode or rust people tend to invest in gold a lot and the value also tends to appreciate. Gold is found in some certain regions mostly in regions with a lot of highlands, mountains and water ways.
The tilling of the ground to get gold is very expensive and the amount discovered is not abundant. This has led to the unchanging high value of gold. It is used to produce limited editions of jewelries, gadgets and automobiles which cost millions in dollars.
Since, it is not dominant in nature like the soil on the ground, its value has continued to increase despite the discovery of other precious metals like cobalt, rubies and diamonds. Families and countries have been able to build empires by investing in gold mining.
It has contributed to the gross domestic product of nations like South Africa, Ghana, United States of America, Indonesia, Australia and Canada.
Where Can Gold be Found? [How to Invest in Gold Market]
Gold is predominantly found in regions with a lot of rocks, boulders and waterlines. Gold is not spotted at once. In order to detect the presence of gold in a place, you will notice some quartz present.
Gold is found along the veins of quartz. It occurs as particles and scales scattered through it, which will be mined. The presence of little fragments of gold along a quartz or under a boulder is seen as a win for every miner. It tells them that gold is present in that area and they should continue mining.
What are the Methods used in Gold Mining?
People mine for various reasons, some mine domestically while others mine commercially. This affects the techniques or method used by various individuals in mining. The various mining techniques include:
Placer mining: This technique which involves gold that has been accumulated in a placer deposit is extracted. Placer deposits are composed of relatively loose material that makes tunneling difficult. This creates room for extraction using dredging or water.
Panning: Gold panning is a manual technique of separating gold from other materials. Wide, shallow pans are filled with sand and gravel that may contain gold. The pan is submerged in water and then shaken, which then sorts the gold from the gravel and other materials. Gold is denser than rock, it quickly settles at the bottom of the pan. Gold panning is the most practical and quickest technique for searching for gold, but it is not commercially viable for extracting gold from large deposits.
Sluicing: it involves using a sluice box which is usually man made with riffles set in the bottom. The riffles are set to create dead zones in the current to allow gold to drop out of suspension. The box is then placed in the stream to channel water flow. The material is carried by the current through the volt where gold settles.
Dredging: This involves using small machines that float on the water and are usually operated by one or two people. The suction dredge which consists of a sluice box that is supported by pontoons, attached to the suction hose which is then controlled by a miner working beneath the water.
Rocker box: It is also known as a cradle. It uses riffles situated in high walled boxes to trap gold in a similar way to sluice box and is well suited for areas where water is limited. A rocking motion provides the water motion needed for the gravity separation of gold in placer materials.
How to Invest in Gold Market – How Valuable is Gold?
Unlike other valuable materials such as oil, gold cannot be used up. It is a permanent metal that doesn’t rust or diminish. It can only be melted and reshaped into something else but it cannot be used up or destroyed.
Materials like oil are regularly consumed by people through gas, petrol and other fuel products. This has brought about the demand and supply market of products like oil regulating the price based on the demand in the country or world at a particular point in time.
Gold cannot be used up so the demand and supply curve is unlike the oil and petroleum curve. Gold is a giften/ inferior good, therefore the supply increases only when the demand for it is low.
This is almost impossible given the manner in which gold has been used in producing jewelries, gadgets, automobiles and furniture. The value tends to appreciate because of the high demand in the market and the limited gold in the earth.
Limited gold supply has not matched the demand for gold plated luxuries allowing the value to increase. Gold has also been used as a means of payment in so many countries. Empires were rose and fell because of their affection for gold.
Where can You Learn about the Gold Market?
The best place to learn about the gold market is the stock exchange market. It allows you monitor the stocks of gold mining and processing companies. This will enable you decided where and when to invest in gold mining stocks.
Important information such as how high or low the price of gold goes and miners profit or loss margins. For example if a mining company has a profit margin of $500 when the price of gold is $2500. If the price increases by 30%, to $3250 an ounce, the operation margin of the golf miners goes up to $600, a 50% increase.
Also, other sources of information to consider when learning about the gold market apart from gold mining stocks include political risks such as problems from the locals or hijacking of operations by the government and insecurity issues since most mining activities are in third world countries which could make it difficult maintaining a consistent activity of gold mining and production leading to an inconsistent level of gold production.
What are the Crucial Facts You must know before You invest in a Gold Market?
Consumable commodities of high value have a pricing power which is affected by demand and supply. The demand for the goods affect the price and supply of goods. Unlike inferior consumable goods gold doesn’t have a pricing power, therefore inflation is unlikely to take a toll on gold. It may occur in rare occasions.
The important thing to consider before you invest in commodity based businesses is looking for minimal cost producers. If you aren’t comfortable with this, you can consider inflation securities like treasury inflation protected securities (TIPS).
They are treasury security tips which are indexed to inflation in order to protect investors from a decline in the purchasing power of their money. Once, inflation arises, TIPS adjust in price to maintain its real value.
TIPS are popular asset for both protecting portfolios from inflation as well as profiting from because they pay interests every six months on the basis of a fixed rate determined at the bonds auction.
The interest payment amounts can vary since the rate is applicable to adjusted principal or value of bond. Conversely, investors will receive lower interest payments if deflation occurs.
How to Invest in Gold Market – Importance of Investing in the Gold Market?
Purchasing and owning of gold has been seen over the years as a lucrative means of investing ones income because of its undiminishing nature and value. During times of economic meltdown, people tend to invest in gold because of the diminishing effect of recession and lack of economic activities affecting the value of a country’s currency.
The value of gold doesn’t depreciate due to a countries economic activity because it doesn’t affect the demand. It has been seen as a safe means of investing income which could even appreciate.
Gold is seen as a means of payment like cash and crypto currencies. It gives you an international value that your currency may not provide. Gold cannot be destroyed, it can only be melted and remade into something else.
It has an everlasting insurance from destruction. The only casualty you encounter from owning gold is theft, but this is solved and no longer a problem because we advise people not to store their gold at home. It reduces the risks compared to other valuable materials like money and oil.
Our Recommended Companies to help You Purchase Your Gold
We highly recommend two companies, which are –
- Augusta Assets Company.
- Bullion Vault Company.
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