Gold as Investment Instrument

InstaForex Company suggests you to get acquainted with one of the most stable and effective instruments of capital saving. Nowadays, almost every interested person can get an access to the global gold market and invest his/her funds in this precious metal. Moreover, gold can be not only a dead weight but also a profitable deposit. You can use gold in futures deals, which bring tangible yield. It is very gainful to invest in gold at the period of crises, when other investment instruments cannot give the same result.

Gold is the oldest and the most efficient measure of capital and wealth assessment. Other precious metals were used for the same purposes. Generations were changing, however, for everybody gold was a common equivalent as well as a means of payment and a commodity at the same time. The "gold standard" system exerted a great influence on the world economic development in the 19th – 20th centuries. National borders receded in the face of gold and it served as the main world currency until the 70’s of the 20th century. Due to this, operations with precious metals were under strict control. Generally, the transactions were conducted at the level of the states' monetary authorities and the international financial organizations.

However, as a result of contradictions within the system, qualitative changes took place and currency rates became floating.As a consequence, the gold's role was changed, on the legal basis it was excluded from the world currency turnover. Liberalization of gold deals began; the private individuals’ rights for physical possession of metals were expanded. The precious metals market altered, thus not only the market structure, but also its members and the line of operations changed. Nowadays, gold is no longer a payment facility; however it has not left the system of economic relations. Today the world gold market is a complex of domestic and international markets, which are almost independent from the governments’ control. All this guarantees a 24-hour global trading both in precious metals and in their derivative instruments.

The structure of the demand on the world gold market can be nominally divided into 3 sectors: hoarding at all levels, industrial and domestic consumption and speculative operations. Supply consists of precious metals, private and government reserves, processions of secondary raw materials (gold) and illegal traffic.

The main sources of supply are gold producers; the main buyers are those who use it for industrial purposes. Both appear on the market irregularly due to different factors. However, we will dwell upon surges and recessions on the market of precious metals further.

Gold markets
The international gold markets are located in such cities as Zurich, Hong-Kong, London, New-York, Dubai. Strict requirements are imposed on rather few market participants. They are usually big banks and specialized companies, which have good reputation and credit standing. Spectrum of possible transactions at the international market is rather wide. There are no taxes and customs control. Large operations with precious metals are conducted 24 hours a day, which is provided by an extensive clients' network related to gold market. The deals are not rigidly regulated, as the rules are made by market participants.

Domestic gold markets

 are the markets of one or several countries focused on local investors mainly. They are divided into open and regulated markets. The open markets are nearly all markets in Europe, for example, in Milan, Paris, Amsterdam, and Frankfurt-on-Main. The regulated markets are located in the Third World countries. On domestic markets, the operations are mostly made with small bars and coins with national currencies being the means of payment.

Black markets 

can be found in some countries of the Asian region. Their emergence is stemming from the total governmental control of the operations with gold. The black markets co-exist with closed ones. A closed market is a form of a domestic market organized radically, where the import and export of gold are banned and because of taxes’ rates the precious metals' trading is not really profitable by the reason of the domestic prices exceeding the world gold prices.

Beware Gold's Hidden Costs

There's a lot of talk right now about how gold is booming, and how gold bugs who have been stashing bullion under their mattresses over the last decade or so have made a killing.

That may be true if you look at the price of the yellow stuff per ounce. The price of an ounce of gold is up 30% in the last year or a year or 400% in the last 10 years ... but how does that relate to actual returns for investors?

The truth is that gold has steep hidden costs, and that looking at the numbers on paper doesn't tell the whole story. Here are three big costs many investors overlook.

Higher Taxes

The affinity for gold investing and a dislike of the government seem to go hand in hand, from predictions that massive government debt will render the dollar worthless to conspiracy theories that there will be another Executive Order 6102 in which Uncle Sam loots your safe deposit box and seizes your gold.

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But the biggest reason for gold investors to get mad at the feds is their tax bracket. The IRS taxes precious metal investments -- including precious metals ETFs like the SPDR Gold Trust(GLD_) and iShares Silver Trust(SLV_) -- as collectibles. That means a long-term capital gains tax of 28% compared with 15% for equities (20% if and when the Bush tax cuts expire next year).

While you may see your gold as a bunker investment, the IRS will treat you the same as if you were hoarding Hummel figurines. And that means a bigger portion of your gold profits go to the tax man.

High Ownership and Storage Costs

Maybe through some creative accounting or selective amnesia at tax time you can mitigate the tax burden of gold. But one expense you can't as easily avoid is the high ownership cost of gold. After all, it's not like you mined it yourself -- and all those middlemen between the ore and you want to get paid.

The first is that old tightwad Uncle Sam again. Even if you can avoid him going on the capital gains front, he gets you coming into gold via sales tax on most jewelry and coins. And then there are the high transaction costs and commissions that gold can carry. Anyone who has bought jewelry knows significant markups are part of the precious metals trade, and that's the same for investment gold as it is for engagement rings. The bottom line is that some of your initial buy-in goes towards the business of gold and you'll never get it back, not unlike realtor fees or broker fees.

And then there's the additional cost of storing your gold. You have to pay a fee for a safe deposit box, and if you have a lot of gold, that can run you a few hundred bucks a year for a good-sized box. Of course if you're afraid of that Order 6102 scam pulled by FDR you likely have your gold at home in a safe -- so that's a one-shot deal. But are you really foolish enough to distrust the government but trust your gold stash to be safe without insurance?

The presumed "safety" of gold is good on paper, but obtaining the actual metal and keeping it safely stored is a costly endeavor.

Zero Income

Just as the math game on gold price appreciation doesn't tell the whole story, the lack of regular payouts is another reason why the long-term profits quoted in gold are incomplete. Many long-term investors can't afford to stash their savings in the backyard for 20 years. Income is a very valuable feature of many investments and gold simply doesn't provide that.

Remember, simply looking at returns in a vacuum can't tell you whether an investment is "good" or "bad." Is it a good idea for a 70-year-old retiree on a fixed income to bet on penny stocks because they could generate huge profits? Even if those trades pay off, 99 out of 100 advisers would say something akin to "You got lucky this time, but don't tempt fate. Quit while you're ahead and don't be so aggressive."

Similarly, the volatile and income-starved gold market is not a place for everyone. Just because past returns for gold have been so stellar, that does not mean that gold is low risk or that investors who need a secure source of regular income will be well-served.

Yes, Gold Can Lose Value

Proponents of gold love to claim that gold has never been worthless like Lehman Brothers or GM. And while this is true on its face, it is actually a half-truth. While gold may never become worthless, it is foolish to think it will never lose value.

Consider that after reaching a record high of $850 per ounce in early 1980, gold plummeted 40% in two months. The average price for gold in 1981 fell to a mere $460 an ounce -- and continued nearly unabated until bottoming with an average price of around $280 in 2000. For those folks in their 40s and 50s who bought gold at that 1980 high, it took them 28 years to reclaim the $850 level. That's hardly much of a retirement plan, unless they lived to be 80 or 90 and just cashed out recently.

Gold is an investment, period. And no matter how gold bugs spin the metal as a hedge against inflation and a sure thing that will only go up, gold can lose its value -- sometimes in a hurry, as in the early 1980s.

Gold Scams Take a Toll

In a previous article, I detailed gold coin scams in detail. They include false gradings on the quality of the coins, the use of cheaper alloys instead of pure gold and even brazen scams where you don't actually even own the gold that you buy. And that's just on the coins front. Scams abound in pawn shops and "cash for gold" enterprises that refuse to give you a true value for your jewelry or other gold items.

You'd think it would be obvious that precious metals should never be purchased from anyone other than a broker or seller of good repute who provides proper documentations. But many investors fail to do their homework, or worse, can't tell forged documents from real ones.

Gold is ready-made to be a retail sales item, and with that comes all manner of unscrupulous activity. Vigilant investors can protect themselves, but do not underestimate the very real price of being taken to the cleaners by a gold scam if you don't do your homework.

Why a Strategic Petroleum Reserve Release Won't Help Oil Prices or President Obama

With oil prices showing no signs of retreat during the final months of the U.S. presidential campaign, beltway insiders are turning to one misguided solution to combat rising oil prices.

Releasing oil from the Strategic Petroleum Reserve (SPR).

Trial balloons floated all over Washington during the past few days. The only reason politicians didn't move on this sooner (say a few months ago) was the price level.

Until the last month or so, both oil and gasoline prices were heading in the other direction. Near-month futures contracts for West Texas Intermediate (WTI), the crude oil benchmark traded on the NYMEX, were below $78 a barrel in intraday trade toward the end of June, while the same futures for RBOB (the NYMEX traded gasoline contract) were at $2.55 a gallon.

At the time, all the sage pundits predicted that oil would fall below $60 a barrel; some even suggested that prices could approach $40. On the gasoline side, these same wise guys were proclaiming we may see prices at the pump breach $3.

Everything has changed quickly.

Yesterday morning the markets opened with WTI 23% higher than late June and RBOB up by more than 20%. Oil stands at more than $96 a barrel in New York, while Brent has exceeded $116 a barrel in London. And retail gas prices are once again approaching $4 a gallon.

Recently, I discussed why oil prices are moving up. But for some politicians, including the fellow running for reelection at 1600 Pennsylvania Avenue, those prices are becoming a job liability.

So it's back to hitting the SPR.

But there are four reasons why tapping the SPR won't make oil prices any cheaper in the end.

Using the Gold Stock Exchange Exchange Traded Gold

If you are interested in making some money in the stock exchange then you might be very interested in making some money in the gold stock exchange. You are going to see that there are a number of different ways that you can make money with an account like this but if you are not really sure where to start then you will want to get a little bit of background information first. This article will highlight a few of the most common things that you need to keep in mind.

First of all, you will want to open an online brokerage account. There are many different companies out there that you can utilize. If you already have an account with a current company then you can continue to do business with them. Once you have your account set up, or you have entered your current account, you are going to want to search the quote screen that is found on the brokerage account to find out how much a share of gold is going for. You will want to look at one of two major gold bullion ETF’s. The first one of these is called iShares Comex Gold Trust, the symbol is IAU, and the second one of these is called SPDR Gold Shares. The symbol for this one is GLD.

Once you know the price for each share you are going to be able to take the amount of money that you would like to invest and then divide it by the amount for each share. This will give you an idea of just how many shares you are going to be able to purchase comfortably. You will then select the symbol of the ETF that you would like to invest in. Now, you should know that you are not going to be required to stick with just one ETF. If you would like to make a purchase in both, or even others that are out there, you are going to be able to do just that. It is up to you.

You will then want to watch the price of gold to determine if and when you would like to sell what you own. You are going to be able to carry out this task through your account just like you did when you purchased the gold. However, instead of clicking the buy option you are going to use the sell option. This is how you are going to make your money.

Things to Consider with Gold Prices

There are a lot of individuals that are going to tell you that they have seen all of the commercials related to buying and selling gold that have been on the television and on the radio lately. You are going to see that many people have decided that they would like to try to make some extra money off of their broken gold that may be lying around the house. While this may be a great thing to do and a wonderful way for you to make some extra money, you will want to make sure that you are getting the best prices out there.

Taking the time to learn about the different things that you should consider in relation to gold prices would be the fact that there are going to be some transaction costs associated with the entire process. You will find that you are not actually getting as much money as you thought when the process is over because there were different transaction and handling fees associated with the entire process. If you are concerned about what these fees are going to be then you will want to speak with a professional and discuss these fees in advance. Then you can decide if you would like to use this company or not.

Next, you may find that different dealers are going to offer you different prices in relation to the gold you are selling. Because of that, you will want to be sure that you are doing a little bit of research in advance. You will want to know what the going rate is for gold so you are able to decide if you are making a good deal or not. You may find out that you will be better off going with a different company. If you have really spent some time researching then you will be able to compare the transaction costs along with the price that you are going to receive for your gold. All of this information will be able to help you decide who you want to sell to.

Finally, you are going to find out that you may be able to send your gold through the mail. This is nice if you are not able to get out and about but you really want your money. However, you will see that there are some companies that are not going to ensure your gold. It really does not matter what the gold prices are going to be if you are not going to be insured. Just think about how much money you could lose if you send your gold through the mail and it ends up lost or stolen. You want to know that any company you are using is going to insure you.