Buy paper or virtual gold, what is it?

In the investment are included many and diverse nature financial assets. So many that they would pose a sensitive decision problem among small and medium investors. One of this is one of the precious metals par excellence as in the case of gold. But it is convenient to differentiate between physical and virtual or paper gold. It is precisely the latter that we are going to discuss to offer you another idea about where you can invest your savings hereinafter. But in this case through a very special proposal, but highly original due to the proposals of the movements of this metal in the financial markets.

Well, paper or virtual gold is the one that you do not have physically but rather that you acquire through contractors. Especially through derivatives and that are materialized through various financial products. Some that you are familiar with and others may be the first time you have heard of their existence. But in any case, you may need them at some point in your life to make the balance of your checking account profitable. Especially when the state of the financial markets is not the most favorable. With decreases in its price or even worse such as a change in trend, going from bullish to bearish in a few days.

So that you are fully ready to invest your savings in a product as characteristic as this, nothing better than to know what they consist of and how they can open positions. Not surprisingly, you will now have a new and powerful instrument to take positions in a precious metal as rare as the yellow metal. In this sense, you cannot forget that gold it has appreciated during this year by just over 40%. Above other financial assets of special relevance, and among which are included the main indices of the international stock market. Where it has barely exceeded levels of 15% in the best of cases.

Importance of gold

For you to understand them better, it will be very important that you know that in the early 80s, an ounce of gold was paid at 850 dollars. The price plunged over the next two decades to 1999 at $ 250 per ounce levels and this has conditioned mining companies when it comes to making new prospects. From a supply point of view, in 2004, production decreased by 4%, the largest decrease in the last 65 years. This justifies that expectations for 2010 foresee that gold production will be cut by 30% and will be a factor that puts pressure on prices. It is important to know that it is a very inelastic offer. It takes between 4 and 7 years to extract gold once a mine has been geographically located.

One of the traditional factors that have generated the sharp falls in the price of gold have been the Central Banks. The reason for this behavior is explained by the high interest rates with which they lived. Since the possession of gold in itself does not generate any type of retribution, the Central Banks during the time of restrictive monetary policy what they did was sell or lend gold in exchange for debt of other countries. The high interest rates they made the opportunity cost of having gold in the reserves excessive and therefore the Banks were inclined to increase the supply and flood the market with gold.

Factors riesgo

Although the jewelry sector maintains a representative weight, it appears to be structurally in decline. Manufacturing fell sharply from 1997 to 2002 although in recent years it has rebounded. What is the reason for this latest rebound? How likely is it to be consistent? To answer the question, it is essential to understand that during the years 1997 to 2003 the gold demanders for recreational use were the first world countries. The some saturation coupled with the bursting of the technology bubble and the fragility of their economies inhibited demand.

In 2003 the trend changed because China, and to a lesser extent India, begin to export en masse. These currencies generate a wealth effect that triggers consumption in these traditional areas. Speaking of traditions, a curious example is found in the religious sphere. The Golden Buddhas are made through gold leaves that the faithful deposit to cover the Buddha and that they have to replace annually.

Gold-focused mining companies

Of course, it will be very necessary for you to know that gold-focused mining companies are classified under two criteria. On the one hand, because of its size, and where logically the highest risk are the small ones. While on the other hand, it also occurs between producers and exploiters. The exploiters bear the risk of searching and digging. The others, by contrast, focus on treatment and distribution.

It is also very relevant that you have some idea about where to contract this important financial asset around the world. Well, so that you do not have any kind of doubts, it will be very relevant that you know that the main market where gold, silver and other non-precious metals are traded (such as Aluminum, Copper, Lead, Nickel, Zinc or Tin) is COMEX . The exception is Platinum since the main market is TOCOM (yen) and NYMEX. In any of them you can operate. But under much more demanding commissions in the market than through the purchase and sale of shares.

Provide a greater financial culture

In addition, you cannot forget at any time that you will need greater financial knowledge to trade the yellow metal. Whichever mode you select from now on. From this general perspective, the gold market is tremendously influenced by the flows generated in the futures markets. While the correlation for crude oil is 40% on the subject of gold, the price can be explained by 80% and 90%. This is a piece of information that you should take into account if your intention is to take positions in the next few days. It will certainly be of great use to you in the operations that you are going to carry out from now on.

On the other hand, gold generates a strong volatility in the conformation of their prices. From this point of view it may not surprise you that the difference between their high and low prices in a single trading session can rise above 20% levels. A factor that is more unfeasible in other financial assets. Especially when it comes to equity markets, even in the sessions with the greatest fluctuations in prices.

Well, this data will be especially relevant at the precise moment when you are going to open positions in this precious metal. Even above other technical or even fundamental considerations. Because you cannot forget that investing in gold is one of the characteristics of all and not all users know how to operate with such a proposal. In any case, gold is one of the investments that are in fashion due to its current evolution in the markets.

Virtual gold contributions

Of course, this kind of investment carries a series of characteristics that you should take into account if you are going to take positions. Not surprisingly, it is a very innovative option and to a certain extent novel that can generate some surprises from now on. And among which the following stand out:

• At no time will you have a fixed and guaranteed return. But on the contrary, it will depend on how the financial markets evolve. In this sense, it is the closest thing to buying and selling shares on the stock market.
• It is a special investment that requires a greater knowledge by the financial markets. And more specifically the one related to the yellow metal. So that you can adjust the ticket to the most recommended prices.
• These operations do not have nothing to do with physical gold since they start from completely different conceptions. And with an investment strategy that of course have nothing to do with each other. To the point of being completely opposed from their origin.
• You will never have physical positions on this precious metal. Rather, you will base your investment on your growth prospects. As for example, on futures or derivatives contracts. With a high potential for revaluation. Although assuming many more risks than until now.
• A good part of the proposals can be materialized on products such as Investment funds, ETFs, or even from the most aggressive models that include this very special financial asset.
• Paper or virtual gold not intended for all investor profiles. But only to all those who have extensive experience in this kind of operations. That of course they are not virtual in their conception.