Discover the Secret Strategy Investors Use to Strike Gold with Dollar Cost Averaging!
What is Dollar Cost Averaging (DCA)?
Dollar Cost Averaging is a strategy of making regular investments in an asset regardless of the asset's price movements. The idea is to spread the cost of an investment over a period of time to help reduce the impact of volatility over the same period. This can help investors to build a better portfolio since they do not need to time the markets.
What are the benefits of Dollar Cost Averaging in relation to buying gold?
In relation to buying gold, using Dollar Cost Averaging can reduce your risk of purchasing gold at a price that is too high. The strategy works well in a market with a high degree of volatility, such as gold, as it allows an investor to accumulate an asset at an average price. This can help an investor gain the benefits of a higher overall return, as the average purchase price of their gold investments will likely be lower than if they had purchased all the gold at once.
Who invented Dollar Cost Averaging?
Dollar cost averaging was developed by University of Chicago graduate and Nobel Prize-winning economist Paul Samuelson in the mid-20th century.
What is the monthly mean variation in the price of gold?
The monthly mean variation in the price of gold varies significantly and is impossible to accurately predict. Generally, gold prices can be influenced by a number of economic and political factors, including inflation, economic growth, and investment demand. It is important to note that the monthly mean variation in gold prices may vary over shorter or longer periods of time, such as during seasonal or holiday months.
What was the biggest daily drop or rise in the gold price?
According to the World Gold Council, the biggest daily drop in the gold price occurred on July 6, 2020, when the price of gold fell by 3.2% from around $1,797 per ounce to $1,745 per ounce. The biggest daily rise in the gold price occurred on October 12, 2020, when the gold price rose by 4.6% from around $1,885 per ounce to $1,972 per ounce.
Can limit orders be used in conjunction with Dollar Cost Averaging?
Yes, limit orders can be used in conjunction with Dollar Cost Averaging. When using Dollar Cost Averaging, the investor is splitting their contributions into the asset across multiple transactions over a period of time. If the investor wishes to limit the purchase price of the asset, they can do so through the use of limit orders, which allow them to specify a maximum amount that they are willing to pay for the asset.
Can you easily predict the peak or lowest price of gold looking forward?
No, it is impossible to accurately predict the peak or lowest price of gold looking forward. The price of gold can be affected by many different factors, such as the political and economic climate, demand and supply of gold, central bank policies, and currency movements. It is also highly volatile, meaning it can be impacted by sudden changes in the market. As such, accurately predicting the future price of gold is not possible.
Do investment funds use Dollar Cost Averaging?
Yes, many investment funds, such as mutual funds, may use the dollar cost averaging strategy when managing investments for the purpose of reducing the overall risk of investing. This strategy calls for investing a fixed dollar amount of money at regular intervals, regardless of the price of the asset. This may be especially important when making investments during market downturns or when dealing with volatile securities.
How to invest in gold using Dollar-Cost Averaging
Gold ETFs and Mutual Funds
Investing in gold-based exchange-traded funds (ETF) and mutual funds allows investors to divide the amount of capital invested into smaller pieces and buy them at regular intervals. This dollar-cost averaging method helps investors to purchase gold at various prices and to gain exposure of investments in gold. However, when buying gold via an ETF you do not have direct ownership of physical gold, you are buying a share in a fund that may or may not be backed by physical metal.
Gold Savings Accounts
Numerous banks and credit unions provide a service where you can open a gold savings account, which holds physical gold. Instead of paying for the entire gold amount upfront, investors can distribute their capital into smaller instalments and make regular contributions to their account. However, it's crucial to understand that this gold is typically 'unallocated', meaning the custodian can lend it out, and its availability when you require it is not guaranteed.
For those investors who want to own physical gold, they can purchase small amounts of physical gold using dollar-cost averaging. This strategy allows investors to spread their investments over time, buying at different points in the market, rather than needing to buy large amounts of gold all at once. You have the benefit of having possession of your gold however physical gold bars and coins come with high margins that increase the cost of buying the physical gold and the security risk associated with storing your gold.
A Gold Futures Contract, often termed as buying 'paper gold', deviates from the direct purchase of physical gold. This kind of contract signifies a commitment to pay for and receive gold at a future date, known as the 'settlement day'. However, it's important to underline that this process introduces an increased level of risk. The focus here is on speculative trading, where traders can repurchase what they've sold or dispose of what they've acquired before the settlement day, which doesn't involve the immediate handling of physical gold. Although this system facilitates faster and larger scale trading compared to dealing with immediate physical gold transactions, it comes with heightened exposure to market volatility and risk.
Our gold savings and payments platform enables you to easily buy, save, sell, send and spend gold using the Glint App and Mastercard. The gold is allocated which means you are the outright owner of the physical gold. In other words, the gold is not part of Glint's or storage provider's balance sheet, and it cannot be used by Glint for its own purposes. Should anything happen to Glint or storage provider, such as insolvency, your allocated gold is safe and remains your property. This contrasts with unallocated gold, where the gold you "own" is essentially a book entry and could be at risk if the provider or storage provider runs into financial trouble. With Glint your gold is securely vaulted by Brinks (one of the world’s biggest custodians of precious metals) and insured by Lloyds of London. Glint is also the 1st platform in the world to enable gold as everyday money in electronic payments via the Glint Mastercard and App. The Glint App has a feature that enables Dollar Cost Averaging of gold by allowing you to set-up an automatic repeat gold buy.