How to Invest in Gold Bonds

Gold bonds are an alternative investment that can provide some protection against the falling dollar if used correctly. Gold bonds are bonds issued where the interest and principal are repaid with an equivalent amount of gold, not U.S. dollars. These types of bonds are usually issued by gold mining companies, but they could be issued by any company who wishes to hedge their gold exposure. Because the price of gold fluctuates, gold bonds can represent more risk than other types of bonds and should only be invested in with the advice of your investment advisor.

Difficulty: Moderately Easy

Instructions

1. Define your reasons for wanting to invest in gold bonds. Popular reasons are as a hedge against a falling U.S. dollar (everyone buys gold for financial safety) and as protection against traumatic world events that could have economic consequences in the near future. It is critical to understand your motivation for investing in gold bonds because it tells you when it is time to invest and divest.

2. Choose the bond you want to invest in from those available to you through your brokerage account. Look for bonds with high ratings from rating agencies that will tell you the financial stability of the company issuing the bonds. The rate of return on the bonds will be measured in gold bullion so you will need to convert it to U.S. dollars using your broker's exchange rate in order to determine the rate of return as the exchange rate stands today. When the dollar falls, the bond will be worth more and, when the dollar rises, the bond will be worth less.

3. Monitor your gold bond holdings regularly. Changes in market or economic conditions could make your bond less valuable and you may wish to sell the bond to prevent further decline. Although your broker will likely inform you that he will call you if there's a change, do not rely on anyone but yourself to watch for market changes.

4. Have a mental trigger point set in advance so that you know exactly when to sell the gold bonds. This will save you time and agony trying to decide later on. You may wish to sell if the economic downturn has resolved itself or if changes in the supply or demand of gold make it weaker as a currency.

Tips & Warnings

• Find an investment brokerage that deals in gold bonds regularly. They can help you navigate through the buying and selling of the bonds.
• Never buy "gold bonds" from an advertisement or newspaper article. Only buy through regular brokerage channels to avoid the many gold bond scams out there.