Gold has long been regarded as a hedge against nearly any kind of risk, from inflation to economic upheavals, to currency fluctuations, to war.
You don’t have to limit yourself to buying physical gold, such as coins or bullion, when thinking about investing in gold.
Gold exchange-traded funds (ETFs) or shares of gold mining companies are other options for investing in gold. You can also invest in gold by trading futures and options.
Gold Investments: What to do?
For investors accustomed to trading stocks and bonds online, investing in physical gold can be challenging.
Generally, you’ll interact with dealers outside of traditional brokerage houses when it comes to physical gold, and you should consider getting insurance for your investments.
Bullion, coins, and jewelry are the three main ways to invest in physical gold.
Bullion is what most people think of when they consider investing in gold-big, shiny gold bars locked away in a vault.
In addition to rounds of a few grams up to four ounces in weight, gold bullion bars are most commonly available in one- and ten-ounce sizes.
Gold is currently priced at $1,900 per ounce (as of September 2020), so investing in gold bullion is an expensive endeavor. Gold bars are unlike stocks in that it is not possible to purchase fractional shares.
Because gold bullion is so expensive, it is especially important to use a reputable dealer and pay for delivery and insurance, or to store it in a large vault or safe deposit box.
Keep up-to-date on gold prices if you choose to buy gold through bullion. Dealers update prices based on the current spot price of gold.
To buy physical gold using your IRA, I recommend investing gold with Regal Assets. They are one of the most reputable companies in this field. You can read this detailed Regal Assets review here.
Gold coins usually weigh one or two ounces, but half-ounce and quarter-ounce coins are also available.
The most widely available gold coin type is collectible coins, such as South African Krugerrands and Canadian Maple Leafs.
Blanks and worn or damaged coins are also sold by some dealers.
Despite their gold content, gold coins may not necessarily be priced according to their gold content. The value of collectable coins is often high, especially those in high demand.
The price of an American Gold Eagle coin, for example, is approximately $2,000 at mid-September 2020. Compared to gold bullion, that’s nearly a 5% markup.
Even if you can find better deals on gold coins from local collectors or pawn shops, it’s still safer to make purchases from a reputable, licensed dealer.
In addition, you may choose to buy gold in the form of jewelry you can wear, or that someone once wore but has been damaged.
The risks of investing in gold jewelry, on the other hand, are far greater than those of pure gold.
As a rule, secondhand jewelry is not always sold by reputable dealers, so you should be cautious of what you buy.
It’s important that the piece is authentic, not only for you, but also for anyone you try to sell it to. Obtaining as much documentation as possible and buying investment jewelry from a reputable dealer is therefore imperative.
A certain amount of markup will be imposed on the jewelry based on who manufactured and designed it. There could be a difference of up to three times the value of the precious metal’s raw form.
Additionally, you need to check the purity of your jewelry, which is its gold percentage. A gold bar is defined as 100% pure when it has a 24 karat.
If your jewelry was melted down to pure gold, a piece of jewelry of lower purity has a lower melt value, or how much gold would be in each component.
Invest in gold by purchasing gold mining stocks
Stocks of companies that mine, refine, and trade gold are much simpler to invest in than physical gold.
If you wish to invest in gold mining stocks, you can use your brokerage account.
Among the most popular stocks in this sector are:
The Newmont Corporation (NEM): Colorado-based Newmont is the world’s largest gold mining company. The company operates mines in North and South America as well as Africa.
Barrick Gold Corporation (GOLD): The gold mining giant is based in Toronto and operates in 13 countries around the world.
Franco-Nevada Corporation (FNV): Gold mines are not owned by Franco-Nevada. Rather than buy royalties from other miners, it buys the rights to royalties from others.
Remember, though, that the shares of stock of gold companies are correlated with gold prices, but they are also based on the profitability and expenses of each company.
Individual gold companies carry the same risks as other stocks, which means investing in them carries similar risks.
You can experience some volatility when investing in single stocks, and they don’t provide the same level of security as diversified funds.
Invest in Gold ETFs and Gold Mutual Funds
You can get exposure to gold’s long-term stability while enjoying more liquidity and greater diversification than investing in individual gold stocks by investing in gold ETFs and mutual funds.
Gold funds come in a variety of forms. A passively managed index fund tracks the price of bullion or industry trends using futures or options.
SPDR Gold Shares ETF (GLD), for instance, holds physical gold and deposit receipts, and its price tracks the price of physical gold.
While the VanEck Vectors Gold Miners ETF (GDX) tracks a basket of gold mining and refining companies, it is passively managed.
Gold fund managers like Franklin Templeton’s Gold & Precious Metals Fund have their hands actively in the gold market.
A passively managed index fund’s aim is to beat its return. Their expense ratio is relatively high in exchange for this.
Remember that you don’t really own gold, but paper that is theoretically backed by debt or equity of a mining company or futures and options contracts backed by physical bullion.
Consequently, gold mutual funds and exchange-traded funds may not match up with gold’s market price, and their performance may be different from physical gold.
Invest in gold using futures and options
Trading futures or options contracts, a form of speculative investing, is the riskiest way to invest in gold.
A derivative is a financial instrument whose value is entirely determined by the price of the underlying asset.
There is no market condition that determines whether it is a better time to buy or sell a security in a futures contract.
An options contract is an agreement that lets you buy or sell a security if it reaches a certain price by a certain date.
You must have an account with an online brokerage that offers futures and options in order to invest in these products.
Most online brokerages permit trading in these securities, but they may ask account holders to sign additional forms acknowledging the risks of investing in these derivatives.
The platform allows you to directly buy and sell options and futures after you establish a brokerage account.
Options and futures trading platforms usually charge a commission based on the number of contracts you purchase or sell.
In order to sell, rollover, or exercise their options before they expire worthlessly, investors who invest in gold through options or futures contracts need to actively monitor their holdings.
Furthermore, each of these options carries a certain level of leverage, or debt, by default, which can lead to severe losses for investors if they use them excessively and suffer market losses.
Should You Invest in Gold?
Gold may offer you a safe haven if you’re concerned about inflation and other calamities. Gold has remarkably held its value over the very long run, even though in the short term it can be just as volatile as stocks.
You can invest in physical gold, gold stocks, gold ETFs and mutual funds, or speculative futures and options contracts based on your personal preferences and level of risk tolerance.
No matter what form of gold you choose, most advisors recommend allocating no more than 10% of your portfolio to it.
Investing involves some risk. Gold is no exception. A lot of learning is required on the idiosyncratic gold market.
The fact that gold ETFs and mutual funds offer such stability and sparkle makes them the preferred investment option for investors seeking to invest in some gold.