Gold has historically been one of the most popular investments for protecting against practically any kind of crisis, including inflation, economic instability, currency changes, and war.
Don’t limit yourself to merely purchasing real gold in the form of coins or bullion when you consider investing in gold. Purchasing shares of gold mining firms or gold exchange-traded funds are alternatives to investing in gold (ETFs). Trading options and futures contracts is another way to invest in gold.
How to Make Physical Gold Investments
For investors more accustomed to internet stock and bond trading, investing in real gold can be difficult. You’ll typically deal with dealers other than standard brokerages when buying physical gold, and you’ll probably have to pay for storage as well as insurance for your investment. Bullion, coins, and jewelry are the three primary forms of physical gold investment.
Bullion—large, gleaming gold bars secured in a vault—is what most people envision when they consider investing in gold.
Gold bullion is offered in bars with weights ranging from a few grams to 400 ounces, but one- and 10-ounce bars are the most popular sizes. The cost of purchasing gold bullion is high given that the price is currently at $1,900 per ounce (as of September 2020). A fractional share of a gold bar cannot be obtained, unlike stocks.
Due to the high cost of gold bullion, it is particularly crucial to select a trustworthy dealer, pay for delivery with insurance, or pay for storage at a sizable vault or in a safe deposit box.
If you decide to invest in gold through bullion, it’s also a good idea to monitor gold prices so you can decide when to buy because most dealers base their prices on the most recent spot prices.
Although half-ounce and quarter-ounce coins are also available, one or two ounce gold coins are the most popular. The most accessible kind of gold coins are collectible coins like South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles. Even blank coins and worn or broken coins are sold by certain vendors.
However, the pricing of gold coins may not always correspond to their gold content. Coins that are popular collectibles typically command a premium. Mid-September 2020 will see the selling price of a one-ounce American Gold Eagle coin at little over $2,000. That is a nearly 5% markup over an equivalent amount of gold bullion.
Even while you might be able to get better rates on gold coins from neighborhood collectors or pawn shops, it’s usually safer to buy them from a reliable, authorized vendor.
You can also decide to purchase gold in the form of jewelry, which you can wear or that has previously been worn but has been harmed. However, there are numerous hazards associated with investing in gold jewelry as opposed to pure gold.
First off, not all used jewelry is sold by reliable merchants, so you need to be cautious when making jewelry purchases. Authenticity is important to you, but it’s also important to anyone you try to sell the piece to. Therefore, it is essential that you purchase investment jewelry from a reputable vendor and collect as much supporting documents as you can.
Second, the markup you pay will depend on the firm that created and produced the jewelry. This could range from 20% to more than three times the raw value of the precious metal.
You should also be conscious of the purity, or the gold content, of your jewelry. The karat scale is used to determine the purity of gold, with 24 karat gold being the purest form. Lower purity lowers the melt value of your piece, or the value of the raw materials that make up your jewelry if it were melted down to pure gold.
Purchase Stock in Gold Miners to Invest in Gold
A much simpler option than purchasing physical gold is investing in the stock of firms that mine, process, and trade gold. You can invest via your brokerage account since this entails purchasing equities in gold mining firms.
Several of the most well-liked stocks in this industry are:
- Company Newmont (NEM). The largest gold mining business in the world, Newmont, is based in Colorado. In addition to Africa, it also runs mines in North and South America.
- the company Barrick Gold (GOLD). With its global headquarters in Toronto, this massive gold mining company has operations in 13 nations.
- French Nevada Corporation (FNV). There are no gold mines owned by Franco-Nevada. As an alternative, it purchases royalties from other gold miners.
But keep in mind that while gold prices and the value of gold firm stock are associated, these fundamentals also include each company’s present profitability and operating costs. It follows that investing in specific gold firms entails the same dangers as investing in any other company. Single stocks do not offer you the security of diversified portfolios and may experience some level of volatility.
Purchase gold-related ETFs and mutual funds
You can gain exposure to gold’s long-term stability by investing in gold ETFs and mutual funds, which offer greater liquidity than physical gold and greater diversity than individual gold equities. Gold funds come in a wide variety of forms. Some are passively managed index funds that use futures or options to track market trends or the price of gold.
For instance, the SPDR Gold Shares ETF (GLD) monitors the price of real bullion while also holding gold coins and deposit receipts. While tracking an underlying basket of stocks from gold mining and refining industries, VanEck Vectors Gold Miners ETF (GDX) is a passively managed vehicle.
Professional investors actively manage gold mutual funds, such as Franklin Templeton’s Gold and Precious Metals Fund. These funds strive to outperform passively managed index funds in terms of returns. They want relatively high expense ratios in return.
Just keep in mind that when you purchase gold-backed paper, whether it be through futures and options contracts for physical bullion or gold-backed debt or equity of mining firms, you are not actually purchasing gold. As a result, the value of gold mutual funds and exchange-traded funds (ETFs) may not exactly correspond to the gold market price, and these assets may not perform similarly to actual gold.
Invest in gold using futures and options
Trading futures or options contracts, a type of speculative investment, is the riskiest way to invest in gold. Futures and options are derivatives, meaning that the price of the underlying asset serves as the sole basis for determining their value.
Regardless of the state of the market, a futures contract is an agreement to purchase or sell a securities at a fixed price on a specific date. In contrast, an options contract is a legal document that grants you the right to buy or sell an asset if its price reaches a specific level on or before a specific date.
You must have an account with an online broker that sells futures or options in order to invest in those products. It is possible to trade these assets through many online brokerages, although some of them could need account holders to sign supplementary documents admitting the risks associated with doing so.
You can purchase and sell options and futures directly through the site once you’ve opened a brokerage account to trade them. For all options and futures trades, the majority of platforms impose a commission that fluctuates depending on how many contracts you buy or sell.
In order to sell, roll over, or exercise their options before they expire worthless, investors who want to invest in gold through options or futures contracts must regularly track their holdings. Additionally, each of these choices comes with a certain amount of leverage or debt by default, which means that investors who abuse them and suffer market losses might quickly see their losses grow.
Do You Want to Invest in Gold?
Gold may provide you with a safe refuge for investment if you’re worried about inflation and other disasters. Although it can be just as volatile in the short term as equities, gold has surprisingly kept its value over very long periods of time.
You may decide to invest in actual gold, gold stocks, gold ETFs, mutual funds, or speculative futures and options contracts, depending on your personal preferences and level of risk tolerance. Regardless of the type of gold you select, the majority of consultants advise you to only invest no more than 10% of your portfolio in it.
Investing involves risk in any form. The same applies to gold. The peculiar gold market, however, is difficult to understand and is not forgiving. As a result, for the majority of investors wishing to add some of gold’s stability and radiance to their portfolios, gold ETFs and mutual funds are the most secure option.