If you are new to gold investing, it can seem daunting and even confusing, especially when you discover there is more than just one way to invest. Indeed, there are several different ways, each with its own benefits and disadvantages. In this guide, we outline the top 5 ways to invest in gold to help you decide which gold investment product is best for you.
Is Gold a Good Investment?
Having gold in your investment portfolio has long been seen as a must for any serious investor. Ask any financial advisor, and you will likely be told that gold should make up 10% of your portfolio. The reason you should hold gold is primarily as a hedge against inflation, interest rates, economic turmoil, and market volatility. By investing in gold, you can diversify your portfolio and protect your wealth by holding an asset that has historically been proven to be a safe haven during uncertain times.
1. Physical Gold (Bullion)
Physical gold refers to gold bars or coins, which is often called bullion. Physical gold comes in various weights and purities and from different producers. Its weight and purity must be certified, and the gold will usually have a serial number for added security. Standardised physical gold bars and coins can be bought through dealers, such as the APMEX, JM Bullion, and Gold Survival Guide.
The benefits of holding physical gold include owning a tangible asset that could be used as currency if required. The main drawbacks of buying physical gold are that you will likely need to pay for storage and insurance, and there is a risk the gold could be stolen. There is also a counterfeit gold market that investors must be wary of. Buying from a reputable dealer, like Gold Survival Guide, is the best way to ensure you receive verified, authentic gold.
Find out more about storing gold here.
One of the more common types of gold investing, although people may not think of it as such, is investing in gold through buying gold jewellery. Generally, purchasing gold jewellery that is 14 karats or higher is considered an investment.
The main advantages of purchasing gold jewellery are its availability and its size, which makes it relatively easy to store and transport. Unfortunately, its size and ease of transport also mean that it is vulnerable to being stolen if not stored securely. It can also be more difficult to get a fair return on your investment after you factor in the fees that jewellery dealers will charge to cover their costs.
3. Gold ETFs & Mutual Funds
Gold exchange-traded funds (ETFs) and mutual funds allow you to hold an asset that tracks the price of gold without having to buy and secure actual physical gold. ETFs or mutual funds are relatively easy to invest in as they can be traded like stocks through a typical brokerage account. Many gold ETFs or mutual funds also invest in other commodities, which means your investment is more diversified.
The main drawbacks of gold ETFs and mutual funds are the fees and price fluctuations that can occur when exposed to market volatility. Most of the major ETFs will also charge you an annual fee, called the expense ratio. However, the fees are often much lower when compared to the management fees charged by other investment options.
4. Gold Futures
When you invest in gold futures, you buy contracts that give you the right to buy or sell gold at a certain price on a certain date. Gold futures are mostly used by traders to speculate on the direction of the price of gold and by gold producers to hedge against unfavourable price movements. Futures can be traded through brokers; although, not all brokers provide the service.
Investing in gold futures provides a lot of leverage or the ability to own a lot of gold futures for a relatively small amount of money. However, if the price moves in the opposite direction than expected, futures investors will be required to invest more capital to maintain the contract. In short, investors can make a lot of money with gold futures, but they can also lose a large amount just as quickly. Therefore, investing in gold futures is more suited to experienced investors.
5. Gold Mining Companies
Investors can also get exposure to gold by buying shares in gold mining companies, like Newmont Goldcorp (NYSE: NEM) and Barrick Gold (NYSE: GOLD). Historically, gold mining stocks have followed the price of gold, but the price volatility tends to be more extreme, with sharp price movements that may alarm beginner investors. To lower the risk and reduce volatility, investors can also invest in gold mining ETFs and mutual funds, which hold various gold mining stocks.
The gold mining industry comes with some unique risks, such as environmental, safety, or ethical concerns, that could significantly affect a mining company’s stock price. However, to counter the risks, mining companies will take precautions to limit their risk, precautions that also help to protect investors.
If you are leaning towards investing in gold mining companies, be aware that it usually requires significant research to identify the best mining companies or ETFs to invest in. Got more questions? Find out more by talking to the experts at Gold Survival Guide.