Few investments have been as popular as gold throughout history to protect against any type of trouble. This includes inflation, currency fluctuations or economic upheaval, war, and even financial collapse.
You don’t have to buy physical gold bullion or coins when you consider investing in gold. You can also invest in gold by buying shares of gold mining companies and gold ETFs (Exchange-Traded Funds). You can also trade options and futures contracts to invest in gold.
How to Invest In Physical Gold
For investors who are more familiar with trading stocks and bonds online, investing in physical gold can prove difficult. Physical gold will require you to interact with dealers other than traditional brokerages. You’ll also need to purchase insurance and storage. You have three options for investing in physical gold: bullion (or coins), jewelry, and insurance.
Most people associate bullion with gold investment. It is big, shiny bars of gold that are kept in vaults.
You can buy gold bullion bars in a variety of sizes, from one to 10 ounces. The current gold price of $1,900 an ounce (as per September 2020) makes gold bullion investment a costly proposition. A fractional share of a bar of gold is not possible, unlike stocks.
Because gold bullion is so expensive, it’s important to choose a reliable dealer and pay delivery with insurance.
If you decide to invest in gold bullion, you should also keep up-to-date on the gold price so that you can choose the best time to buy. Most dealers base their prices on spot prices.
Common gold coins weigh between one and two ounces. Half-ounce and quarter-ounce coins can also be found. The most popular type of gold coin is the collectible, like South African Krugerrands or Canadian Maple Leafs. Some dealers will even sell worn or damaged coins.
However, the prices of gold coins may not be entirely in line with their gold content. Rare collectable coins are often at a premium and can be bought at a premium. Mid-September 2020, a one-ounce American Gold Eagle Coin retails at just over $2,000 This is almost a 5% increase over the equivalent amount of gold bullion.
Although you may find better deals on gold coins at local collectors and pawn shops than elsewhere, it is usually safer to buy from a licensed, reputable dealer.
You might also consider buying gold that you can wear, or that someone has worn but has been damaged. This is gold jewelry. However, investing in gold jewelry carries a lot more risks than investing in pure gold.
You should be cautious when buying jewelry. Not all secondhand jewelry can be sold by reputable dealers. It is not only important to you, but it will also be of importance to any person you attempt to resell the piece. It is important to buy investment jewelry from a trusted dealer and get as much documentation as you can.
A second factor is that the company that designed and made the jewelry will add a markup to your bill. This markup could range from 20% to three times the raw precious metal value.
It is also important to know the purity of your jewelry, or how much gold it contains. The karats used to calculate gold purity are 24 karats which is 100%. A lower purity will result in a decrease in your piece’s melting value or the raw value for your jewelry’s components, if they were melted into pure white gold.
Buy Stock in Gold Miners to Invest in Gold
It is much easier than investing in physical gold. This means that you can buy the stock of gold mining companies. You can do this using your brokerage account.
These stocks are some of the most sought-after in this sector:
- Newmont Corp. . Newmont, the largest global gold mining company, is headquartered in Colorado. It has mines in North, South and Africa.
- Barrick Gold Corp.
- Franco-Nevada Corp. Instead, it purchases royalty rights from other gold miners.
Remember, however, that the shares stock are not correlated with gold prices, but are also based on fundamentals relating to each company’s profitability and expenses. Investing in individual gold companies is just as risky as any other stock. Individual stocks can experience volatility, and they may not offer the same level of security as diversified funds.
Invest in Gold Mutual Funds and ETFs
You can invest in gold ETFs or mutual funds to gain exposure to its long-term stability. They offer more liquidity than physical gold, and greater diversification than individual stocks. There are many types of gold funds. Some passively managed index funds track industry trends and the bullion price using options or futures.
SPDR Gold Shares ETF ( ) holds physical gold and deposit receipts. Its price is linked to the price of physical bullion. VanEck Vectors Gold Miners ( ) is a passively managed fund which tracks an underlying basket stock of gold mining and refining firms.
Professional investors actively manage gold mutual funds such as Franklin Templeton’s Gold or Precious Metals Fund. These funds are designed to outperform passively managed index funds in terms of returns. They charge high expense rates in exchange.
Remember that you are not buying gold like gold stocks. You are only purchasing paper that is theoretically backed either by the debt or equity of mining companies, futures and options contracts, or physical bullion. These investments might not perform as well as physical gold because the gold mutual funds or ETFs’ value may not match the gold market price.
To Invest in Gold, Use Options and Futures
Trading futures and options contracts is the most risky way to invest in gold. This is a form speculative investing. Options and futures are derivatives. Their value is determined solely by the price of the underlying asset.
A futures contract allows you to purchase or sell security at a fixed price, regardless of current market conditions. An option contract is a contract that allows you to purchase or sell security at a specific price, regardless of market conditions.
You will need to open an account with an online broker that allows you to invest in options or futures. These securities can be traded at many online brokerages, although they may require account holders sign additional forms acknowledging that there is risk in investing in these derivatives.
After you have opened a brokerage account, you can trade options and futures directly through the platform. Many platforms charge a commission on all futures and options trades. This commission varies depending on how many contracts you sell or buy.
People who invest in gold through options or futures contracts should be vigilant about their holdings and make sure they are able to sell, rollover or exercise their options before the expire. Each option comes with a certain amount of leverage or default debt so that investors who use them too often and suffer market losses quickly can experience significant losses.
Should You Invest In Gold?
Gold may be a good investment option if you are concerned about inflation or other calamities. Although gold can be volatile in the short term, it has held its value exceptionally well over the long term.
You can choose to invest in physical or virtual gold depending on your risk tolerance and preference. No matter what form of gold, advisors recommend that you limit your allocation to it to 10%.
There are risks associated with any form of investing. The same goes for gold. The idiosyncratic market for gold is not easy to understand and can be difficult to grasp. This makes mutual funds and gold ETFs the best options for investors who want to add some gold’s stability to their portfolios.