Investing in Gold: The Best Options
When someone talks about investing in gold, what exactly do they mean?
Investors who say they own gold often mean they have one or more of the following assets: actual gold bars or coins; gold ETFs; gold futures; or gold mining company stock. According to data from the World Gold Council, more than $11 trillion worth of gold can be found in the world's reserves.
Is Gold a Smart Investment Choice?
When the stock market takes a severe tumble, gold's price often rises as a recession-friendly investment. However, "the long-term price valuations just haven't been there" for this type of investment.
If you look at the stock market over a more extended period, such as the last 30 years, the Dow Jones Industrial Average has beaten gold. On the other hand, investment in actual gold includes some unexpected fees and considerations, including insurance and secure storage.
However, because gold does not generate income like other investments, it should only be included in your portfolio in small amounts and with extreme caution in the event of a downturn.
Why should I put money into gold?
Investing in gold can protect your portfolio against market fluctuations and economic unpredictability. Nevertheless, despite gold's well-deserved image as a safe haven, its price may be shockingly unpredictable due to the myriad of factors that influence it.
The price of gold tends to climb when investors are concerned about the economic outlook or geopolitical shocks, which helps to counter possible stock falls during times of market turmoil.
As inflation rises, you can also employ gold as a form of currency protection. Gold's price has risen as a result of rising consumer prices since it takes more money to buy the same amount of gold. Inflation on the rise also means a weaker dollar. Gold and other dollar-denominated assets can be purchased more easily as the currency weakens.
Interest rates can also be predicted by investing in gold. A decrease in interest rates makes gold more desirable because government bonds will no longer provide as much return as before. As a result, gold's value rises because the metal is a safe haven alternative to bonds, yet unlike bonds, it does not offer investors regular dividends for holding it.
How to Invest in Gold: 4 Ways to Buy
1. Gold in its physical form
When most people think of gold investments, they see this form of physical gold, referred to as "bullion." Although it may be the most thrilling way to invest in gold, it is the most difficult to purchase, store and sell.
How to buy gold in the form of bars or coins
Here are some things to keep in mind if you decide to invest in actual gold.
1. Find a trustworthy dealer
Buying and selling gold can be fraught with dangers, such as dealing with pushy salespeople or falling prey to scammers. Sellers can exaggerate the value of their goods or use persuasion techniques to generate a sense of urgency to purchase quickly. You can avoid making a terrible investment if you do some research ahead of time.
2. Watch out for hidden costs
"Spot price," or what gold costs to trade on a commodity exchange, is often more than what a gold dealer charges for the metal itself. Dealer fees and manufacturing and distribution costs are the most common components of this premium.
3. Secure storage is the third step
For a reason, people make jokes about burying gold: It's valuable and, as a physical product, it's vulnerable to theft. Preparation is key when it comes to storing your gold, whether it's in a physical safe or a bank safety deposit box. Investing in a safe place to keep your gold can cost a lot of money. There is a wide range of prices for bank safety deposit boxes, from $30 to a few hundred dollars every year.
4. Think about getting some kind of insurance
Owning gold as a physical asset entails additional expenses, namely insurance. If you buy insurance, make sure it covers your specific asset.
Be aware that your investment is non-liquid. Physical gold may be more difficult to resell than gold stocks and funds. When selling your gold back to a dealer, you're likely to get less than the spot price for it.
2. Gold stocks
Buying shares in a gold mining firm carries some risk, just like investing in other stocks. However, you have complete control over the specific companies you invest in. Some investors may prefer a gold-mining business that adheres to strict environmental standards over one that does not. Although owning stock does not provide you with the ability to have gold in your hands, it does give you the ability to sell an asset at any point.
Investment in gold mining companies
Gold miners such as Newmont Corp. and Barrick Gold Corp. can be purchased through brokerages. In the past, gold mining stock prices have been more volatile than the price of gold itself.
In other words, as gold prices rise, so do mining company stock prices. Mining equities, on the other hand, tend to lose value more quickly when gold prices decrease. Some investors also purchase ETFs and mutual funds featuring gold mining company shares.
3. Gold futures
Buying or selling a particular amount of gold at a later date is a futures contract. It is the contract itself that trades on a stock market. A trade fee (also known as a commission) may be charged each contract, however, gold futures have better liquidity and no management fees. If you're a novice trader, you should avoid futures contracts because of the high risk involved. You run the risk of losing more than you put in if you make these kinds of investments.
Gold futures and options trading
To trade gold futures, you can also buy or sell the metal at a specified price at a specific time. Futures are a popular method of speculating on price movements. Gold miners can also employ them as a hedge against price decreases in the future.
In most cases, the holder of an expiring futures contract must take possession of some actual gold. As a way to avoid that, many traders sell contracts before they expire and instead purchase future futures in a practice known as "rolling." A few futures contracts are settled in cash rather than in the form of physical gold.
4. Gold-backed investment funds
A gold mutual fund is a way to invest in various gold-related assets, such as many companies that mine or process gold, but you do not own the real gold or individual stocks. Investing in gold ETFs or mutual funds provides greater liquidity and diversification than holding real gold. Certain legal safeguards are also provided for ETFs and mutual funds. You should be aware that certain mutual funds charge a management fee.
How to obtain gold funds for investment purposes
Investing in gold through exchange-traded funds (ETFs) is also becoming increasingly popular, allowing investors to hold an asset that tracks the price of gold without having to own any actual gold. You can also buy them through a number of other brokerage accounts.
Some gold ETFs invest in gold futures contracts, which provide buyers the right to buy the metal at a predetermined price and at a predetermined time. There are additional funds that monitor gold's price using a combination of debt and derivatives.
- Which Country Has the Most Gold?
- Difference Between Investing in Gold and Gambling
- Gold vs. Stock Market
- Is It True That Gold Is Not in a Bubble Situation?