How to Invest in Gold

How to Invest in Gold

If the global pandemic has taught us anything, it’s that an economic collapse can happen at any time. Amid the uncertainty, gold investors have the assurance that their wealth is secure. That’s because gold holds its value despite rising inflation.

The truth is that there are a number of ways to invest in gold. If you’re wondering how you can make a wise investment in this precious metal, keep reading! Here are five ways to invest in gold.

Why Is Gold a Favorable Investment?

Gold could provide a safe haven for your investments if you’re concerned about rising prices, inflation, and other economic calamities.

Although this precious metal can be just as volatile in the short term as equities, gold has surprisingly kept its value over long periods. This makes it a favorable asset to invest in and is one of the reasons why it is so popular among investors.

Another reason to invest in gold is to diversify your portfolio. Because gold has an inverse relationship with inflation, you can rely on it to produce a return even when an economic crisis hits and other investments perform poorly.  

You may decide to invest in physical bullion, gold jewelry, ETFs and mutual funds, gold stocks, or options and futures contracts, based on your individual preferences and risk tolerance.

Regardless of the type of gold investment you select, the majority of experts advise you to only dedicate 10 percent of your portfolio to it.

1. Invest in Physical Gold

One of the most common ways to invest in gold is to purchase physical gold in the form of bullion, coins, and jewelry. The truth is that owning physical gold can be one of the most rewarding gold investments, but it does come with risks. We’ll discuss the various forms of investments and provide advice to help you make an informed choice.

Gold Jewelry

Gold Jewelry

One of the most popular ways to invest in gold is by purchasing gold jewelry. While investing in a wearable form of gold may seem like an attractive option, it comes with a number of risks. You must exercise caution when buying jewelry because not all merchants that sell used jewelry are reliable.

Authenticity is important to you, but it’s also important to everyone you try to sell the item to. Therefore, it is essential that you purchase investment jewelry from a reputable vendor and acquire as many supporting documents as you can.

The Pros and Cons of Investing in Gold Jewelry

Pros

  • This involves investing in a wearable form of gold

  • Gold jewelry is often seen as a symbol of wealth and status

  • Jewelry made from gold is always in demand, so you shouldn’t have trouble finding a buyer for your piece

Cons

  • This type of jewelry is often created using other metals for added strength, so finding pieces that offer the highest purity isn’t always easy

  • To ensure that you are able to make a profit from the sale of a gold piece, you must have it certified and ensure that you have supporting documents to verify its authenticity and purity

  • You’ll need to organize secure storage for your asset

Physical Gold Bullion

This type of direct gold ownership is possibly the most well-known. Bullion is frequently associated with the large gold ingots kept at Fort Knox. While these bars are gold bullion, they aren’t the only type of bullion available for purchase.

The term “bullion” refers to gold that is in a pure (or almost pure) form and has been certified for its purity and weight. Any size of bar or coin is included in this. Additionally, gold bars typically have a serial number attached for security reasons.

Although large gold bars (up to 400 troy ounces) are impressive to see, their lack of liquidity makes them expensive to purchase and sell.

This is because these bars are expensive to buy, and if you would like to sell 10 percent of your gold holdings, for example, you cannot simply cut off a piece of the bar. If you choose to invest in gold bullion, we recommend purchasing smaller bars that have high liquidity and are in greater demand.

The Pros and Cons of Investing in Gold Bullion

Pros

  • Gold bullion offers low long-term volatility

  • It is always in demand

  • You can purchase bars ranging in weight from 0.32 to 400 Troy ounces

  • Most bars offer high liquidity

Cons

  • You’ll have to invest in secure storage, which may result in monthly costs

  • To earn a good return on your investment, you will need to hold your bullion for a long time

  • Changes in gold’s price will affect the value of your holdings and could impact the return on your investment

Gold Coins

The world’s sovereign nations have been issuing a significant number of gold coins for many years. Moreover, coins are often purchased by investors from independent dealers at a premium of one to five percent above their underlying value. However, in March 2020, this premium increased to 10 percent.

Beyond the intrinsic value of the gold, rarer, unusual gold coins have what can be described as collectors or numismatic value. This means that they can be harder to resell, and finding the right buyer who is willing to pay what your coin is worth can be challenging. We recommend focusing on widely circulating coins and leaving the rare coins to collectors.

The Pros and Cons of Investing in Gold Coins

Pros

  • You’ll be able to find the prices of widely circulated gold coins in international financial publications

  • This is one of the best ways to invest in physical gold since coins are typically minted in smaller sizes, making them highly liquid

  • Dealers are easy to find

Cons

  • Again, you will need to think about storage and the associated costs

  • Changes in the price of gold will affect the value of your investment

2. Investing in Gold Mining Companies (Gold Stocks)

One way to invest in this asset without having to purchase physical gold is through gold stocks. It is generally a much simpler option than buying gold bullion or jewelry and involves investing in the stock of firms that mine, process, and trade the precious metal.

You can use a brokerage account to make this investment because doing this entails purchasing stocks in a gold mining company.

Before deciding which gold mining company to invest in, we recommend looking at some of the best gold mining companies on the market, such as Barrick Gold Corp., Franco-Nevada Corp., and Newmont Corp.

However, you must remember that while gold prices and the value of gold mining company stocks are associated, these elements also include each company’s present profitability and operating costs.

This means that investing in specific gold firms involves the same risks as investing in any other company. Moreover, single stocks do not offer you the assurance of a diversified portfolio as they may experience some level of volatility.

The Pros and Cons of Investing in Gold Mining Companies

Pros

  • Stocks offer great potential returns

  • It is a simple option for investing in gold

  • There are a number of established companies that offer reliable gold stocks

  • You will not have to worry about gold storage costs

Cons

  • The performance of the company and the price of gold can impact the outcome of your investment

3. Gold Futures and Options

Futures and options are another way to invest in gold. In the section below, we’ll take a closer look at these two agreements.

Futures Contracts

Futures are agreements to purchase or sell a specified quantity of an asset, in this example, gold, at a specific future date. Moreover, futures represent a fixed quantity of gold and are exchanged as contracts rather than shares.

However, keep in mind that they are better suited for seasoned investors because they tend to involve a substantial investment. Due to the low charges and substantially lower margin requirements compared to conventional stock transactions, futures are frequently used by investors as a way to invest in gold.

When choosing this method, you must read the contract details carefully because some contracts tend to settle in gold, while others in dollars.

The Pros and Cons of Investing in Gold Futures Contracts

Pros

  • These investments involve low charges

  • There are lower margin requirements

  • You will not have to worry about storing any physical gold assets

Cons

  • They typically involve a significant investment, so this may not be the right choice for new investors

  • Futures can be risky

Options

Alternatives to acquiring a futures contract directly include options on futures. These grant the holder the right to purchase the futures contract at the predetermined price within a specified period.

Moreover, an option has the dual advantages of leveraging your initial investment and limiting losses to the purchase price. If your losses increase rapidly, a futures contract purchased on leverage may require more capital than was initially allocated.

The disadvantage of this agreement is that the investor needs to pay a premium above the underlying value of the gold in order to possess the option, unlike a futures purchase, which is based on the present price of gold. Futures and options can be risky, making them unsuitable for many investors.

The Pros and Cons of Options Contracts

Pros

  • Losses are limited to the purchase price

  • Offers leverage

  • There is great potential for significant returns

  • Lower risk

Cons

  • Options offer less liquidity

  • You can expect to pay high commissions

  • These investments are only suitable for seasoned investors

4. Investing in Gold ETFs and Gold Mutual Funds

You can gain exposure to gold’s long-term sustainability by investing in mutual funds and gold ETFs. Gold exchange-traded funds (ETFs) invest in pure gold, while mutual funds invest in ETFs.

They offer greater liquidity than gold bullion and greater diversity than single stocks. Moreover, gold funds are available in a number of different types.

Some are passive funds that use futures or options to track price movements or gold market trends, as provided by the World Gold Council.

Just keep in mind that when you purchase gold-backed paper, whether it be through contracts for futures and options for physical gold or equity or debt of mining firms, you are not actually buying gold.

As a result, the value of these funds may not exactly correspond to gold’s market price, and these assets may not perform similarly to physical gold.

The Pros and Cons of Investing in Mutual funds and Gold ETFs

Pros

  • Mutual funds and ETFs are the best options if you’re looking for high liquidity since they offer more liquidity than gold bars and gold coins

  • You’ll never have to worry about storing physical bullion

  • They are simple to set up and manage

  • ETFs and mutual funds serve as a good hedge against inflation

  • These funds are more affordable than investing in physical pure gold

Cons

  • You’ll have to pay a small management fee when investing in ETFs and mutual funds

  • There are also brokerage or commission fees involved

5. Streaming and Royalty Companies

Investing in gold with stocks can also be done through streaming and royalty enterprises. In exchange for the opportunity to purchase gold (or other assets) in the future, these businesses will pay mining corporations in advance.

Consider them to be financial institutions that get their profits in gold. The risks linked with gold mining and the firms involved must also be thoroughly researched by investors before making this type of investment.

Some people may find it difficult to enter the market due to the amount of study necessary to invest in streaming and royalties businesses.

The Pros and Cons of Investing in Streaming and Royalty Companies

Pros
  • This is generally a low-risk option

  • You don’t have to worry about insuring or storing any gold assets

  • There is great potential for earnings

  • Royalty companies often outperform gold mining companies

Cons
  • The success of your investment depends on the performance of the royalty company

  • Much research is required before choosing a company to invest in

Final Thoughts

Precious metals have been a safe haven for investors for thousands of years, and they continue to hold their worth as an investment vehicle. If you want in on the action, there are a number of ways to invest in gold.

Ultimately, the option you choose will depend on your preferences, risk tolerance, the amount you’re willing to invest, and your experience as an investor.

Frequently Asked Questions

1. Why is gold valuable?

The historical connection between gold and the value of currency is a major factor in the value of gold. Due to its malleability, gold was utilized for coinage and jewelry in the past.

Moreover, notes were made to match the precise weight of gold once paper currencies were created. Despite the fact that this is no longer the case, gold continues to be valuable due to its historical significance in our financial system.

2. When should I buy gold?

Many investors view gold as a reliable store of wealth and a solid hedge against price increases. In the past, it has also proven a reliable buffer during financial crises.

When fears of inflation or an impending economic disaster are first emerging, this is a great time to purchase gold because its price tends to increase during those times.

3. How is the price of gold determined?

The cost of gold is influenced by numerous factors. These include the demand for the asset for investments, certain technological applications, and the jewelry-making industry. Additionally, the value of the U.S. dollar, the quantity of gold held in central bank reserves, and the willingness of investors to hold gold bullion long-term all contribute to the gold’s price.

4. How do I invest in gold in an IRA?

A gold IRA is a popular way to save for your retirement. If you are wondering how to invest in gold in your IRA, you can contact a gold IRA provider for more information. A consultant will walk you through your options and help you set up your account and roll over funds. Be sure to do your research to identify the most reliable IRA providers before making your choice.

Arthur Karter

About 

Hi, I’m Arthur, and nobody wants to wake up in their 50s like me that they are in serious debt with minimal assets. This wake-up call forced me to reevaluate everything. After going through the school of Hard Knocks, I’m ready to help you by sharing the best retirement choices and how they differ from all the same-old, same-old options that financial advisors sell. These alternatives will help you build and protect your wealth.

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