Purchasing real gold can be difficult for investors more accustomed to trading stocks and bonds online. When it comes to real gold, you’ll typically deal with dealers that aren’t traditional brokerages, and you’ll probably need to pay for storage and investment insurance. Bullion, coins, and jewelry are the three basic ways to purchase actual gold.
Gold Bullion
Bullion—large, gleaming gold bars secured in a vault—is what most people picture when they consider investing in gold.
Gold bullion is offered in bars with weights ranging from some grams to 400 ounces, although the most popular sizes are one and ten ounces. The cost of purchasing gold bullion is high, given that the price is currently at $1,900 per ounce (as of September 2020). Unlike stocks, a fractional share of a gold bar cannot be obtained.
Because gold bullion is so expensive, it’s crucial to work with a trustworthy dealer, pay for delivery with insurance, or pay for storage in a giant vault or safe deposit box.
If you buy gold bullion as an investment, keep track of gold prices to determine the best time since most dealers base their prices on the most recent spot prices.
Gold Coins
One or two-ounce gold coins are the most typical sizes; however, quarter- and half-ounce coins are also offered. Gold coins in the form of collectibles, South African Krugerrands, and American Gold Eagles are the best readily available. Some merchants even provide blank coins and coins with wear or damage.
However, the pricing of gold coins may only sometimes reflect the amount of gold they contain. Coins with high demand as collectibles are typically more expensive. For instance, the selling price of a one-ounce American Gold Eagle coin is currently a little over $2,000 as of mid-September 2020. Over an equivalent amount of gold bullion represents a markup of over 5%.
Although local pawn shops or coin collectors may offer lower prices on gold coins, it’s usually safer to buy from a reliable, authorized merchant.
Gold Jewelry
You can also purchase gold in the form of gold jewelry, which you can wear yourself or that was formerly worn but has been harmed. However, investing in gold jewelry entails numerous hazards that are buying in pure gold does not.
First, not all used jewelry is sold by reliable merchants, so you must be cautious when making jewelry purchases. In addition to being vital to you, authenticity will be necessary to everyone you try to sell the artwork to. Because of this, it’s critical that you purchase investment jewelry from a trustworthy vendor and collect as much documentation as you can.
Second, depending on the business that created and produced the jewelry, you’ll have to pay a markup. This could range from 20% to three times the price of the precious metal in its unprocessed form.
Additionally, you should know your jewelry’s purity or gold content. The measurement of gold purity is based on karats, with 24 karats representing 100% gold. Lower purity would lower your piece’s melt value or the value of your jewelry’s raw materials if melted down to its base metal of pure gold.
Buy shares of gold miners to invest in gold.
It is considerably simpler to invest in the shares of firms that mine, process, and trade gold than it is to purchase real gold. You can use your brokerage account to invest because this entails purchasing stocks in gold mining firms.
In this industry, some of the most well-liked stocks are:
Company Newmont (NEM). With its headquarters in Colorado, Newmont is the world’s most significant gold mining business. It runs mines not just in Africa but also in North and South America.
Corporation Barrick Gold (GOLD). This global leader in gold mining has its corporate office in Toronto and has operations in 13 different nations.
Corporation Franco-Nevada (FNV). Franco-Nevada owns no gold mines. Instead, it acquires from other gold miners the rights to royalties.
However, keep in mind that while the stock prices of gold mining businesses are associated with gold prices, they also depend on fundamentals such as each company’s current profitability and costs. As a result, comparable dangers are involved in investing in individual gold firms as in investing in other stocks. Single stocks may be volatile, and they don’t offer you the same security as diversified portfolios.
Invest in gold through gold mutual funds and ETFs.
In addition to giving greater liquidity than actual gold and greater diversification than individual gold stocks, putting in gold ETFs and mutual funds can give you exposure to the long-term stability of the metal. Gold funds come in a variety of various forms. Some are index funds that are passively managed and use futures or options to track bullion prices or market patterns.
For instance, the SPDR Gold Shares ETF (GLD) tracks the price of physical bullion and contains both deposit receipts and physical gold. On the other hand, VanEck Vectors Gold Miners ETF (GDX) is a passively managed vehicle that follows an underlying basket of securities from gold mining and processing businesses.
Professional investors actively manage gold mutual funds, such as the Gold and Precious Metals Fund from Franklin Templeton. These funds seek to outperform the returns of index funds that are passively managed. In return, they impose comparatively high expense ratios.
Remember that, unlike gold stocks, you aren’t purchasing gold when you buy paper supposedly backed by the debt or stock of mining companies or by futures and options contracts for actual gold. As a result, gold mutual funds and exchange-traded funds (ETFs) may not do as well as real gold in terms of value compared to the gold market price.
Invest in gold by using futures and options
The riskiest gold investment strategy is trading futures or options contracts, a type of speculative investing. Futures and options are derivatives, meaning that the underlying asset’s price determines these instruments’ total value.
A futures contract is a commitment to purchase or sell a security at a predetermined rate on a specific date, regardless of the state of the market. On the other hand, an agreement for options provides you the choice to purchase or sell an asset if it rises to a specific price on or before a particular date.
You need an account with an online broker that provides futures or options to invest in those products. Many online brokerages permit trading in these securities, but they could also ask account users to sign supplementary documents admitting the risks associated with buying these derivatives.
You can purchase and sell options and futures directly through the site once you’ve opened a brokerage account to trade them. Every trade-in option and future is typically subject to a commission fee, which changes depending on how many contracts you buy or sell.
When investing in gold through options or futures contracts, investors must keep a close eye on their positions to sell, roll over, or exercise their options before they become worthless. Additionally, each choice comes with a certain amount of debt or leverage by default, so investors who abuse them and suffer market losses should expect their losses to grow swiftly.
Is Gold a Good Investment?
Gold may provide an investment haven if you’re worried about inflation and other disasters. Gold can be just as volatile in the short term as stocks, but it has solid long-term value retention.
Depending on your preferences and risk tolerance, you can invest in physical gold, gold stocks, gold ETFs and mutual funds, speculative futures and options contracts, or gold mutual funds. Most consultants advise you to invest 10% of your portfolio in gold, regardless of the form you decide.
Investing involves risk in any form. The same is true with gold. However, the peculiar gold market is challenging and isn’t forgiving. For most investors wishing to add some of gold’s stability and glimmer to their portfolios, this makes gold ETFs and mutual funds the most secure option.