When considering a gold investment, everyone wonders how to invest in gold? Don’t restrict yourself to just purchasing physical gold, like coins or bullion. Buying shares of gold mining companies or gold exchange-traded funds (EFTs) are alternatives to investing in gold. Investors can also invest in gold by buying futures contracts and trading options.
How to Invest in Gold (Physical Gold)
Investing in physical gold can be challenging for investors who are most used to trading stocks and bonds online. Buying physical gold means interacting with dealers outside, paying for storage, and obtaining insurance for your investment.
The three main options for investing in physical gold are:
1. Gold Coins
The weight of common gold coins is one or two ounces. Gold coin weights can also be half-ounce and quarter-ounce. The most widely available types of gold coins are collectible coins, such as South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles. Be aware of some dealers who sell blanks or damaged coins.
Gold content may not entirely align with gold coin prices. In-demand coins are usually traded at a premium. For example, in mid-September 2020, retailers will sell just over $2,000. That represents an almost 5% markup over an equivalent amount of gold bullion.
Local collectors or pawn shops may be able to help you find better deals on gold coins. But licenced dealers are safer to use to make purchases.
2. Gold Bullion
Bullion—large, shiny gold bars secured in a vault—is what most people think of when considering a gold investment.
Gold bullion ranges from a few grammes to 400 ounces. But it’s most commonly available in one- and 10-ounce bars. The price of gold per ounce is $1,998 (as of May 2020); this makes gold bullion an expensive investment. There is no way to get a fractional share of gold bars, like stocks.
Due to gold bullion’s high price, it’s important to use a reputable dealer. Pay for delivery with insurance and save it in a safe deposit box.
It’s essential to stay up-to-date on the price of gold if you choose to invest in gold bullion. Then you can pick the right time to buy; most dealers update their prices based on current market prices.
3. Gold Jewellery
You can also buy gold jewellery that you can wear. But there is a high chance of jewellery being damaged. Investing in gold jewellery carries many more risks than investing in pure gold.
Be careful about jewellery purchases, especially secondhand jewellery, because some dealers sell damaged secondhand jewellery. It can create trouble for you when you resell it. This makes it crucial that you buy investment jewellery from a reputable dealer and get as many documents as possible.
Before buying investment jewellery, check the purity of the gold. 100% pure gold is made of 24 karats. Less pure gold can decrease the value or raw value of gold components when they are melted into pure gold.
Purchase stock in Gold Miners to Invest in Gold
Investing in the stock of companies that mine, refine, and trade gold is simpler than buying physical gold. You can invest in the stocks of gold mining companies in your brokerage account.
The best gold stocks in the gold sector include:
Newmont Corp. (NEM)
Newmont is headquartered in Colorado and is the world’s largest gold mining company. In addition to Africa, it also operates mines in North and South America.
Franco-Neveda doesn’t have any gold mines. Instead, it purchases the rights to royalties from other gold miners.
Barrick Gold Corp. (GOLD)
Barrick Gold is headquartered in Toronto, and it is very giant in size. It operates in 13 countries around the world.
Always remember that the shares of stock of gold companies are based on gold prices, but they’re also related to each company’s current expenses and profitability. It means investing in any other stock and investing in gold companies carry the same risks. Usually, single stocks are volatile and do not provide the security of diversified funds.
Invest in Gold EFTs and Gold Mutual Funds
If you are looking for how to invest in gold for long-term stability, gold EFTs and mutual funds are good options for you because they offer more security and liquidity than physical gold. There are many different types of gold funds available. Some are passively managed index funds that track price or industry trends.
For example, the SPDR Gold Shares ETF (GLD) holds physical gold and deposit receipts, and its price tracks the price of physical bullion. On the other hand, passively managed funds like VanEck Vectors Gold Miners EFT (GDX) track the stocks of gold mining and refining companies.
Some gold mutual funds are actively managed by professional investors, such as Franklin Templeton‘s Gold and Precious Metals Fund. These funds focus on beating passively managed index funds returns. But their changes in expense ratios are high.
Just remember, you are not buying gold like gold stocks, just paper that is theoretically backed by mining companies. This means the value of EFTs and mutual funds may not completely match up with the gold market price. Then these investments may not perform as well as physical gold.
Use Features and Options to Invest in Gold
The riskiest way to invest in gold is by trading features or options contracts. Features and option values are based entirely on the price of an underlying asset.
A feature contract is an agreement to buy or sell securities for a fixed price and date that can vary according to market conditions. On the other hand, an agreement gives you the option to buy or sell a security if it reaches a certain price on or before a fixed date.
You need an account at an online broker in order to invest in futures or options that offer these vehicles. Many brokerage firms offer trading in these securities. Brokerages acknowledge the risk of investing in derivatives, and that’s why they require account holders to sign additional forms.
You can buy or sell options or equities through your brokerage account. Based on the number of contracts you buy or sell, most platforms charge a commission. In gold investment, you need to actively monitor their holdings so they can sell, roll over, or exercise their options.
Should you Invest in Gold
Gold may offer you an investment safe haven if you’re concerned about inflation and othercalamities. Investing in gold in the short-term is highly volatile, but long-term investments can perform remarkably well.
According to your investment goal and risk tolerance, you can choose your investment options, such as physical gold, gold stocks, gold EFTs, and mutual funds. According to most advisors, you shouldn’t allocate more than 10% of your portfolio to it.
Almost all investments carry risks, including gold. The gold market takes a long time to learn. To add some of gold’s stability and sparkle to their portfolios, gold EFTs and mutual funds are the best choices.
Frequently Asked Questions (FAQs)
What are the best ways to invest in gold?
Go on Google and search how to invest in gold, and you will find this answer: “The best and easiest way to invest in gold is through EFTs and mutual funds.” These securities each represent a fixed amount of gold per share. These funds can easily buy or sell in your brokerage account or retirement account. Mutual funds and gold EFTs are beginner friendly because of their low cost and low minimum requirements.
How much gold should I invest in?
With a gold allocation of 10–15% in your investment, your overall return vitality will be reduced, and you will be better protected. This weighing doesn’t have to be in physical gold, but some physical gold offers other protections. There are many ways to reap the benefits of gold diversification.
Is investing in gold a good idea?
Yes, investing in gold is a good idea. Investing in gold is the safest investment that you can make. Gold investments have their values, and this is one of the most stable investments. Gold is accepted all over the world, so you can do gold investing anywhere in the world. Gold investments are best for long-term investors.
Are there any risks associated with investing in gold?
Every investment has its own pros and cons. In the case of gold investing, the returns are very poor. If you buy physical gold and want to resell it, the chance of getting a profit is very low. Investing in gold is a good investment for long-term investors.