How to Invest In Gold

In general, 3 choices are available to investors who want to directly invest in gold: they will be able to buy the physical asset, shares of an ETF (exchange-traded fund) or mutual funds can be purchased by them, or they will be able to trade options and futures in the commodities market. For instance, while average investors might purchase gold coins, sophisticated investors might apply strategies by making use of options.

KEY TAKEAWAYS:

• There are many ways to invest in gold: purchasing the metal, purchasing gold funds, or purchasing gold options.
• Making investments in gold bullion takes the form of gold coins or bars.
• Exchange-traded funds and mutual funds which invest in gold or mining company shares provide a more liquid and affordable way of investing.
• Futures options or gold futures might be traded by more sophisticated investors.

Let us take a look at how to invest in gold in the subsequent paragraphs.

PURCHASING GOLD BULLION

Gold is much more accessible to any average investor unlike other commodities since gold bullion (the yellow metal in the form of bar or coin) can easily be bought by a person from a dealer of precious metals or in other cases, from a brokerage or a bank.

Although you will come across bullion bars in sizes that range from a 400-ounce brick to a wafer of a quarter-ounce, coins are usually preferred by new investors. These are new issues whose price is based on the content of the gold along with a premium. The majority of the purchasers stick to the gold coins which are widely circulated including the American Eagle, the South African Krugerrand, as well as the Canadian Maple Leaf. However, whatever might be your preference it will be a good idea to buy from an authentic dealer either online or in person. Of course, gold coins entail safekeeping – either a deposit box provided by the bank or a home safe. Apart from this, do not forget to insure them as well.

It is also a fact that the investors in gold will have the opportunity of wearing the metal. On most occasions, we combine gold with other expensive metals and gems for enhancing the overall appearance and value of the ornament. We often pass down pieces to our next generation in the form of family heirlooms which help to add sentimental value as well. Jewelry is usually not the best option in case it is an investment since the retail cost will be far exceeding the meltdown value. The reason for this is the retail markup and the workmanship which is involved. Make sure to figure out gold’s purity before purchasing jewelry such that you won’t end up paying more than the required price.

In most cases, the majority of the insurance policies are going to cover jewelry which is an advantage in case it is stolen or lost.

PURCHASING GOLD FUNDS

Despite being more feasible than a crate full of soybeans or a barrel full of oil, owning gold physically comes with some drawbacks: storage costs, insurance, and transaction charges. Investors preferring a more affordable and liquid entry in the gold market might go for exchange-traded funds and mutual funds which replicate the commodity’s movement.

For example, GLD (SPDR Gold Shares) is amongst the oldest ETFs out there and it was initiated in the year 2004. It is feasible to buy or sell shares at any time similar to stock. 1/10th of one ounce of gold is represented by every single share of the ETF. For instance, in case gold is being traded near $1,400 per ounce, gold ETF will be trading for about $140 for every share. SPDR Gold Shares invests only in bullion which provides the investors with direct exposure to the price moves of the metal. Other funds will be investing in both bullion and shares of companies that are publicly traded in the business of gold production, refining, or mining.

In general, gold stocks will be rising and falling quicker as compared to the cost of the metal itself. Individual businesses are likewise subject to issues like environmental concerns or political factors. Therefore, it is quite risky to invest in an ETF owning gold stocks although it provides appreciation potential unlike investing in bullion.

PURCHASING GOLD FUTURES OPTIONS

Investors who are more experienced and would not prefer risking plenty of capital might take into consideration options on an ETF or options on futures. These agreements represent the right to sell or purchase an asset (in this case, gold) for a specific period at a particular price. One can make use of options once the cost of gold goes up or goes down. In case you are guessing wrong, the highest risk related to the buying options are the premiums paid by you for entering the agreement.

Obtainable in the United States through the Chicago Mercantile Exchange, it is possible to buy and sell put-and-call options via a futures agent. Investors will also gain access to options of GLD ETF which one can trade in standard brokerage accounts which have been approved for options trading. In the meantime, some traders sell and buy gold futures agreements for speculating on lower or higher short-term moves in gold.

PURCHASING GOLD MINING STOCKS

In case you can’t buy gold directly, it will be a good idea to consider gold mining stocks. However, bear in mind that gold stocks do not move necessarily in concert with the prices of bullion since the success or failure of mining companies will depend on their operating performance and how they can use their capital to generate profits. In case the companies from where you purchase are not successful, you will not have the security of possessing the metal physically.

THE BOTTOM LINE

Make it a point to go for ETFs in case you are purchasing gold as an integral part of a portfolio diversification process. You would prefer to own the metal physically in case you would like to be protected in case of a crisis.