Gold is an excellent investment asset to include in your balanced portfolio. It has high liquidity levels and has primarily increased in value over time. You can buy gold as a hedge asset against inflation and political unrest. Investing in gold offers you a safe haven, especially during economic and political uncertainty, and helps you diversify your investments. There are various ways through which you can gain gold exposure. Outlined below are five ways to invest in gold.
1. Gold bullion and physical gold
Gold bullion refers to the physical metal in a refined form appropriate for trading and can appear like gold coins, bars, or ingots. You can buy them from a bank, internet or in-person brokerage, or a precious metal dealer. You can also buy gold jewelry or other gold products. However, the gold jewelry contains a price mark-up because of the labor involved and the product’s retail pricing.
Unlike other financial assets, physical gold consumes a lot of space and has an additional theft or loss risk. Purchasing and storing physical gold requires insurance to cover it in case of loss or theft. You can also get a challenge receiving the total market value for your gold, especially if it’s in coin form and you need the money urgently.
2. Gold coins
Gold coin prices are determined by their rarity, legal tender, design, and variety. These coins are often called numismatic coins, where historical value and aesthetic design are considered when ascertaining premiums above the gold spot price. Gold coins can easily be stolen, and new investors may have difficulty identifying the coins that are more profitable than others, when prices are high and whether the coins are genuine or fake. If you aren’t sure what you’re buying or the dealer is questionable, you risk getting scammed, so research to ensure they’re reputable buying or selling.
3. Gold futures and options
Gold futures are contracts to purchase or sell gold on a specific date. Futures are usually traded in contracts and represent predetermined amounts of gold. Futures are ideal for high-net-worth investors looking for price appreciation as they’re highly leveraged, and their primary function is hedging or speculation. Options contracts enable investors to buy or sell shares of a gold mining stock and gold EFT at a particular date and price.
4. Gold EFTs and mutual funds
Gold EFTs are about owning physical gold or gold mining company shares, building different risk profiles. They’re an easy and safe way to invest in gold, especially for new investors, and are highly liquid. An EFT aimed at buying physical gold bars provides investors direct exposure to gold prices because they match the gold price movement well. Nonetheless, EFTs come at an EFT expense ratio. Gold stock mutual funds and EFTs own several gold miners’ shares.
5. Gold mining stocks
Investing in companies mining and producing gold isn’t a bad idea, provided you know that your exposure is close to the metal’s spot price. This means you’re investing in the mining company, not the gold itself. A mining company’s value parts ways with gold prices, mainly if poorly managed or experiences cost overruns. The miners might mine other metals. While this diversifies your investment, it dilutes rising gold prices.
There are several ways to invest in gold, each with its pros and cons. Consider investing in one or more of the options mentioned above.