Gold’s malleability is not only about its physical properties, it’s also a reference to gold’s ability to act as a hedge against inflation. This precious metal has been able to withstand the most turbulent of times – from the rise and fall of civilizations to the rise and fall of the market.
Why Invest in Gold?
While holding gold in its physical form as bullion bars and coins or rare, collectible coins provides investors with a certain amount of emotional satisfaction, there are alternative investment options available, like futures and options agreements, gold exchange-traded funds (ETFs), and even shares in gold mining companies. This guide to investing in gold will explore the best way to invest in gold depending on how each individual can leverage their purchase. From what to look for when purchasing physical gold to deciding if alternative gold investments can be used to better position yourself financially, we’ll take a look at what investors should be aware of when planning to buy physical gold and its non-tangible counterparts.
How to Invest in Gold
Few assets are traded physically on exchanges nowadays. The same online platforms available when it comes to exchanging stocks and bonds differ from the dealers you’ll be interacting with outside of a traditional brokerage. Investors in physical gold will also need to make plans to accommodate the safety and security of their investment, locating a safe place for storage and acquiring insurance. The best way to invest in physical gold — bullion, coins, and jewelry — is by purchasing precious metals products from reputable online dealers, pawnshops, and collectors.
Shimmery gold bars stacked in a pyramid gleaming from behind a vaulted door– this is most likely what comes to mind when you think about investing in gold bars.
Ranging from one gram to 400 ounces, investing in gold bullion bars can provide a stable store of value for your portfolio. Sometimes referred to as ingots because of their metal casting, most bullion bars are purchased in the form of one and 10-ounce bars.
If you already have a secure storage facility selected, buying bullion bars can be a more efficient or cost-effective way to invest in physical gold. On the other hand, gold metal bars are more illiquid compared to other asset types like stocks and bonds. Assay fees to determine the quality of the precious metal being sold, refining fees, or handling fees can prohibit an expedited gold trade transaction. Due to these time-consuming processes, investors who want more flexibility from their investment may want to consider investing in gold coins that come in more convenient and tradable sizes.
Bullion coins are also an available option for investors interested in physical gold. They are intended only for investment purposes and cannot be used as a form of general currency. They usually weigh up to 50 grams and contain 1 troy ounce of gold per gram.
Regardless, if you choose to invest in bullion bars or coins, you’ll want to stay up to date on the gold spot price – based on 100 ounces or larger .999 fine gold bars– to get the best deal possible on your purchase. Most dealer prices reflect gold’s current spot price.
Ensure that the gold you are purchasing comes from a reputable source, especially when investing in gold online. Note that bullion gold’s purity, indicated by mint markings on a bar or coin, must range between 99.5% to 99.9% per government-imposed standards.
Rare coins differ from bullion coins because their appraised premium value is determined based on their historical and cultural significance in relation to current market demand, not just their purity and fineness. Your run-of-the-mill American Eagle coin may fetch a markup that hovers about 5% over gold’s current spot price of $1950 as of April 2022. However, coins like the pre-1933 Saint-Gaudens Double Eagle can be worth millions, even though both coins contain about the same amount of gold.
It is imperative to work with licensed, reputable dealers involved in the buying and selling of numismatic merchandise. You’ll want to ensure the gold you’re buying comes from a U.S. Mint-approved dealer. Remember, all that glitters is not gold! Do your research, shop smart!
Investment jewelry has a store of value that can appreciate over time. It can be a gift that keeps on giving in the sense that it can be used as a way to invest in yourself through accessorizing and that it can be sold to compensate for another purchase or investment at a later date.
Gold jewelry is often purchased at considerably marked-up premiums that could cost anywhere from 20% to more than three times the precious metal’s raw value depending on where it was designed and manufactured.
This is why you want to make sure that your dealer has the credentials to back up their prices.
To ensure its authenticity, obtain any necessary documentation indicating the purity of your gold jewelry in karats– the ratio of pure gold to other alloys in a piece of gold jewelry. 24-karat gold jewelry is the purest form of gold jewelry you can buy. However, due to the malleable softness of 24-karat gold, 14K gold, which has a purity of 58.3%, is more commonly used to make gold jewelry. This matters as higher quality gold means a higher store of value when it comes to your gold jewelry. Last, always look for the Jewelers' identification mark and number.
Purchase Stock in Gold Miners
Gold mining stocks can be advantageous to investors as they have already developed a strong upside momentum. Investors can purchase stock in gold miners through a brokerage account. Stocks at gold mining companies are priced in relation to the mining, refining, and trading of gold.
Common investment stock vehicles in this sector include:
Newmont Corp. (NEM). Shares at this leading gold mining stock company don’t come cheap, which isn’t surprising as their gains over the past year have had the biggest market capitalization in U.S. markets. Traders like larger companies like NEM because they can provide more security through better diversification compared to smaller companies that have undergone more setbacks in recent years.
Barrick Gold Corp. (GOLD). Shares of Barrick gold are up by an impressive 30% year-to-date as of April 2022 and are predicted to continue their current upward trend, heading towards the $2000 level. Earnings of $1.26 per share are expected according to their 2022 reports, making them a formidable market contender.
Agnico Eagle Mines. (AEM). This company has the potential for plenty of upsides if gold can push beyond its current resistance line to move closer to the $2000 level. Having created a strong name for itself, investors take solace in this company’s reputation as there is a limited number of big companies in the marketplace.
Investors should keep in mind that while purchasing gold through a stock mining company can be a more straightforward process, the process for determining pricing isn’t always necessarily the same. There are risks associated with each company’s current profitability and expenses.
Gold ETFs and Gold Mutual Funds
ETFs and mutual funds are pooled investment securities that can be passively or actively managed using index funds that track the price of gold in the market. As an alternative asset to physical gold, they can provide long-term stability and act as a hedge to individual stock volatility through added diversification.
Because the value of gold ETFs and mutual funds are based on their market equity, investors should bear in mind pricing and performance will not necessarily align with physical gold’s pricing or performance on the market. However, prices of these investment securities can be influenced by index funds that track industry trends or the price of bullion using futures or options.
A few popular gold ETFs include:
SPDR Gold Shares ETF (GLD). This ETF holds physical gold and deposit receipts. Its price tracks the price of physical bullion.
VanEck Vectors Gold Miners ETF (GDX). This passively managed fund tracks the pooled stocks of gold mining and refining companies.
Gold mutual funds invest in units of gold ETFs through open-ended funding. Gold funds are first and foremost used as a way to produce wealth by leveraging the potential of gold as a commodity. Returns on gold funds are closely linked to that of a gold ETF and the overall price movement of gold in the market. Gold funds aim to beat the returns of passively managed index funds.
Some top-performing gold funds include:
SPDR Gold Shares (GLD)
iShares Gold Trust (IAU)
SPDR Gold MiniShares (GLDM)
Aberdeen Standard Physical Gold Shares ETF (SGOL)
GraniteShares Gold Trust (BAR)
Global X Gold Explorers ETF (GOEX)
ProShares Ultra Gold (UGL)
Gold Futures and Options Contracts
Futures and options contracts are a potentially beneficial alternative option to investing in physical gold for investors who like to take an active role and have a high risk threshold. Both derivative contracts are a form of speculative investing and their value relies on the price of gold as an underlying asset. However, futures require the investor to buy or sell a security for a set price on a certain date, regardless of the current market conditions. Options offer an easier exit, as investors can buy or sell a security if it reaches a certain price on or before a certain date. Futures trading offers the alluring promise of high risk and high reward, while options tradeoff more limited risk for lower returns.
To invest with futures or options, you’ll need to establish an online brokerage account to get started. Commission fees can eat into a sizable chunk of your returns, so stay vigilant about pricing when choosing your brokerage.
The U.S. Gold Bureau: Your Reputable, Licensed Dealer
Trust and integrity are the pillars of the services that the U.S. Gold Bureau provides to clients throughout the precious metals acquisition process. Our team of Precious Metals Specialists has continually raised the bar on what our customers grow to expect from their investing experience since 2003. Rest assured, as your licensed, reputable gold dealership, our team has undergone extensive training to assist you at all stages of the gold-buying process.
The U.S. Gold Bureau offers a variety of high-quality, investment-grade, and bullion precious metals products. We are on the list of authorized bulk purchasers of numismatic coins approved by the U.S. One of our precious metals experts can also assist you with any gold bullion purchase. For each product offered, we can guarantee its origin, authenticity, purity, and quality.
Contact us today for more information on how to get started with investing in gold!