How To Invest In Gold

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Gold has always held a level of fascination for investors. Nowadays, you can buy it in any number of forms, from coins and bullion to exchange-traded funds and futures options. But is gold a good investment? For many investors, the answer is yes, but you should first learn how to invest in gold.

Is Gold a Good Investment?

Gold tends to be less volatile than stocks, so it is generally viewed as a safe investment. People use it to diversify their portfolios and hold on to it as a safe asset in uncertain times.

Record Highs

Concerns about recent events like the COVID-19 pandemic and increasing tensions between the U.S. and China have sent gold prices to record highs. NPR reported that gold prices have grown by almost 30% during 2020, and analysts predict the price of gold could surpass $2,000 per ounce by the end of the year.

How Do You Invest In Gold?

You can purchase gold in many different forms. Some options are more liquid than others, which can make them better for investment purposes, so it’s helpful to explore the pros and cons of each.

Physical Gold

Some investors like to buy and hold gold pieces, including gold bullion (in the shape of bars or coins). It is easy for the average investor to purchase through bullion dealers and jewelers.

Physical gold is popular with beginning investors because of its low barriers of entry. Investors can buy and sell physical gold between private parties or venues like pawnshops. This can be risky because these transactions have fewer guarantees. There are plenty of reputable gold dealers that work online and in local communities.

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When considering physical gold, remember to figure in the cost of storage and insurance for the investment.

Gold Jewelry

Gold jewelry offers some advantages over investing in gold bars:

  • It holds sentimental value.
  • It can be passed on to loved ones.
  • It is covered under most homeowner insurance policies.

Purchasing gold jewelry as an investment isn’t always the best option because of the difference between scrap value and retail prices. You may pay $500 for a 14-karat gold bracelet, but its scrap value is a fraction of that price.

It’s also unreliable during a system-wide crisis. India is one of the world’s largest gold jewelry markets. Demand fell nearly 75% at the beginning of the coronavirus pandemic.

Bullion Banks

A bullion bank is a precious metal dealer that operates online or in local establishments. Bullion banks usually deal with large quantities of gold. Their customers are typically institutional investors and central banks.

They typically offer investors a choice between allocated and unallocated gold accounts. With an allocated gold account, the investors own specific pieces of gold that the bank cannot use for other purposes. Owners of unallocated accounts are essentially unsecured creditors of the bank.

Internet Investment Gold

This gives investors the ability to buy physical gold online and store it in professionally maintained vaults. These products allow investors to enjoy the benefits of owning physical gold without the chore of protecting it. Investors actually own the gold and can take possession of it if their circumstances change.

How To Invest In Gold Without Physically Buying It

It’s also possible to invest with gold without buying a piece of gold. Here’s a closer look at gold derivatives, ETFs and mining stocks.

Gold Derivatives Futures Options

Gold derivatives futures options are options contracts backed by physical gold. These options eliminate the hassles of owning physical gold, including storage, transaction fees and insurance. This type of investment is best left to experienced investors as it requires some in-depth knowledge of the market.

Investing in derivatives can result in impressive gains, but they also come with the risk of significant losses. Prices can rise and fall faster than the price of gold itself, and derivatives trade on margin.

Gold ETFs and Funds

Gold ETFs and similar funds provide another way to invest in gold without physically owning it. They currently comprise nearly one-third of gold investments, even though they are a relatively new option for investors. These ETFs are backed by physical gold and reflect the current price of gold in the market.

Gold Mining Stocks

Finally, some investors prefer investing in stocks of gold mining companies. The primary advantage of this investment is that the return is tied to more than the current price of gold:

  • Some stocks pay dividends.
  • These stocks don’t fluctuate as dramatically as the price of physical gold because they’re an investment in a company.
  • The stocks are not backed by physical gold, so you can lose your investment if the company’s performance falls.

What Is the Best Way To Invest In Gold?

There are so many ways for consumers to invest in gold that it’s impossible to identify a single method that’s best for everyone. Those who want to invest in gold should research and make sure it meets their financial needs.

Seek the advice of a financial professional and reputable gold dealer who can help you navigate your options and learn how to invest in gold.

This article has been updated with additional reporting since its original publication.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.