In general, investors looking to invest in gold directly have three choices: they can purchase the physical asset, they can purchase shares of a mutual or exchange-traded fund (ETF) that replicates the price of gold, or they can trade futures and options in the commodities market. Average investors, for example, might buy gold coins, while sophisticated investors implement strategies using options on gold futures.
Key Takeaways
- Several ways exist to invest in gold: buying the metal itself, buying gold funds, or buying gold options.
- Investing in gold bullion for individuals takes the form of gold bars or coins.
- Mutual funds and exchange-traded funds that invest in the precious metal or shares of mining companies offer a more liquid and low-cost way to invest.
- More sophisticated investors might trade gold futures or futures options.
Buying Gold Bullion
Compared to other commodities, gold is more accessible to the average investor, because an individual can easily purchase gold bullion (the actual yellow metal, in coin or bar form), from a precious metals dealer or, in some cases, from a bank or brokerage.
Bullion bars are available in sizes ranging from a quarter-ounce wafer to a 400-ounce brick, but coins are typically the choice for new investors. Not to be confused with vintage numismatic coins, these are new issues priced on their gold content, plus a premium. For maximum liquidity, most buyers stick with the most widely circulated gold coins, including the South African Krugerrand, the American Eagle, and the Canadian Maple Leaf. Whatever you prefer, be sure you are buying from a reputable dealer, either in person or through the internet. Gold coins obviously require safekeeping—either a home safe or a bank safe deposit box. Be sure to insure them, too.
Gold jewelry also allows theinvestor in gold to alsoexperience the enjoyment of wearing it. Gold is often combinedwith other precious gems and metals to enhance the overall value and appearance of the jewelry. Pieces are often passed down to the next generationas family heirlooms, adding sentimental value beyond that of the piece itself. Jewelry is not typically the best option if it's strictly an investment, because the retail price will usually far exceed the meltdown value. This is due to the workmanship involved and the retailmarkup. Always determine the purity of thegold before buying jewelry, so that you don't pay for 18 karatswhen you are only getting a 14-karat piece.
Jewelry is covered by most homeowner insurance policies, which is an advantageshould it be lost or stolen.
Buying Gold Funds
Although it's more feasible than, say, a barrel of oil or a crate of soybeans, owning physical gold has its hassles: transaction fees, the cost of storage, and insurance. Investors interested in a more liquid and low-cost entry into the gold market might instead consider mutual funds and exchange-traded funds that replicate the movements of the commodity.
SPDR Gold Shares (GLD), for example, is one of the oldest ETFs of its kind, initiated in 2004. Shares trade on the New York Stock Exchange and can be bought or sold at any time throughout the trading day, just like stock. Each share of the ETF represents one-tenth of an once of gold. For example, if gold is trading near $1,300 an ounce, the gold ETF will trade for approximately $130 per share. GLD invests solely in bullion, giving investors direct exposure to the metal's price moves. Other funds invest both in bullion and in shares of publicly traded companies in the business of gold mining, refining, or production.
Generally, gold stocks rise and fall faster than the price of gold itself. Individual companies are also subject to problems unrelated to bullion prices—such as political factors or environmental concerns. So investing in an ETF that owns gold stocks is a higher-risk way to play, but it does offer appreciation potential—which investing in bullion does not.
Buying Gold Futures Options
More experienced investors who don’t want to risk a lot of capital might consider options on gold futures or options on a gold ETF. These contracts represent the right—but not the obligation—to buy or sell an asset (gold in this case) at a specific price for a certain amount of time. Options can be used whether you think the price of gold is going up or going down. If you guess wrong, the maximum risk associated with buying options is the premium you paid to enter the contract.
Available in the U.S. through the Chicago Mercantile Exchange, put and call options on gold futures can be bought and sold through a futures broker. Options on SPDR Gold Shares ETF are also available to investors and can be traded in a standard brokerage account that has received approval for options trading. Meanwhile, some traders buy and sell gold futures contracts—which trade on CME under the symbol GC—to speculate on short-term moves higher or lower in the yellow metal.
Buying Gold Mining Stocks
If you can't get your hands directly on any gold, you can always look to gold mining stocks. Keep in mind however, that gold stocks don't necessarily move in concert with bullion prices, because mining companies succeed or fail based on their individual operating performance and how they deploy their capital and generate profits. You don't have the security of physical possession of the metalif the companies you buy are unsuccessful.
The Bottom Line
If you’re buying gold as part of a portfolio diversification strategy, ETFs are the best way to go. If you want protection in the event of a system-wide crisis, you’d want to own the physical metal.
FAQs
The most common way to invest in physical gold is to purchase gold bullion. Gold bullion refers to investment-grade gold, commonly in the form of bars, ingots, or coins. Investment-grade gold is always at least 99.5 per cent pure: Gold bars will have the manufacturer's name, weight, and purity stamped on it.
Can I invest $1,000 in gold? ›
Remember, however, many gold dealers have minimum purchase amounts, such as 10 gold coins. With $1,000, you may find it easier to invest in gold ETFs, IRAs or gold mining stocks. While higher investment amounts deliver higher returns, you can reap the benefits with any deposit amount.
Which type of gold investment is best? ›
Solid Gold (Biscuits/Bars/Coins)
Individuals can also invest in solid gold by purchasing biscuits, bars, or coins. The making charges here are very low, and you get good returns while selling. However, one common risk factor in the possession of physical gold is storage and theft.
Is investing gold a good idea? ›
Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.
What is the downside of buying gold? ›
Con: It doesn't give you passive income or steady returns
Unlike some investments that yield passive income (e.g., rental properties, some stocks and bonds), physical gold doesn't provide passive income, dividends or interest. You will only earn once you sell your gold.
Can you make money owning gold? ›
Gold can be an income-producing investment, just not one that most investors can benefit from short term. Instead, the precious metal price tends to rise over months, years and decades. But while that can offer advantages long term, there are some more immediate benefits investors can take advantage of now.
How much gold will $10 000 buy? ›
Gold Coins: Assuming an average premium of 5% to 10% over the spot price, you can purchase around 4.5 to 4.7 troy ounces of gold coins with your $10,000. Gold Bars: With lower premiums, possibly around 2% to 5%, your $10,000 could buy you closer to 4.8 to 4.9 troy ounces of gold in bar form.
What if I invested $1,000 in gold 10 years ago? ›
So, if you held onto your 0.753 ounces of gold from your initial $1,000 investment, it would be worth approximately $1,432 today. This means that your $1,000 investment would have grown by about 43% in nominal terms.
Can gold make you a millionaire? ›
While it's possible to make money from gold investments, proponents of the yellow metal typically view it as a tool for wealth preservation rather than growth. Traditionally, the stock market tends to deliver higher returns than gold.
What is the safest gold investment? ›
If you're looking for a safe gold investment option during retirement, it may be worth considering the following options:
- Gold bars and coins.
- Gold individual retirement accounts.
- Gold exchange-traded funds.
- Gold stocks.
- Gold mutual funds.
- Gold futures and options.
Gold is often hailed as a hedge against inflation—increasing in value as the purchasing power of the dollar declines. However, government bonds are more secure and have shown to pay higher rates when inflation rises, and Treasury Inflation-Protected Securities (TIPS) provide built-in inflation protection.
What is the most profitable way to buy gold? ›
Investing in a gold stock, ETF or mutual fund is often the best way to get exposure to gold in your portfolio. In order to buy a gold stock or fund, you'll need a brokerage account, which you can open with an online broker (here's a step-by-step guide to opening a brokerage account).
What will gold be worth in 5 years? ›
Gold Price Predictions for the Next 5 Years
However, they maintain a bullish outlook on the price of gold for the long term. Traderindo's Laksono has maintained its forecast that gold could trade at between $2,550 to $3,000/oz. He said: “Many things could happen in five years, including global economic crises.
Is 1 oz of gold a good investment? ›
The bottom line
Investing in 1-ounce gold bars can be a prudent move for those who are looking to diversify their portfolios and safeguard against economic uncertainties. However, it's crucial to approach this investment with a clear understanding of the market, associated costs and the long-term commitment required.
Should I buy gold bars or coins? ›
Ideal for Long-Term Investment
If you consider to hold physical gold for a long period of time without any intention to sell part of your investment overtime, gold bars will be the best option for you. They will cost you less per gram compared to gold coins. This is because of their lower premium, as explained below.
Should beginners invest in gold? ›
Gold savings accounts
These accounts are a convenient option for beginners as they eliminate the need for physical storage. And, while returns may not be as high as other forms of gold investment, it provides a low-risk way to start building a gold portfolio.
How much do I need to invest in gold? ›
Most experts recommend limiting your gold investment to 10% or less of your overall portfolio. The range between 1% and 10%, however, will often vary based on your age and overall investor profile.
How can a beginner invest in gold with little money? ›
How Do Beginners Buy Gold? Mutual funds and ETFs are probably the smartest options for beginners. Each share of these securities represents a fixed amount of gold, and you can easily buy or sell these funds in your brokerage account or retirement account.
How much do I need to start trading gold? ›
The amount of money you need to trade gold varies based on the method you choose. In forex, you can start with a relatively small capital, sometimes as low as $100. For gold futures, margin requirements may range from several thousand to tens of thousands of dollars, depending on the contract size.
