There are various methods of investing in gold, from physical bullion to mining stocks; each option comes with its own set of risks and costs.
Physical gold can be difficult to sell quickly for its full value and requires secure storage facilities that may incur high storage fees, further complicating matters.
Physical gold
Gold has long been seen as an asset that investors turn to during times of political or financial unease, yet adding it to a portfolio can be tricky; experts advise investors not accumulating physical gold but instead investing indirectly, which often has lower costs.
Storage and insurance costs should always be taken into account when investing in physical gold, especially if your gold will be kept in a safe deposit box or private vault. Furthermore, investing only with reliable dealers may help avoid falling prey to scams such as promises of gold mines that don’t exist or gold bars containing only silver and other metals.
Direct ownership of physical gold reduces counterparty risk associated with investing in gold derivatives and exchange-traded funds, and offers greater privacy than these alternatives. Physical gold does not bind itself to any specific government or financial system and can be bought, sold and stored privately and safely.
Futures and options
An alternative way of investing in gold involves buying physical metal such as coins, bars and jewelry – though this approach can be both costly and time consuming. Furthermore, you will need somewhere secure to store and insure the precious metal against theft and damage.
Gold futures and options investments may also provide another viable investment option for more sophisticated investors, requiring a brokerage account that supports futures trading. Leverage allows these investments to offer huge potential returns while simultaneously increasing risks quickly if losses materialise quickly.
Thirdly, investors who wish to diversify their portfolio but lack either the expertise or time necessary for physical gold investing may benefit from purchasing stocks in companies involved with gold mining or production. While this form of investing does not produce cash flow directly, so should only be done so occasionally.
Exchange-traded funds
Gold can be an attractive investment that outshone both stocks and bonds over specific time frames. But adding it to your portfolio should be done carefully and in small increments; investing in physical gold requires extensive planning as it comes with risks, such as storage fees.
Gold-related exchange-traded funds (ETFs) and mutual funds offer more flexibility and lower cost options for investors looking to diversify their portfolio with gold. These investments track gold’s price while having low correlations to other assets – making them an excellent way of diversifying.
Investors can purchase shares of gold mining companies to gain exposure to precious metal prices without directly owning them. While these stocks may provide indirect exposure, their returns may not closely mirror that of their underlying commodities and they typically require at least $1,000 as initial capital investment.
Mutual funds
Gold can be safely invested in via stocks, ETFs and mutual funds that track this precious metal. Our experts recommend this investment approach as they eliminate many of the costs associated with physical gold ownership such as storage and insurance costs.
Physical gold presents several risks when owned, most notably it being difficult to liquidate quickly for cash. Furthermore, storage fees are hefty and theft risks exist – and you’ll need a safe to keep it stored safely away.
Gold mutual funds and exchange-traded funds (ETFs) offer a straightforward method for diversifying your portfolio with lower transaction fees. The funds follow the price of gold while providing exposure to a range of related stocks such as those owned by Barrick Gold Corp (GOLD) and Franco-Nevada Corp (FNV), among others – although their performance doesn’t fully mirror gold bullion prices.
