Gold is an invaluable investment that can diversify a portfolio and ease inflationary pressures, as well as be used as protection from stock market losses.
However, physically owning and storing it may be costly and difficult to track compared to liquid investments such as stocks or bonds.
Derivative Contracts
Gold-backed securities such as futures contracts provide you with a way to benefit from an increase in gold prices without owning physical bullion, but require more advanced knowledge of financial markets than most retail investors have and carry an increased risk.
Physical metal requires storage in either a safe or safety deposit box at a bank, both options can be costly with costs ranging from $30 per year for small safes to hundreds annually in larger vaults provided by banks. Furthermore, gold may require extra insurance which further adds costs.
If you want to invest in gold without needing to store it, an exchange-traded fund or mutual fund that holds gold-backed assets and trades publicly could be the perfect vehicle. Some brokerage accounts even allow for these vehicles and they provide more liquid investing than physical metals alone. Furthermore, leveraged funds may offer two to three times greater return than gold prices while increasing both your potential profits as well as risk levels.
Mutual Funds
There are multiple strategies for investing in gold without physically possessing it. Physical assets, like coins and bars, require storage fees, capital gains taxes and can be difficult to insure; while derivative instruments like futures contracts may be complex and not appropriate for novice investors.
Gold-backed mutual funds are another popular investment choice, which track the price of gold more closely and are often less costly than buying bullion bars or coins directly. They also typically provide greater liquidity without needing a Demat or trading account in order to open.
Before choosing any type of gold investment, it’s essential to first identify your goals and risk tolerance before seeking advice from an advisor who is legally obliged to recommend moves that serve your best interests.
Exchange-Traded Funds
For investors looking to add gold to their portfolios without purchasing physical gold, there are various solutions available without purchasing it directly. Mutual funds that invest in commodities that include gold or exchange-traded funds that track its price can provide low-cost diversification and help mitigate risks by investing in an asset less correlated to stocks or bonds.
Investors can also purchase shares in gold mining companies on the stock market, which provide greater exposure to financial results and may not be as volatile. However, this investment carries additional risk and requires in-depth research before being undertaken.
Investors looking at coins, bars, derivatives or ETFs as potential investments should carefully assess each investment option’s advantages and disadvantages before making their choice. New investors should carefully consider their initial capital requirements, desired returns goals and risk tolerance before beginning.
Mining Stocks
Mining stocks provide an effective way of getting gold exposure without holding physical metal. Their performance often hinges on price movements and expectations of future prices for gold rather than the operational performance of individual mines, so this type of investing should only be undertaken by those with a clear grasp on their goals, time horizon and appetite for risk.
Mining stocks can be divided into two distinct categories, majors and juniors. Major miners tend to offer lower risks compared with junior miners who possess less developed reserves or resources. It is also worth bearing in mind that mining operations may present environmental challenges when extracting precious metals; investors should look out for stocks that demonstrate strong environmental responsibility practices.
