How to Invest in Gold

Investment advisors often recommend an allocation of at least 10% towards gold and other precious metals (like silver) in your portfolio. A major reason for this is that gold has been a stronger player in the market, as compared to other investments, and usually fares well even during a financial crisis. While your other investments can bring you losses during inflation, your investments in gold can protect you from it. If you’ve decided to invest in gold, here are the different options you can choose from.

Five Different Gold Investment Options

Investing in gold is comparatively easier than before, considering the options you have today. Here are some of the popular ways to invest in gold:

Purchase the Metal

One way to invest in gold is to purchase it in its physical form. While a number of people believe that this is the best way to invest in gold, others consider it impractical and unsafe. But if you want to purchase gold in its physical form, you can choose from a range of options including coins, bars and jewelery.

  • Buy Gold Coins – One of the simpler ways to invest in gold is to buy smaller gold coins from places like the US Money Reserve, available in the market. You can choose from a number of gold coin varieties in the market, which include the Krugerrands, the UK Britannias, the US Eagles, and the Canadian Maples. These coins are usually available in 1 ounce increments and are usually a hundred percent pure.
  • Buy Gold Bars – You can also purchase physical gold in the form of small bars from a private bullion dealer, as the London Bullion Market only deals with bars weighing 400 Oz or more. Gold bars are also sold by some of the major banks in the UK that trade in bullion.
  • Buy Gold Jewelery – Although you can invest in gold by purchasing jewellery, experts don’t usually recommend it. This is because gold jewellery often costs more than coins and bars as it includes the cost of craftsmanship and also the cost of gems and other stones in it.

Invest in Gold Stocks

Investing in gold stocks is another easy way of investing in gold, when you do not want to hold the physical metal. Gold stocks are shares of a private gold mining company that can be bought and sold like any other stock in the market. While the value of gold itself is volatile, the prices of these stocks depend on a number of political, economic and even geographical factors and not just the price of gold alone.

As the value of stocks is highly dependent on the company and its performance in the market, investing in the gold stocks of an individual company may be highly risky. However, it can be equally rewarding if the company is established with actual gold reserves and generates enormous profits. So before investing in any gold stocks, make it a point to research and analyze if you are making the right investment choice.

Invest in Gold Mutual Funds

A gold mutual fund is comparatively safer than individual gold stocks, as the risk is minimized because of diversification of the fund. Usually, you can invest in gold through precious metal mutual funds that also invest in the shares of gold mining companies. As a fund’s performance is based not just on the sole performance and profit of one gold mining company, this is a good way to invest in the precious metal sectors.

You can also invest in gold through other collective investment instruments such as unit trusts, open-ended investment companies and close-ended funds. But one thing you should be aware of is that gold funds are not usually affected in a direct way by the price of gold. Also, these funds tend to be more volatile when compared to gold prices.

Invest in Gold Futures

Gold futures are legal contracts that allow investors to buy or sell a specific quantity of gold at a future date, at a predetermined price. As these contracts are usually traded on margin, investors only pay a small value of the contract in the beginning. However, futures can be risky at times, considering the volatility of bullion prices, as investment is usually made by speculating an increase or decrease in the price. Because of its potential risk, the gold futures option is usually not recommend unless you are an experienced futures trader.

Invest in Gold ETFs

One of the most popular ways to invest in gold is through an ETF. Gold ETFs or exchange trade funds are securities that follow gold prices and can be traded on stock exchanges. ETFs are excellent options for those who want to invest in gold, but do not want to take the risks of protecting the physical metal themselves.

Although ETFs usually invest in physical gold that is kept in a protected vault, they can also be used for investing in gold futures and stocks of mining companies, depending on the ETF you choose. In all three cases, the value of your ETF would be correlated to the prices of gold in the market, and at the same time, you can be free from the hassle of storing and protecting physical gold. However, to minimize your risk, investing in more than one ETF is better, rather than putting all your money in a single fund.

Whatever gold investment option you choose, ensure that they are in sync with your investment and financial goals. Also, as precious metals investments can protect you from the potential risks of inflation and recession, make sure that an adequate percentage of your portfolio is allocated for gold and other precious metals.

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