How do I invest in gold? Is there a distinct step-by-step approach that I should follow to ensure that I get it right from the get-go? What are the available gold investment options? Join me in today’s post in which we shall go through what it takes to get started with gold investments. My hope is that with the knowledge you acquire today, that you will take the right steps towards putting some funds into this shiny metal. If this sounds interesting to you, read on to discover more.
Gold has for many years been a fascinating asset to investors, since the days of the 19th-century investors who were panning for gold nuggets, to the present-day world investors using the best devices and software to scan for buying opportunities. Nowadays, you can purchase gold in many different forms, from coins to bullion, to ETFs, and derivatives.
The one question, however, that you should ask yourself is whether gold is a good investment for you. I don’t know about you, but the answer for me has been “yes”. Let’s talk about why it is worth investing in gold today.
Should I Invest in Gold?
Gold prices tend to be less volatile than those of stocks, more so during times of economic instability. This makes gold a relatively safe investment, with many investors flocking to it during any global financial crisis. In addition to that, people use gold and other precious metals to diversify their portfolios and to serve as a hedge when their other investments are gradually or rapidly declining in value. If you have, in the past, had your portfolio decline in value, or you foresee that market trends will affect it significantly, then it is a good idea to consider investing in gold.
There are several ways through which you can gain exposure to gold. All the available options have their unique pros and cons, which you should consider before whipping out your checkbook.
Top Ways to Invest in Gold
This is probably the most popular and preferred way to invest in gold. In the present-day gold industry, you can purchase gold bullion in the form of bars that weigh anything between a few grams and 400+ ounces. The most common sizes, however, are those that weigh one and 10 ounces. Gold bullion can as such be quite expensive, considering that the price per ounce is roughly $1800. Unfortunately, unlike stocks, one cannot purchase fractions of gold bars.
Since gold bullion is quite expensive, you should ensure that you should be sure to rely on the services of a reputable dealer. It is also advisable to be aware of the current gold prices so that you can know the best time to purchase your bullion. Most of the dealers usually update their prices based on the current spot prices.
Most of the benefits of investing in gold that there are can best be accessed through investing in gold bullion/physical gold. The other forms of gold, as we shall see, can be more affordable, but may also present significant drawbacks.
Gold ETFs and Mutual Funds
Gold Exchange-Traded Funds and Mutual Funds happen to be good options for investors who can pay for the services offered by professional fund managers. Some of the gold ETFs and Mutual fund that you will come across are, however, passively managed index funds that are structured in such a way that they track the industry trends of bullion.
Funds make up for about a third of all gold investments, despite being a relatively new investment option for gold investors. ETFs are backed by physical gold as the underlying asset, with their prices often reflecting the current price of gold.
A major benefit of gold ETFs is that they offer exposure to gold’s long-term stability benefits, without one necessarily having to spend a huge amount of money. ETFs can despite offering the much-needed diversification to one’s portfolio of paper assets end up being affected by market forces. This means that your fund’s portfolio can perform poorly despite the price of gold being impressive.
Gold mining stocks
Purchasing stocks offered by gold mining companies is yet another excellent way to gain exposure to gold, without purchasing the shiny metal directly. Like funds, the prices of gold mining stocks are usually tied to the spot price of gold. Some other things to consider when purchasing gold stocks include:
- Depending on how you invest, you can get stocks that pay dividends
- Gold mining stocks may be more stable than gold itself in the short term when the companies that offer them are performing well.
- The stocks are unfortunately not backed by physical gold, to means that you can end up losing a huge chunk of your investment if the company offering the stocks performs poorly.
Gold derivatives are usually traded as options contracts that are backed by physical gold. Options usually eliminate the hustles that come with the ownership of other types of gold, but they do require in-depth knowledge of the market. In most cases, derivatives are best left to experienced investors who rely on sophisticated approaches to profit from investing in such assets.
Derivatives generally have a lot of potential for impressive gains, but they may also expose an investor to significant losses if they fail to calculate their moves wisely. Their prices rise and fall significantly faster than those of physical gold, with most derivatives trading on a margin.
There are many advantages to investing in gold that you take advantage of by choosing the right type of gold investment for you. In most cases, gold does not provide a steady source of income like other assets do, but it can get you through the economically challenging times by hedging your portfolio against the negative forces of the market. This can, however, only happen if you have invested in physical gold. Check out the recommended gold IRA companies below and what they have to offer to you as a beginner in this industry.
That will be all for this article in which we have responded to the question “How do I invest in gold?” I hope you learned a thing or two, and that you are now in a good position to decide which of the available options are best suited for you as an investor. If you have any more questions about how you can get started with investing in gold, then let me know by dropping it in the comments section so that I can get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!