If you want to know how to invest in gold bullion or gold in general then you have come to the right place. In terms of value, gold is one of the most precious items globally that surpasses boundaries. It has been an item of value throughout history and has played a significant role in currency, jewelry, and as a means of holding value.
Even today, gold still holds huge promise as an asset, and in many places, it is the best alternative to bond markets.
Why is Gold Valuable?
From the very early days, the luster and malleability of gold led to it being used in early coins and jewelry. It was also tough to dig the gold out of the ground, and its value was very high from the very early days.
The more difficult it is to obtain something means it will be more valued than the easy to find. Even though it is plentiful in nature, it is still challenging to extract, even though advances in extractions are expected to change this.
As time progressed, people started to use gold to conduct trade and store wealth. Even in the early days, paper currencies were backed by gold, and the earliest banks used to store an equivalent value of gold for all the paper bills in circulation.
This is a practice that led to the birth of the banking system that we use these days, and the fact that gold has been used since early times means that it is one of the most valuable assets that can be used to store value. Whenever you invest in gold, you will get to preserve value for longer, and the value you have stored will not vary over time.
Gold is a safe asset and has seen increased demand in recent times. Whenever times are uncertain, and the current political and economic landscape looks unstable, gold is usually the main asset to protect against rocky conditions.
For instance, when governments conflict, they tend to cause the currency’s value to drop, and the market takes a beating as a result. Whenever you invest in gold, you will be able to preserve the value of your assets which makes you safer for much longer.
Even when the economic conditions are unstable and there is inflation, gold is usually the best means of staying safe, and the value of gold is also known to rise as the value of goods does. The owner of gold can maintain more purchasing power, and as an investor, you must learn how you can start making use of gold.
How is Gold Obtained?
In the past, panning was the standard way to obtain gold. However, it is now more commonly mined where miners look for places where it is available in economically feasible quantities and set up a mine.
Once the mine is in place, it will take about a decade to get the returns on the original investment since this is when the mine is fully operational. Around 197,576 tons of gold have been mined throughout history, and most of the gold is still around in different forms.
Origins of the Demand for Gold
Currently, the tremendous demand for gold comes from jewelry production. This accounts for about 50% of the demand for gold. Another 40% is the direct investment in physical gold such as coins, medals, bullion, and gold bars.
Gold is usually considered one of the safest forms of investment, and as such, it is pretty popular. Many people prefer it over many other alternatives whenever they need to invest. Even when paper money has lost all its value, gold is one of how the world gets to have an alternative means of facilitating trade.
Gold is also being used in space travel and inside tech gadgets since it is a good conductor of electricity. Whenever the markets are volatile, investors will be able to take advantage of the scenario and increase the price of gold to benefit from the market.
You can become an investor and start investing in gold when you clearly understand how to invest in gold. Knowing how to invest in gold means that you will be able to make better choices when you are investing and choose the best ways of investing.
There are different ways to invest in gold, each with its benefits and disadvantages. Let us dive into each alternative and the benefits that it presents you as the investor.
Different Ways of Investing in Gold
There are different methods through which you can invest in gold. For instance, you can:
- Buy physical gold
- Start gold-linked currency investments
- Establish gold ETFs or unit trusts
- Purchase gold mining stock
Let us now look at each way of investing in gold in more detail to have a better idea of what they involve.
1. Buying Physical Gold
Knowing how to invest in gold bullion is one of the main ways you can invest in gold. Gold bullion is a term that refers to investment-quality gold and comes in the form of bars, ingots, or coins. As such, knowing how to invest in gold coins can be an excellent start to your overall investment journey.
The gold you choose for your investments should always be at least 99.5% pure. Following are some valuable tips that will ensure that you buy the right kind of gold and get the best quality whenever you are investing.
- Gold bars usually bear the manufacturer’s name, weight and purity stamped on them. They typically weigh between 3 grams and one kilogram. Buying gold bars is usually the best form of investing in gold since you will be able to buy less quantities of the gold and in precise weights that you require.
The bars are also easier to carry around and are not easily lost compared to the gold coins. The bars also have a precise weight stamped on them and have a high purity level owing to a strict purification process that ensures that all the other metals have been eliminated and you are left with a pure gold bar.
- Gold coins have a greater range of shapes and sizes while others include engravings, and as such, they will cost you slightly more. Collectors’ gold coins are also more expensive than other types of gold coins. Gold coins are accepted as legal tender in the countries where they originate, but they are usually not the most convenient currency.
Collectors generally use them for their sentimental value, and the rare gold coins are known to be more expensive. The coins that date back decades back are also known to be quite costly and will hold more value in the market than recent gold coins.
**See top-5 gold coins
The rarity of the gold coins is one of the main factors that determine their value and the price you will get for them. Additionally, you need to ensure that you buy certified coins that have already been verified to get the best price.
**Beware of the Numismatic gold coin scams
You can buy physical gold from banks and brokers, but generally, it is essential to only go for reputable sellers. A trusted local source, for instance, is a better place to buy gold bullion as compared to online sellers. Additionally, you will also get better service when working with a local supplier, and you can trust their services to be of the best quality.
Jewelry made from gold is another way to get the gold that you need in physical form. However, it is not considered an actual gold investment since additional costs are added to the gold content. These include the craftsmanship involved in the production of the jewelry and the branding and, as such, cannot be part of the value of the gold.
As such, you will be running into losses when you buy gold jewelry as a means of investing in physical gold since more of the extrinsic value will not be the actual value of the gold itself.
Gold jewelry has several advantages over gold bars. For instance, they have a significant resale marketing and can also be passed on to loved ones. Unlike gold bars, gold jewelry can be covered under many homeowner insurance policies and will be covered when it gets stolen.
Helpful Tips for Investing in Physical Gold
Whenever you decide to invest in physical gold, you should also be aware of the other factors involved in this process.
These are the storage and insurance of the physical gold you purchased. These will often mean additional costs, but they are suitable investments to make to ensure the safety of your gold. For instance, you can choose to have your gold bullion stored in a bank safety box or a vault.
It will be much safer here, and you will not have to worry about losing the gold. These places are safer than storing the gold at home, where robbers are more likely to break in and take it all away. Physical gold is quite susceptible to theft, especially when it is portable like gold coins.
You should also have a verification step as you purchase the physical gold. Ensure that you are working with a trustworthy seller as unethical gold sellers have been known to pass off other metals like gold and even mix other metals into the bullion to reduce the content of gold in them.
Research about the dealer you are buying gold from and ensure that they are the kind you can trust before dealing with them. As such, you will have spent your money in the right places, and you will not lose any gold in the process of investing.
Insurance is another critical part of investing in physical gold, and as such, you should consult an insurance professional to ensure that your precious assets are secured. The insurer will also need to know how well your gold has been stored and secured before they can agree to sell you a policy.
Another fact to keep in mind is that the market forces cause the price of gold to keep rising and falling, and you should be aware that the value of your physical gold will not stay constant.
2. Gold-linked Structured Investments
Gold can maintain its value in real terms even when the conditions in the market are volatile. When you invest in gold as a commodity-linked structured investment, you will have made an excellent investment in gold. The process involves choosing a broker or bank to discuss the duration of your investment and the base currency you will use.
Gold is considered a currency and has the code of XAU, which identifies it uniquely in the market. Once you have agreed on the base currency, you will get your coupon and principal in XAU or the base currency.
This is a safe investment in the sense that your gold appreciating against the base currency gets you paid back in the base currency.
On the other hand, if gold goes below the base currency, the investment will be converted, and you will be repaid in gold that has been converted at the target conversion rate.
As such, you are safe, and your asset will not lose value either way. This is the ideal means of investing in gold for those who do not mind being paid in gold. There are also more derivatives of the XAU currency for advanced investors.
With this investment, you will be mainly dealing with volatility, and as such, you have to be prepared to take your time tracking such movements in the market. You should also be aware of various risks to avoid making losses when your investment has not matured.
3. Gold ETFs and Gold Unit Trusts
A gold ETF allows you to invest in gold without purchasing the actual physical gold asset. It is a form of fund that can hold a variety of gold-backed assets. Some of the ETFs will usually keep track of the movement of physical gold, while others will deal with shared gold-backed derivatives.
The underlying asset will usually be the principal determiner of your ETFs, and they can also be traded in the same way you would trade stocks in the stock market. Whenever you have gold ETFs, you have a liquid asset that can be sold off whenever the need arises.
They are also a cheaper investment for beginners, and since you do not have to buy physical gold, you will have fewer risks. A gold unit trust is another fund that deals with gold derivatives and other related assets.
This fund is usually more actively managed and has full-time professionals charged with running the fund to ensure you get better returns. Although the derivatives can have good gains, they also risk huge losses.
For instance, the prices can vary faster than the actual price of gold, and most of the time, derivatives typically trade on margin. Whenever you are looking for the long-term stability of gold, you should look for mutual funds and gold ETFs.
They will also provide you with more liquidity than the physical gold itself and greater diversification than the individual gold stocks. Keep these factors in mind whenever you invest in gold ETFs and gold unit trusts since they determine the returns you will get from your investment.
Helpful Tips for Investing in Gold ETFs and Unit Trusts
Either way, some expenses are usually incurred in managing the fund, and as such, you must review the companies behind the fund. As you research these companies, confirm that they have an established history and have the capital required to run stably and reliably.
You can also consult with a reliable financial advisor to provide you with a clear direction for your investment. A bank or a licensed broker is usually the best way to purchase gold ETFs and unit trusts.
You should also ensure that you do your research before getting a professional to manage the fund for you. This will ensure that you get the best services and track the industry trends and get you the best investment decisions that have more significant returns and greater profits.
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4. Investing in Gold Mining Stocks
Instead of investing in actual gold, you can take a step further and invest in the companies that mine for the gold. The shares will go up with increases in gold prices, and as such, your gold inventory in the company will increase. However, this form of investment is a little risky since it usually depends on the miners and their management.
Some can extract more gold at a lower cost, while the poorly managed miners will extract less gold at a higher price. The management of the gold mining company is usually the added risk, and you should beware of mismanagement.
A company that is in debt and always tries to circumvent legal and environmental policies could have its operations halted, and your investment will not give you the returns you would expect.
Whenever the price of gold is falling, the gold mining company will usually reduce their spending to be more profitable. This is something that physical gold and a gold ETF cannot do.
As such, you are safer investing in gold mining stocks whenever the market is not in favor of the gold. You always get dividends from your investment in gold mining stocks which would not be the case when you invest in physical gold.
The returns that you will get from this investment will usually be based upon the company’s future returns and not the actual prices of gold. The stocks will pay dividends, and the stocks will not fluctuate as dramatically as the price of the actual gold since these are used to represent an investment made in a company.
As such, you will not lose your investment even when the performance of the gold mining company falls, and eventually, the value of your stocks will improve as the management of the company gets better.
Engaging in the mining industry also brings you closer to reality on the ground and ensures that you are getting better benefits and greater profits from your investment. Investing in a reliable and well-established gold mining company like Barrick can get you better returns, and your investment will be much safer.
**If you are interested in gold mining you might want to see this info
Get the Right Information Before Investing
Before you purchase any gold product, always consult an experienced financial advisor. Your financial scenario will usually determine the amount of gold you should invest in.
Additionally, other factors such as your risk profile, current market conditions, and investment horizon will determine the size of your investment. As such, you must get the correct information before deciding to invest in gold.
By being properly informed, you will make better decisions and choose the ideal type of investment in gold that serves your long-term financial goals and caters to all your investment needs. You might also choose one investment method over another based on the funds you have and how much you are willing to spend.
Benefits of Investing in Gold
1. Stable Value
Gold is one of the best store of value and wealth and can be a reliable way of offsetting inflation. Gold can hold value better than paper money, and as such, it gains value instead of losing it, making it one of the most reliable means of exchange whenever you need to buy commodities.
In other places, gold can also be used as a currency, and as such, you can easily use it to trade regardless of the country or territory you are in.
The buying power of gold always remains the same, and you have more effective trade when you have the physical gold. For instance, when you know how to invest in gold coins, you can easily buy a commodity even when times are hard, and the current economic and political conditions are volatile.
Demand is the other benefit that you get whenever you invest in gold. Gold always has a high demand in markets worldwide, and as such, selling your assets quickly is made possible.
Gold is accepted worldwide as a valuable asset and can cross cultural boundaries regardless of your location. The demand means that you will get a reasonable price for your gold when you need to sell it quickly, and the gold market is always open and active.
The liquidity of gold is another huge benefit that you get to enjoy when you invest in gold. The investments you will make in gold will be highly liquid, and as such, buying and selling on global markets will only take a matter of minutes. The rare metal is rarely lost but gets melted and transformed into something different.
For instance, it can be transported in bars and melted into jewelry, and sold back on the market for a higher price. After the jewelry has been worn for years, the US Mint will melt, refine, and make it into coins.
4. Portfolio Diversification
Whenever the paper market has dived, the value of gold climbs. This means that investors can be more confident about the price movement in relation to gold, and even when the global markets are not stable, gold can be considered a safe-haven investment.
The primary way you can make your investment safer is by diversifying them. It is not safe to have all your investments in one place, and gold gives you a way to diversify your portfolio.
Including it as part of your investments will stabilize your overall value and ensure more alternatives. Gold will be your insurance policy when you are unsure of the performance of the other investments that you have on your portfolio. You can rely on its stable value, and its price does not fluctuate much.
As an asset, gold is much better than physical money. Money is bulky and heavy, and it is also known to take up a lot of space. For instance, if you were to stack $1 million in $1 notes, the total weight of the money would come to around 1.1 tons.
This is quite heavy and moving this would be very expensive. In contrast, $1 million can be held in two bars, which means that a lot of value can be held in a very restricted space. Moving gold is also cheaper than physical money since the weight is reduced, and converting them is easy no matter where you are traveling to.
Given the demand for gold and the active nature of the gold market, you will quickly get cash for your gold even when you have to travel in a hurry meaning that you will always have the emergency cash you need. As such, the portability of the gold means that you can carry more value with you, and even when you need to travel for a long time, you will be able to do a lot of things at your destination.
One historical example of this in practice is Mansa Musa, who used massive amounts of gold to build Mosques all over the Sahara desert while going on a pilgrimage to Mecca. If this were to be carried in actual cash, he would have required more camels to take him on this vast journey.
Gold is chemically stable, and as such, it does not rust, break, crumble or lose its shine. It is the kind of asset that you only need to buy once, then you forget entirely about it.
You won’t have to worry about degradation for decades and centuries when you have your gold-form investment. Gold remains in the same pristine condition that it was in even when it is buried in the ground, and as such, you get to preserve the value of your assets for much longer.
Gold will only react with a few of the most powerful acids, and this means that it is less risky than paper money which will easily crumble to dust when it is not stored in the right environment.
Disadvantages of Investing in Gold
1. Lack of Yield
Gold does not have any dividends or interest paid. This is a disadvantage since the other assets in its class can be rented to produce an income, which they appreciate in the long term.
However, this is not a disadvantage when you consider inflation’s devaluation on your dividend when it is in paper money form. Gold does not provide an income and will not get you any returns.
The main aim of gold investors is that the gold will provide them with significant long-term returns on their initial capital. However, this is not always the case since the value of gold usually depends on the demand and supply at any point in time.
2. Associated Storage and Insurance Costs
Gold is a real asset and very valuable, and as such, it has to be stored in a place where it is safe and secure.
Additionally, gold has to be insured against theft, and you will have to spend some additional money when keeping your gold safe. However, professional vaulting services are competitive and have better fees than those charged by trading platforms and managed broker accounts.
Whenever you invest in gold, you must also consider the additional costs associated with the investment in gold since you will have to cover the added costs of storing the gold. You have to ensure that the gold you have invested in does not get stolen, and as such, you will have to invest in expensive security to ensure that your gold is safe and secure.
Additionally, gold does not have a lot of industrial applications meaning that the demand will be limited when people are not in difficult economic times. The sales of gold usually increase when the economic times are difficult since it is one of the best ways of storing value and preserving wealth for a long time.
3. Gold can be Volatile
In the short term, gold can be considered volatile since the currencies in the market are constantly fluctuating. The volatility can be a downside for someone that needs to purchase gold as an investment in the short term. However, gold is a stable investment in the long term since you will not be affected by the short-term surges in gold sales where gold gets heavily traded.
The short-term volatility of the gold does not affect the long-term demand for the physical bullion, which is one factor that should encourage your investment in gold.
4. Environmental Concerns
Can we consider the mining of gold to be ethical? Some miners conform to environmental standards while others do not adhere to the regulations.
Some of the methods used to mine this precious asset make use of harmful, toxic chemicals, and as such, they can destroy rivers and damage entire ecosystems with the generated sludge. The problem does not face the environment alone, but the miners’ health is also affected.
Some mines are also in war zones and places with many conflicts. Whenever the conflict gold finds its way to the international market, it cannot be differentiated from the legally obtained gold once it has been melted.
However, gold is so precious that it is rarely discarded, and it is mainly recycled into other forms such as bars, jewelry, and gold coins. Entire industries have been created to obtain gold from discarded electronics.
Benefits vs. Disadvantages of Making an Investment in Gold
The benefits of investment in gold far outweigh the disadvantages. For instance, the stability of value realized in gold can be used to invest in promising startups that will ultimately result in better lives for people in the future.
Additionally, gold can hold more value than the same weight in paper money, which means that gold can be used for significantly more significant investments. The entire market is also improving and getting more rigorous with policies and regulations, and these have ensured that there are stricter measures taken for those who break the law.
These days, it is easier to trace gold to the mines they are obtained from and track their progress to the stage where they are transformed into a gold bar. As such, you will be sure that you are investing in pure gold that has provided fair compensation for all the parties involved in its processing.
The benefits are far more significant than the downsides of investing in gold, and as such, you can consider gold to be one of the best investments you can ever make. It is safe, simple, and more reliable in the long term since the value does not fall or rise as dramatically as the currencies used for daily trade.
You also get to benefit from a market that is always ready to sell you gold or buy your gold at a reasonable rate, and as such, you are always assured of a ready source of cash even when you are traveling to other places. The physical gold can be in different form factors such as bars and coins, and the weight of the bars can also vary.
For instance, you can have several 3-ounce bars that will help you pay for your hotels when traveling to a foreign country. You can also have other heavier bars for your expenses inside the foreign countries. Another advantage of gold is that the market is readily accessible and well connected.
As such, you are always assured of getting the best deal and a dealer that is ready to give you the best price for your gold. This is important whenever the times are tough, and you need some cash to spend for the moment.
With gold, you don’t have to worry about carrying a lot of physical money around, and the value you can bring in gold far outweighs that which can be carried in paper money. Whenever you invest in gold, you get to enjoy the long-term stability it offers, and the diversification you get is essential for your portfolio.
The value of the gold is usually attached to its price, and as such, you have to ask around for the best offers before selling it. Some forms of investing in gold, such as ETFs, require having a fund manager that is experienced and capable of tracking the price movement of your investment.
Mostly, they will charge a fee for their services which means that you will have to incur an additional cost for your investment. Even though this usually pays off, you can run into losses when your investment is not performing as well as you would expect it.
Gold is a precious metal that has been used throughout history to store value. It is stable in its value and a viable investment for many people.
Whenever you need to invest in gold, you have to understand the various forms you can invest in and the benefits associated with each form of investment. With the information provided in this guide, you will be able to make a better decision on what form of investment you would like to make.
As such, you will get the best returns on your investment and benefit from the gold you invest in. Gold is a precious asset that is virtually indestructible, and as such, it can be used for many years in different forms.
It is also more stable than other currencies, and as such, it is your best hedge against inflation when the economic times are tough. Before you start to invest in gold, you must compare the available options.
Depending on your requirements, some of the forms of investing in gold might be more viable than others, which will usually determine your decision. Whenever you invest in gold properly, you will be able to get the full benefit of your investment, and the value of your investment will not be volatile.
This provides you with the best financial shield for tough economic times and ensures that you have a good return on your investment that will ensure that you have more profits in the long term and an investment that can serve you in more ways than you would expect.
I hope you found this article to be helpful and that you now have a better overall view of the subject on the different ways you can invest in gold. Please share your experience in the comment section below! Also, if you got any questions about this then I would be more than happy to answer them below!
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I wish you success!
Michael, founder of Gold Retired