Today we shall look at how to invest in gold in the USA. There are different approaches to investing in gold in different parts of the world, so we shall be focusing on the legit and safe ways through which you can invest in this popular but rare shiny metal. If you’ve been thinking about diversifying your portfolio of investments and even lowering your risks, then this article will be very beneficial. Read on to find out more.
See my top-5 recommended Gold & Silver IRA service providers on this page
Gold as a Commodity
Gold is perceived as a commodity, on a global scope, to mean that its price in the market it usually determined by the forces of supply and demand. Most of the above-the-ground gold comes from hard rock mining processes, though significant amounts are also obtained from placer mining and copper mining.
The top three largest producers of gold in the world are China, Australia, and Russia. The gold they produce (along with other nations in the world), is used for the production of jewelry, but it also has its place aerospace industry, as well as dentistry, medicine, and the production of electronics. In the past few decades, governments and central banks have come to be recognized as some of the main buyers of gold.
As of now, the U.S. has the largest reserves of gold, followed by Germany, and by the International Monetary Fund. Besides the major purchases made by global superpowers, there have also been some significant purchases by private investors, who hold gold as an investment.
Why private investors are buying gold
As opposed to holding cash positions, investors opt to purchase gold whenever they expect one of the following events:
- Global recession
- Political instability
- Deflation (rarely happens)
- Depreciation of a currency
Gold has in the last 4 decades recorded very significant gains, most of which have been triggered by several well-known events. One interesting observation has been that the price of gold tends to go up when the global stock market is tumbling down. Events such as terror attacks, war, and widespread diseases tend to influence the direction that the price of gold takes (along with that of stocks)
The truth of the matter, however, is that gold has not always performed well. In the 90s for instance, its performance was not impressive, owing to:
- Growth of the U.S GDP
- The hiking of interest rates in 1995.
- A tight fiscal policy
The one thing to note, however, is that the price of this precious metal, has generally risen over the years, and has as such become a go-to asset for long-term investors, more so those who are heading into their retirement years.
Below are some of the top ways in which they invest in gold
How to invest in gold in the USA
Purchasing physical gold
This is one of the most common ways through which you can get exposure to gold. Buy buying gold coins, bullion, or jewelry, you make your entry into the market, hoping that your precious metal assets will be worth much more in the future.
The one thing you have to do, however, as you purchase your gold, is to check whether the dealers are legit. You do not want to end up with fake gold, since no one will purchase it at the time you will need to cash it out, some years down the line.
This is why it is necessary to research about the gold dealers you intend to deal with, and to also check their consumer trust ratings across different categories. You can otherwise get recommendations from top-rated gold IRA service providers, since they have access to a wide network of genuine dealers in different parts of the country.
Finally, before making your purchase, ensure that the price of the gold is far, and that you are not paying very high premiums. Be ready to walk away from any dealer if you are not convinced that they have what you’re looking for, to avoid being exploited.
Depending on the type of gold you buy, you will have to choose where to store it. If you buy your gold through Gold IRA, however, you’re required to store your physical precious metals in a safe and approved depository. Doing contrary to this will attract heavy penalties from the IRS.
Gold mining companies (stocks)
Investing in a gold mining company can also offer you exposure to gold. This form of exposure is, however, limited and has some potential risks. The mining companies, for instance, carry operating risks, and these have the potential to break the correlation of the stocks with the price of gold. Gold miners who default cause their shares to trade at lower prices, regardless of the trajectory of the price of gold.
The good thing is that, a company can also end up performing well even when the price of gold is not looking good, and this can lead to profitability even when the market is not favorable.
You can also purchase gold futures, which are simply standardized contracts that usually trade on organized exchanges. Simply put, futures holders can purchase or sell gold at a specified time in the future, and at the agreed-upon price in that contract.
To trade in gold futures, you need to open a brokerage account. You’ll then have to deposit the minimum amount as required by the exchange. Each day, your position is usually marked-to-market, which means that depending on the direction that your price goes, you will either make a profit or lose your money.
Futures are actually very complex and are not recommended for passive investors who like to adopt the set-it-and-leave-it approach. You have also need to be quite experienced in working with futures, otherwise, you’ll end up in tears and with empty hands.
If you’re ready to get started with gold investments and would like to know what to expect from the service providers, here are some companies that you should check out:
Thank you for making it to the end of this article on how to invest in gold in the USA. I hope that you found it beneficial and that it will help you get started on the right foot. I highly recommend that you take a look at the recommended gold and silver IRAs (in the link above), to get an idea of what to expect with gold investments from the get-go.
I wish you well,
Eric, Investor and Team Member at Gold Retired!