How To Invest In Gold

For as long as people have known about gold, it has held a special allure.  Chemically, there’s nothing very unique about it.  However, that hasn’t stopped centuries of explorers and rulers from trying to find as much of it as possible! 

If you’ve been thinking about becoming an investor in gold, then here’s what you need to know and how you can get started.

Investing money in gold

Why Do We Value Gold?

The earliest recorded use of gold was in 40,000 BC when it was discovered in Spanish caves.  Ancient cultures used the metal as artifacts for the wealthy and tokens of worship.  As civilization moved from a barter system to a monetary system, gold proved to be the best medium since it wouldn’t corrode and could be easily melted into coins.

Up until fairly recently, our currency was even tied directly to gold.  While the western U.S. states were experiencing the gold rush in the 1800s, the government started printing paper currency and established the Gold Standard Act of 1900 which said you could use this new currency to redeem fixed amounts of gold.  This system was held in place until the 1970s when President Nixon took the U.S. off the gold standard to try to defend the nation against rising inflation.

Today, investors look to gold for safety whenever it appears that the economy is heading into a recession.  Gold prices tend to go up as stock prices and the dollar value falls.  This is because the demand increases as investors flock to assets that are universally valued throughout the world.  For example, during the Great Recession, the value of gold went from $800 per ounce up to $1,921 in 2011.  As the economy returned to prosperity, the price went back down and was last at $1,575 as of 2020.

If you’d like to invest in gold, there are several ways you can go about doing it.  Here are some of the most common methods.

Gold Bullion And Coins

investments in gold

For many people, the thought of gold conjures up images of bank vaults with shiny gold bars stacked to the ceiling.  Though that may seem like something out of a movie, believe it or not, buying gold bars or “bullion” is still a very popular way to acquire it.

The reason investors like bullion is because it ensures that the gold has been certified for weight and purity.  Each brick is often given a serial number for security and tracking purposes.  Investors can also have some confidence in owning something tangible like a gold bar rather than something digital (like a stock).  

For similar reasons, gold coins are also a very popular way for investors to own gold in the physical form.  Moreso than bullion, coins are nice because they are smaller and more convenient to buy and sell.  The price of gold coins is also regularly tracked by popular publications, although investors should be aware that sometimes they are paying more for the rarity of the coin than the underlying value of the gold content.

One of the drawbacks of owning gold in the physical form is that it is highly illiquid.  If the price goes down after you buy it, reselling your gold can take a lot more time than simply selling a stock.  

Also, because the gold is physical, security is an issue.  You wouldn’t want to keep it at your house where it could be easily stolen.  Instead, you’d need to find a secure location such as a bank vault to keep it. 

Two popular online dealers for both gold bullion and coins are APMEX and JM Bullion.  Before making any purchases, the FTC recommends that you investigate the dealer first by looking into this list of questions here.

What About Gold Jewelry?

If there’s one obvious place where you’ll find gold, it’s in jewelry!  Since ancient times, people have worn gold to demonstrate their prestige and place in society.  Therefore, a jewelry store seems like it a logical way to acquire it, right?

There’s just one problem – The retail price of gold jewelry is substantially marked up; sometimes as much as 400 percent above the value of the gold itself!  Therefore, no matter what sale or deal they are offering, the jewelry store is a poor choice.

That’s not to say you can’t still find a deal.  If you frequent estate or garage sales and know what you’re looking for, then you might be able to snag some gold jewelry at a bargain.

How To Invest In Gold With Mutual Funds And ETFs

One way to own gold without actually having to physically purchase it is through a mutual fund or ETF (exchange-traded fund).  Just as these types of investments specialize in all varieties of stocks and bonds, you can also find ones that specializes specifically in gold.  For example, the SPDR Gold Trust ETF (GLD) is a popular choice because each share is financially backed by gold held in its assets.

Gold mutual funds and ETFs can be great for investors because it provides them with an easy way to buy and sell their assets as the price fluctuates.  Trades can be conveniently done through any full-service broker (such as Vanguard and Fidelity) or discount broker (such as E-Trade or TD Ameritrade).  

You can also make gold funds a part of your IRA (individual retirement account) and receive tax-advantaged benefits. Invest in gold and your retirement all at once!

Proper ways to invest in gold

Sometimes You’re Buying More Than Gold

While some funds will buy gold directly, it’s important to remember that the majority will instead invest in it more indirectly. 

For example, many mutual funds will invest not just in gold but in the broader category of precious metals (which includes silver, platinum, etc.).  One example is the Fidelity Select Gold Portfolio having Symbol (FSAGX).

Some funds might not invest in gold at all and instead invest in gold mining companies.  This can be an indirect way to invest in gold because these companies can still show profits even during times of flat or declining gold prices.  The VanEck Vectors Gold Miners ETF (GDX) is an example of a fund like this.

Gold Futures And Options

Because the price of gold fluctuates the same way a stock might, the financial industry also offers various other products called “futures” and “options” that hinge on its value.

A futures contract is an agreement to buy or sell some amount of gold on a particular date in the future.  Options are a way to purchase these futures contracts.  For example, an investor might decide to purchase a futures contract or an option if they believe the economy will improve and the value of gold will fall, enabling them to make a profit on the price difference.  

Because this type of investing is highly speculative, these methods should really only be reserved for advanced investors who understand the market.  Note that many mutual funds and ETFs hold some percentage of their assets in futures and options.

Final Thoughts: How To Invest In Gold

Now you know exactly how to invest in gold. You can invest in mutual funds or ETFs, gold bullion and coins, or you can try a gold futures contract or options. There are tons of ways to invest in gold. Use this guide and get investing!

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DJ Whiteside

DJ Whiteside is a financial enthusiast who believes in helping other people to achieve financial independence. He’s constantly looking for practical ways to optimize savings, reduce spending, and create a lifetime of passive income. DJ holds an MBA from the University of Michigan, which allows him to take an analytical approach to financial topics. He has been a financial writer since 2011 and has self-published 5 personal finance eBooks relating to saving, retirement, and financial independence.

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