Gold has been a prominent form of currency for centuries, and it still holds a unique appeal today. Its reputation for safeguarding against inflation has financial advisors advocating for it to be included in one’s portfolio. Investing in gold can be done in various ways; direct methods include owning gold bars, while indirect ways involve purchasing stock in a gold mine.
Gold Bullion is often associated with gold bars, but it also pertains to pure or almost pure gold with a certified weight and purity. Smaller gold bars and coins are more practical for most investors, as they can be easily bought from dealers at a 1-3% premium over their gold value. While determining the value of coins in the financial marketplace is easy, storage and insurance costs can be a hindrance for investors. It’s worth considering these fees when deciding on the feasibility of investing in gold coins. Common gold coins include the South African Krugerrand, Canadian maple leaf, and US eagle coins.
Exchange Traded Funds (ETFs) are an uncomplicated way of owning gold as they eliminate the need to store or insure the precious metal. Each ETF share represents a specific amount of gold, often a fraction of an ounce. Shares can be purchased and sold like any other stock or mutual fund share. Compared to most mutual funds, the annual expense of owning ETF shares is typically less than 0.5%.
Mutual funds owning gold in some form are abundant, but there are relatively few that invest exclusively in gold. Most of these funds invest in gold-related businesses, such as mines, mining companies, and distribution. These vertical investments can help investors spread out the risk of investing in a single entity.
Futures and Options are vehicles that allow investors to speculate on the future price of gold. Buying or selling gold at a predetermined price within a specific period in the future carries high risk and complexity, requiring thorough research and analysis of strategies before committing.
Gold Mining Companies issue stock like any other publicly traded company and can be found on various stock exchanges. Researching the companies before investing is crucial, as investing in these companies carries the risk of oversupply in the gold market. The value of gold is largely dependent on investor sentiment.
Lastly, investing in gold jewelry is a challenging option as the value of jewelry is often greater than the underlying value of the gold within it. Thus, only the jewelry shop owner stands to profit. Investing in gold is a wise financial move, but each option has its advantages and disadvantages. Larger investors may find Bullion a sensible choice, while the average investor may opt for ETFs or mutual funds that provide exposure to the price of gold.