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How to Invest in Gold
By Gabriel O Rodriguez MONEY RESEARCH COLLECTIVE
Investing in gold has been a trusted strategy for thousands of years. Known for its value retention, gold is often viewed as a “safe haven” during times of economic uncertainty. But how exactly can you invest in gold today, and when does it make the most sense to do so?
Read on to learn about the most popular methods for investing in gold, the pros and cons of doing so and when gold might be a good addition to your portfolio.
Popular ways to invest in gold
Gold investments come in several forms, from physical gold to financial instruments. Here are the main options to consider:
Physical gold
Buying physical gold is one of the most traditional forms of gold investing. Coins and bars, and even jewelry, offer the advantage of tangible ownership — gold that you can see and touch.
If you go this route, be prepared for storage considerations: safeguarding gold at home can be risky, and secure storage options (like bank safety deposit boxes or home safes) come with additional costs. Insuring your gold may also add to your expenses.
Gold mutual funds
Gold mutual funds provide an opportunity to invest in a diversified pool of gold-related assets, such as stocks of mining companies, gold ETFs, and other assets tied to gold. These funds spread risk across multiple investments and can be a less volatile way to invest in gold compared to individual mining stocks.
The value of gold mutual funds can fluctuate based on both gold prices and the broader stock market. Management fees can also impact returns, so it’s essential to consider these costs when evaluating gold mutual funds.
Gold ETFs (exchange-traded funds)
Gold ETFs allow you to invest in gold without the hassle of storing physical metal. By purchasing shares of a gold ETF, you own a portion of a fund that holds gold, which means your investment moves in line with gold prices.
Popular ETFs like SPDR Gold Shares (GLD) offer a convenient and liquid way to track gold’s value. Keep in mind that you won’t have any direct claim on physical gold—only shares that represent it.
Gold IRAs (individual retirement account)
A Gold IRA is a self-directed retirement account that holds physical gold (or other precious metals) rather than traditional assets like stocks and bonds. This type of account is particularly popular with investors looking to diversify their retirement portfolios with a tangible asset.
Gold IRAs must follow specific regulations, including storage requirements, as the IRS mandates that physical gold be stored by an approved custodian. Although they typically come with higher fees than traditional IRAs, including setup, storage and custodian fees, they also offer a tax-advantaged way to hold gold for the long term.
Gold stocks and mining companies
Investing in gold mining companies allows you to profit indirectly from gold prices while gaining exposure to the company’s business performance. When gold prices rise, companies like Newmont or Barrick Gold can see increased revenues, which can boost their stock prices.
Note that gold stocks come with additional risks, as the value can also be affected by operational challenges, management decisions and market dynamics that impact the mining sector.
Gold futures and options
For more advanced investors, futures and options provide a high-risk, high-reward path to gold investing. Futures contracts allow investors to buy or sell gold at a predetermined price on a specific date, which can lead to significant gains (or losses) based on gold price changes. Options provide similar speculative opportunities but with a bit more flexibility.
Both futures and options require a high degree of market knowledge and come with significant risks, so they’re generally best suited for experienced investors.
When is gold a good investment?
The timing of gold investments can have a big impact on their success. Here’s when gold might make the most sense:
During economic uncertainty
Gold has a history of performing well during periods of economic crisis or geopolitical tension. For example, during the 2008 financial crisis and the early stages of the COVID-19 pandemic, gold prices surged as investors sought safe assets. If you’re concerned about an economic downturn or potential recession, adding gold to your portfolio could provide a buffer.
As a long-term investment
Gold can be a valuable long-term store of wealth. It has retained value for centuries, offering a stable asset that can hold up over decades. However, it’s worth noting that over long periods, stocks have historically outperformed gold, so it’s best considered as part of a diversified portfolio rather than a standalone investment.
As a portfolio diversifier
If your portfolio is heavily weighted in stocks or bonds, adding gold can reduce risk by providing an asset that doesn’t typically move in sync with traditional markets. This “hedging” quality can help protect your investments during periods of high market volatility or inflation.
Tips for investing in gold
When investing in gold, consider these tips to make the most of your investment:
- Define your goals: Determine whether you want gold for short-term gains, long-term security, or portfolio diversification. This will help you choose the best form of investment, whether physical gold, ETFs, or a Gold IRA.
- Take note of additional costs: Storage, insurance, and management fees can add up, especially for physical gold and Gold IRAs. Understand the total costs involved before committing.
- Consider your risk tolerance: Different gold investments come with varying risk levels. Physical gold may be less volatile than gold stocks or futures, while gold mutual funds offer diversification.
- Limit your exposure: Financial advisors often recommend keeping gold as 5-10% of your portfolio to avoid over-reliance on this single asset, as its long-term returns can be lower than other investment classes.
- Choose reputable providers: For Gold IRAs, physical gold, and gold ETFs, work with well-established providers to avoid fraud and ensure your assets are secure.