From inflation to economic turmoil to currency swings to war, few investments have been as popular as gold as an insurance policy against these events.
Don’t limit yourself to purchasing actual gold, such as coins or bullion, when considering gold investments. You may also invest in gold by purchasing gold mining company stock or gold ETFs.
Options and futures contracts may also be used to invest in gold. You’ve got many options open to you and your portfolio. But, if you’re unsure exactly about how to buy gold stock, no worries. We’ve got your back. Keep on reading for our full breakdown on the nuances of how to invest in gold and how to buy gold stock.
Buying Gold or Buying Gold Bullion: Investing in Physical Gold
For investors who are more used to trading stocks and bonds online, actual gold might be a challenge.
Physical gold requires dealing with dealers outside of regular brokerages. And, you’ll almost certainly have to pay for storage and acquire investment insurance in addition to the actual gold itself. Bullion, coins, and jewellery are the most common ways to invest in actual gold.
Bullion is what most people envision when they consider investing in gold. They are large, gleaming bars of precious metal stored safely away in a vault.
One and ten-ounce bars of gold bullion are the most typical sizes, although smaller bars are also available. Because the current gold price (as of September 2020) is approximately $1,900 per ounce, investing in gold bullion is a pricey endeavour. There’s no way to acquire a fractional share of a gold bar as there is for stocks.
A trustworthy dealer and paying for delivery and insurance—or paying for storage in a huge vault or a safe deposit box—are particularly necessary since gold bullion is so expensive.
The price of gold is an important consideration if you decide to invest in gold bullion. Since most dealers adjust their pricing depending on current spot prices, on the other hand, you can pick reputable online sellers like the ones providing these products.
One and two-ounce coins are the most frequent, although half- and quarter-ounce options exist as well. Coins like South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles are the most common sort of gold coins. A few merchants will even sell you broken or damaged coins.
However, the value of gold coins may not always correspond to the amount of gold they contain. Collectible coins are often sold at a premium because they are sought after by collectors.
In mid-September 2020, a one-ounce American Gold Eagle coin, for example, will cost slightly over $2,000. This is an almost 5% premium over the price of an equivalent quantity of gold bullion.
There are times when buying gold coins from an unlicensed dealer is more cost-effective than going to a local coin collector or pawn shop, but in general, it’s safer.
Gold Jewelry and Pieces
You may also purchase gold jewellery that you can wear yourself or that someone else has worn before, but it has been broken. There are various hazards associated with investing in gold jewellery, which is not associated with investing in pure gold.
The first thing to remember when purchasing secondhand jewellery is that not all of it is offered by legitimate merchants. Authenticity is important not just to you but to anybody interested in purchasing the artwork in the future. Because of this, it is vital to purchase investment jewellery from a trusted source and to get the necessary paperwork.
Second, you’ll be charged a markup depending on the firm that created and made the jewellery in the first place. Between 20% to three times the raw value of the precious metal, this is possible.
Keeping an eye on the purity of your jewellery is also important. The karat weight of gold is used to determine its purity, with 24 karats being the purest kind of gold. Melt value (the raw worth of your jewellery’s components if it were to melt into pure gold) drops as the purity of your item is lower.
How to Buy Gold Stock 101: Investing in Gold ETFs
It is possible to get long-term exposure to gold’s stability and liquidity by investing in ETFs and mutual funds, which provide more liquidity than physical gold and greater diversity than gold stocks. Various forms of gold funds are available. Some are index funds that use futures or options to monitor industry trends or the price of bullion.
ETFs that hold actual gold and deposit receipts, like the SPDR Gold Shares ETF (GLD), monitor the gold market. However, VanEck Vectors Gold Miners ETF (GDX) is a passively managed product that follows the gold mining and refining industry’s underlying basket of shares.
Investing in gold mutual funds, such as Franklin Templeton’s Gold and Precious Metals Fund, is done by professionals. Investments in these funds try to outperform the returns of index funds. In return, they demand a somewhat high expense ratio.
Invest in Gold via Futures and Options
A sort of speculative investment, trading futures or options contracts, is the riskiest method to invest in gold. Derivatives, such as futures and options derive their value solely on the price of an underlying asset.
It is possible to purchase or sell at a certain price at a predetermined date, independent of the present market circumstances. Futures contracts, however, an option agreement is a contract to purchase or sell an asset at an agreed-upon price at some point in the future.
There is a requirement to open an account with an online broker that specializes in futures and options trading. These securities may be traded on several online brokerages if the account user signs extra papers admitting the risk of investing in these derivatives.
Investing in Gold the Right Way
You might have been looking into buying gold bullion or buying gold stocks. Regardless, you’re probably feeling a bit overwhelmed by the sheer number of gold-based investment instruments available on the market.
Hopefully, our guide has shed some light on the intricacies of how to buy gold stock and the different products that can give you the highest ROIs possible. And, if you liked reading our article, then you’ll love checking out our other tips and explainers, available in our finance section.