In the high-risk business of investing and trading, it’s well known that gold is a solid investment in many ways. As the most sought-after of the precious metals, it’s a good hedge investment against economic disasters. Gold value is always in perfect contrast to the dollar. Still, many novice investors tend to forget, or avoid adding it to their portfolio. Here are 15 ways to invest in gold that should give readers an overview of the options there are for investing in gold and which, if any, is right for them.
Buying bullion in gold bar form is probably the most conventional investment method and how many of us envision purchasing gold. Bars are available in several sizes, from many sources. Purchasing directly from banks is a simple matter in some countries. Elsewhere, bullion can be purchased through dealers.
While far from the only way, this time-honored investment method has some advantages. Bars can usually be purchased at a lower price than coins and bars may be held in secure vaults. They may, of course, be held in any facility the purchaser chooses, but this adds the complication of assessing their value when trading. The chief disadvantage to buying bars is that they are reasonably simple to partially forge by filling a cavity within the bar with another substance.
Another common, and somewhat simpler, method of purchasing gold bullion is in coin form. While the Krugerand is the most popular with investors, there are over a dozen other popular coins from various countries. Coins tend to be minted with striking designs and can be as much a collector’s item as an investment. They are sold according to the weight of the gold contained in the coin, with the addition of a premium based on current demand vs. supply.
Coins offer the advantage of easier storage and transport, as well as wide availability. Although forgery is fairly common, false coins are generally easier to identify than forged bars.
Exchange Traded Funds (ETF)
ETFs are funds traded on stock exchanges. The funds hold certain fixed assets and are traded according to the current value of the assets. In the US, there are 2 gold ETFs, available under the symbols GLD and IAU, which represent gold bullion as their single asset. These offer the advantage of investing in gold without the need for storage. ETFs also offer some tax advantages, as well as efficiency and low cost.
Certificates are issued by banks and are similar to paper currency, with the notable exception that each certificate is backed to the amount of its face value in gold and they can no longer be used as currency in the US. Like traded funds, certificates eliminate the need to secure or transfer bullion. On the negative side, there are risks to holding these certificates, including commissions and storage fees. It’s also worth noting that “allocated” certificates should be linked to numbered bars, while “unallocated” versions may involve more risk in the case of a run on the issuing bank.
Investors may opt to establish a gold account with a bank. Like gold certificates, accounts may be allocated or unallocated. There are various types of account available. Many can provide an easy way to exchange actual gold as currency in foreign markets. Among the risks involved with accounts is the possible loss of rights if the gold on deposit in the institution becomes bound by foreclosure, bankruptcy or other legal means. It’s important to be certain your claim on the gold in your account is strong.
Gold Mutual Funds
These funds represent an interest in gold mining companies, usually well-established firms that own mines with a proven track record. While not a direct investment in gold, the value of these stocks is in part dependent on gold prices. For many investors, these stocks offer an attractive alternative to direct investment in bullion. Because of the relatively low risk involved, share costs are usually high and returns are generally lower than many other options, but can be a strong investment in the long term.
Junior Gold Stocks
Unlike mutual funds, which are generally senior stocks, these investments represent smaller gold mining companies (here’s a list) with fewer mines or operations that produce smaller quantities of gold per year. They may also represent companies that are involved in pure exploration, without any actual current production. As such, they are a higher risk and shares can be obtained at a lower cost. These stocks may offer the potential for huge gains, but the casual investor should exercise caution.
Most people are familiar with a traditional individual retirement accounts (IRAs). It’s basically a retirement account at a brokerage company which you control. Since you control the retirement account, you typically can make investments in any option the brokerage offers. This includes gold which is usually available for IRA inclusion in the form of gold mutual funds, gold ETFs and gold stocks.
Experienced investors can opt to speculate in the rising and falling price of gold. While the principle is basic, the process can be fairly complex. In the options market, buyers purchase a call if they expect prices to rise, and a put if they expect prices to fall. In either case, your profit or loss is based on the margin between your option price and the actual price. More investors lose money than win in buying options and success in buying options requires experience.
Futures trading is similar to buying options, except that all speculation is based on rising prices. This is among the most risky trading practices and many experienced traders have suffered significant losses in this arena. When dealing with values like those of gold, the potential for disaster is high. Only the most seasoned investors should consider this route.
While searching for your own gold may not initially sound like investing, consider that the time and effort invested can result in finding something worth over a thousand dollars per ounce. Casual prospectors can spend a few hours panning for bits of gold while enjoying the great outdoors and may earn a few of their vacation dollars back in what they collect. Federal and state laws govern how much gold can be collected by hobbyists, so some research is recommended, but this is a hobby that can pay for itself and could pay much more.
City Gold Mining
If you live in a big city, you might not think that you have an opportunity to prospect for gold, but you would be wrong. There’s always the option to city gold mine. Instead of looking in nature for gold, you instead look in sidewalk cracks and crevices outside shops where jewelry is made. People who work with gold will have some of it cling to their clothing and it will gather in the sidewalk cracks outside the shops where it can be collected.
You have probably seen more than your fair share of “cash for gold” commercials where you can send in your trash and scrap gold for money. These enterprises basically buy gold that people no longer need at prices under its true value. You can do the same thing if you take the time to study the worth of the different types of gold karat out there. Simply put the word out to family and friends that you will pay cash for scrap and unneeded gold. While gathering gold in this way is much more difficult and time consuming than many other methods of investing in gold, this is one of the few ways that you can purchase gold at below its market value.
Jewelry is not usually considered a serious gold investment because at the retail level, gold jewelry is sold for far more than its actual gold bullion worth. If you invested in retail gold jewelry, gold prices would have to rise enough to cover the premium paid for the jewelry in order for any profit to be made. Since other gold investments like gold bars and coins are much closer to the true value of the gold bullion, it makes little sense for most people to invest in gold jewelry.
The exception is if you buy gold jewelry from alternative outlets. Buying gold jewelry at garage sales, estate sales and similar non traditional sales outlets can mean purchasing jewelry for less than the gold value in the piece (much like scrap gold). Again, this takes time and you have to enjoy the hunt, but this is another of the few ways it’s possible to get gold at under its market value.
Collectible investing can be both quite tricky and volatile, so it’simportant that you really know your collectibles if you decide to invest inthem. One way to hedge the inherent risks with collectibles is to invest in itemslike gold watches. Even if the price of the collectible falls, goldcollectibles will always be worth at least the gold value they contain. Whileinvesting in collectibles is high risk, knowing the gold value in them can lowerthe risk considerably.
Placing some gold into any investment portfolio that you have can make sense, but as with all investments, it’s critical to thoroughly understand how the gold investment works including all the risks involved before you begin to invest.
(Photo courtesy of motoyen)