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You probably hear plenty of people saying you should invest in gold. In fact, you've likely heard them saying it for years, if not decades. They have a point, and I generally agree that at least some investing in gold can be a good move for most investment portfolios.
Why is investing in such an ancient commodity a good idea in the modern age? Just think about the last few years. There's been serious economic turmoil, and international tensions have been flaring up in many places.
Gold has proven to be a safe haven against economic uncertainty. It's also proven to be a great hedge against geopolitical upheaval. This precious metal also works well when inflation is high.
If you keep up with the news at all, then you know that the country and world have been seeing all three of those go on at the same time. Gold is doing well right now. To those of us that have studied it a lot, this isn't a surprise.
So, if investing in gold is a great idea, what's the best way to invest in it? That gets a lot more complicated.
1. Gold IRAs
- 1 1. Gold IRAs
- 2 2. Gold Bullion
- 3 3. Gold ETFs & Mutual Funds
- 4 4. Gold Futures
- 5 5. Gold Mining Stocks
- 6 6. Gold Mining ETF
- 7 7. Gold Coins and Jewelry
- 8 Top Reasons to Consider Adding Gold to Your Portfolio
- 9 Summary
Is it any surprise that I'm starting the list with the part of the gold industry I know the best? That's not to say the other six forms of gold investing aren't worth your time. You should read all about them, but this is the one I'm truly familiar with.
Do you know what an IRA is? Do you know the benefits of investing in precious metals? If you can answer yes to both questions, then you pretty much know what a gold IRA is.
You can set one of these up through a few dozen available brokers. They all have various minimum investment levels, but they all help you create a gold IRA, fund it, and choose precious metal products that sit in an IRS-approved depository until you make withdrawals. For most IRAs, that should be age 59 1/2 or after, but some brokers will do gold Roth IRAs you can tap into after just five years.
Your precious metals will grow in value tax-free while in the depository. You can also avoid or minimize taxes on your withdrawals if you play the long game before pulling anything out. For that matter, you can avoid having your current retirement wealth taxed if you do a rollover from another IRA or 401(k) plan to fund your gold IRA.
These are great for diversifying a growing portfolio, especially if you've already been investing for a while. The later you get into life, the more diversified or conservative your portfolio should become. A precious metal IRA will certainly accomplish that for you.
Not every gold IRA broker is built the same, however. Some are better than others at customer service and client education about the industry. Also, the minimum investment levels are all over the place, so finding one that delivers on both counts at the same time might take a bit of work.
Gold IRA Highlights
2. Gold Bullion
If you think of bars and coins when thinking about gold, that might be from TV cartoons. However, it's also a way you can own physical gold, and it's a very satisfying way to do it. Then again, personal ownership comes with the risks involved, as insuring and guarding gold isn't always easy.
in order to profit this way, you're completely reliant on the price of the commodity going up. This is different from owning gold mining stocks where you might profit off the business instead of just rising old prices. You have to wait for prices to go up enough to satisfy your need for profit, and there's no telling when that might be.
You can buy gold through online dealers, but you can also connect with local collectors and pawn shops. Many will sell gold based on the spot price so you get a fair deal. Bars are sometimes cheaper to get than coins since they don't have collector value and are just based on their gold content.
The big risk is losing your gold physically. Theft happens a lot. You have to physically safeguard your gold, and insuring it isn't always easy, either.
Also, if you reach a point where you need to sell your gold, the current market values might not be profitable for you. Local values might not be what they could be at a national level. If you need to liquidate quickly, it can cost you.
Gold Bullion Highlights
Best Options for Buying Gold Bullion
3. Gold ETFs & Mutual Funds
An ETF is an exchange-traded fund. A gold ETF means you don't have to physically own gold. You also don't have to deal with the hectic pace of dealing with futures.
A gold ETF usually aims to keep up with current gold values except for the annual expense ratio of the ETF. The three I mention down below all have expense ratios less than 0.41%. That means you can enjoy the rise in gold values closely without the headaches other possibilities include.
Want another huge benefit of an ETF over bullion? It's a lot easier to exchange for cash. You can usually do it at the current market rate.
Anytime the market is open, you can trade the fund. It works just like stock selling in that way. This gives you considerably more liquidity, and you can do it from home.
ETFs do carry risk, as any investment does. If gold prices go down, so will the fund. Gold prices can be quite volatile in any given short-term period.
Gold ETF and Mutual Funds Highlights
Gold ETFs and Mutual Funds Options
4. Gold Futures
Gold futures focus on speculating about gold prices going up or down. You can take physical possession of the gold involved if you wish. However, most futures investors and speculators aren't actually motivated by that.
The key benefit to gold futures is leveraging your position to make money. It doesn't take much money to buy many futures. If those futures go the direction you think, you'll do really well.
On the other hand, if the futures of gold go against you, then you'll pay serious money in order to maintain the margin. If not, the broker is going to close your position. You can lose a lot of money just as easily as making a lot.
Futures markets are for seriously sophisticated investors. Also, not every major broker even does future trading. You might have to look hard for an option.
You're certainly free to exercise this kind of investing if you want, but I'm someone whose audience is normally people looking to preserve and grow their wealth. Gold futures are riskier than individual stock purchases. It's actually closer to visiting a casino, and so I'm going to tell you that this should be the last form of gold investing on this list you ever try.
If you know about futures contracts, maybe you can explore them with any fun money or found money you come across. Otherwise, I'd suggest looking over the other six methods a second time. This one's risky.
Gold Futures Highlights
Options for Investing in Gold Futures
5. Gold Mining Stocks
If you want to benefit from gold prices going up but don't want to invest in actual physical metals, then you might want to invest in the mining companies that physically produce the asset. This is actually a common option for anyone who doesn't yet have enough money to invest in a gold IRA. Gold miners are often publically traded companies with stock shares that you can buy.
You get two chances to profit from gold using this method. To start with, when gold prices go up, so do the profits of gold miners. That either helps you with stock prices, dividends, or both.
Also, if a miner raises their production capacity or announces new deposits being found, that will also be the kind of news stock markets love. Your stock value again can go up. While I usually advocate for gold IRAs to people, I personally love the idea of making money off of gold that's not even out of the ground yet.
It's far from perfect, however. Indivdiual stock investments require careful analysis of each business from its leadership and its price-to-earnings ratio and cash flow. Avoid risky miners, small outfits, and anyone not actually producing gold yet.
Gold Mining Stocks Highlights
Options for Gold Mining Stocks
6. Gold Mining ETF
If the idea of looking into individual gold mining companies doesn't excite you, then an ETF might be more your speed. A gold miner ETF lets your investment portfolio have exposure to the industry's largest gold miners. Most of the time, you'll get immediate diversification across the industry, which means that one miner underperforming won't hurt you.
The expense ratio of an ETF is a measuring stick of how good it is. The three I mention below are all 0.52% or less. I think those are good numbers considering you get diversification and easy access to gold profits at the same time.
Diversification in ETFs gives you protection from a single gold mining company doing badly. However, it won't protect you if the whole industry gets hit. Then again, I'm not sure any of these seven ways of investing in gold can protect you if the whole market takes a downturn, as you'll just have to wait it out.
Gold Mining ETF Highlights
Options for Gold Mining ETFs
7. Gold Coins and Jewelry
Many common gold coins only weigh an ounce or two. You can find half- and quarter-ounce coins, however. Many coins are collectibles, but select dealers might sell blanks, worn coins, and even damaged coins.
The prices for gold coins don't always move with the value of the gold content. High-demand collectibles trade for premium prices. For instance, in September of 2020, a 1-oz. American Gold Eagle coin was retailing for more than $2,000 when the spot price of a similar amount of gold bullion was 5% lower in value.
You can sometimes find great deals on coins via pawn shops or local collectors. Having said that, the safest purchases are through reputable and licensed dealers. Online brokers are always available.
Jewelry is another way to invest in gold. You might find something that you can wear, and you might just find damaged items that were once worn. Investing in jewelry isn't without risk, however.
Not every piece of secondhand jewelry is sold via reputable and trustworthy dealers. Authenticity is important to you, but it will also be pertinent to anyone you sell to you later. Get as much documentation as you can.
Also, you're going to pay a markup. This usually reflects who designed or manufactured that jewelry. Markups range from 20% to triple the value of the raw precious metals involved.
Always find out the purity level of the jewelry so you know what percentage of gold you have. The purity of gold for jewelry is measured in karats. Something that is 100% gold will be 24 karats.
Gold Coins and Jewelry Highlights
Options for Buying Gold Coins and Jewelry
Top Reasons to Consider Adding Gold to Your Portfolio
Gold is something that many cultures around the world respect for its rich history and physical value. That's due to the role of gold has been intertwined with the history of many cultures going back thousands of years. Gold coins started showing up around 650 B.C., and the first coins of pure gold were struck a century later.
People have held gold over the centuries for many different reasons. Entire societies and the economies that served them have valued gold, and that has fueled its wealth. This is the metal that many people turn to when other kinds of currency aren't reliable, and that fuels its value as a form of insurance during economic instability.
1. Gold Historically Retains Its Value
Gold tends to maintain its value, and it's demonstrated this time and time again. This is in stark difference from paper currency, other coins, and paper-based assets, such as stocks and bonds. Gold is often used as a means of preserving family wealth and passing it on between generations.
Since antiquity, people have cherished gold's unique properties. It does not corrode. It's also something you can melt over any common flame, so it's simple to work with, including stamping as a coin.
On top of that, gold is beautiful to behold. Compared to other elements, it's unique and gorgeous in color. Gold atoms are heavier and have faster-moving electrons that absorb some light, a fact that wasn't actually explained until Einstein published his theory of relativity.
2. The American Dollar Keeps Getting Weaker
The American dollar is one of the most crucial reserve currencies around the world. Some countries actually peg their currencies to the value of the American dollar, such as the Bahamas. Others just designate the American dollar as their official currency, such as Panama.
The dollar fell in value against many international currencies from 1998 until 2008. During that time, people often moved their assets to gold reserves. That naturally drove up the value of gold.
In fact, while the dollar's value fell during that decade, gold values nearly tripled at the same time. The future value of the American dollar is likely to continue dropping, due to increases in available money supply, trade deficits, and large budget deficits. This should continue fueling a rise in gold values.
3. Hedge Your Bet Against Inflation
Gold has typically proven to be a great hedge against inflation. That's because gold prices tend to go up with the costs of living also go up. In the last five decades, investors have witnessed gold prices going up but the stock market plunging when there have been high levels of inflation.
That's due to the fact that fiat currency has its purchasing power blunted by inflation. Since gold is priced in those very same currency units, it will go up just like everything else measured the same way does. Also, gold has long been considered a great store of value, so many investors try to buy gold when thinking their local currency is going down in value.
4. Hedge Your Portfolio Against Deflation
Deflation is the opposite of inflation. It's when prices go down, business activity moves more slowly, and the general economy is hampered by serious debt. This has not been seen on a broad scale since the 1930s and the Great Depression.
There was a brief period of deflation that occurred in some corners of the world during the 2008 Great Recession. In both cases, the buying power of gold skyrocketed when many other prices went down. That was due to people hoarding cash, and gold bars, coins, and bullion are the safest place to do that.
5. Uncertainty Abounds
Gold holds its value when there is economic uncertainty. However, it does the same when there is geopolitical uncertainty. Its two-fold nature in doing this is the reason many have dubbed it the "crisis commodity".
When tensions flare up, investors flock to the relative safety that precious metals have to offer. That's because, in such instances, it usually outperforms other investments. For instance, gold prices jumped high when the European Union had a crisis several years ago because gold prices go up when confidence in governments goes down.
6. Supplies Are Constrained
A lot of the global supply of gold since the 1990s has come from one place. That has been global central banks selling gold bullion out of their vaults. This slowed down a lot by 2008.
While this has happened, new gold mine production has been on the decline since the dawn of the new millennium. Annaul global output was 2,573 metric tons then. While there was a brief rebound in 2011, the current numbers are lower.
New mines are planned or under development. However, they take up to a decade to bring anything onto the market, and they're having to dig deeper than ever to get to available deposits. Generally speaking, when gold supplies dwindle, the prices go up.
7. Demand Is Rising
Demand for gold is on the rise, and it's not just among investors. Gold has many commercial applications. These range from industrial and chemical processes to uses in jewelry, medicine, and electronics.
Emerging markets also fuel this. China has a burgeoning middle class in a culture where gold bars are considered a traditional means of saving wealth. There are millions of households with more money to spend than ever before.
India is a country that consumes more gold than any country except the United States. The traditional Indian wedding season around October involves a lot of jewelry. That's when global demand for available gold is usually the highest.
8. Portfolios Need Diversification
For safety and balance, portfolios need diversification. That means investing in asset classes that don't correlate closely with one another. Gold usually has quite a negative correlation compared to stocks, bonds, and even currency.
The 1970s were a great time for gold investors. Stock investors fared terribly. The 1980s and 1990s were the opposite. In 2008, stocks dropped a lot, but consumers did well with gold again.
A properly diversified portfolio is likely to include precious metals along with stocks and bonds. That reduces the total volatility of the portfolio. Risk is also minimized because some asset class is likely to be doing well even when another isn't.
SummaryGold has a long history of being a valuable commodity. These days, owning gold can help your portfolio hedge against both deflation and inflation while also providing a source of diversification.
Since it's a global method of value storage, this precious metal also gives you financial cover when there is economic or political turbulence and turmoil.
As a diversifier, gold helps your portfolio in how it will respond to various events that might cause downturns in stocks and bonds.
Gold prices are certainly volatile when you look at short-term spans of time, but it's always held their value when you look at long-term blocks of time. It holds up well against major currencies that erode at the same time.
While gold investments have obvious benefits, not everyone likes investing in gold itself. Owning it privately might mean the risk of losing the pieces. Even in a gold IRA, you're banking on someone buying your gold for higher values later than you paid for it previously.
That's why it's good to look at other ways of investing in gold. You can invest in cash-flowing businesses in the gold industry, as Warren Buffett often does, instead of bars and bullion.
Stocks and funds are certainly easy to liquidate if you need to move back into cash, but you can still profit off of the rising values of gold and the industry's overall growth.