The Many Ways to Invest in Gold: Which One Is Right For You?
Investing in gold is a great idea. Not only is gold a safe place to put your cash, it also offers good returns. However, some people are daunted by the idea of investing in gold because they are not sure how to do it.
Even most brokers don’t know much about gold. They can’t sell it, so they don’t bother to learn about it. If you ask your broker about gold, you’ll hear that gold is an iffy investment at best.
The good news is that there are many ways to invest in gold. Some gold buys are as easy as buying OTC stocks, while other ways to buy gold may include the use of futures or other complex choices. There is no one right way to buy gold, but there is a way to buy gold that will meet the needs of every interested investor. Here’s a rundown on the choices.
Buy the Metal
It is a very simple matter to buy gold coins or bullion from a dealer. A single Internet search will list hundreds of dealers willing to sell gold to new investors. You can find dealers in gold in every big city and even most small towns.
With that many dealers around, there are obviously a lot of people buying gold. Too bad your broker isn’t one of them. It’s a great way to make a profit.
As your broker probably told you, there are many scams involving gold. So before you buy gold metal, investigate the dealer to be sure it is a reputable company.
You do not want to lose your capital because you didn't take the time to do your research. The gold will still be there when you are sure of the dealer's integrity.
If you decide to buy government issued coins, the price you pay should not be much different from the face value of the coin. You can buy gold coins from many countries, including the U.S. and Australia.
Part of the fun of owning gold coins is learning the story behind them. You can learn about the country where they were minted. Discover whose face is on the coin. Uncover the meaning of the symbols. Learn the history that influenced the minting of the coins.
If you buy gold bullion, examine the specs of the metal you are buying to make sure the gold hasn’t been adulterated. Gold should always come with a certificate of authenticity or assay results.
Gold is nearly always mixed with another metal. Different metals in the alloy give the gold different properties. Gold can be alloyed for strength, hardness, color and ductility. It’s fun to learn about the special properties of your gold.
If you are buying collectible gold coins, make sure that you are paying a fair price for the gold volume. Calculate how much you would pay for that amount of gold if it weren’t in the coin. You will pay more than you would for unminted gold, but the cost of the coining shouldn’t outweigh the value of the gold.
Many people like having their gold on hand as bullion, coins, art or collectibles. Gold is beautiful to see and nice to touch. If you choose to take possession of your gold, make sure you have a way to secure it from theft.
If you buy collectibles or art, you’ll want to know about the artist behind the beautiful object. It will have intrinsic value because of the gold, but the artist’s story may make it even more valuable.
Having the actual gold in any form may not be as liquid as investing in an ETF. But while you own the gold, it is a much more emotionally satisfying and interesting investment.
If you decide to sell your gold, you will need to find an interested buyer by yourself. You can often take it back to the dealer you bought it from, or another dealer if you prefer.
Exchange-traded funds trade on most of the major exchanges. It is as easy to buy shares in an ETF as it is to buy any OTC stocks. In fact, your broker may recommend an ETF as the best way for you to own gold.
You may choose to buy an ETF that buys many commodities. However, if gold is your only area of concern, there are funds that only buy gold.
Some gold ETFs track directly to the price of gold while others may trade in futures.
A share in a gold ETF is usually equal to a specific quantity of gold. Rather than take physical possession of the gold, the investor has paper or electronic certificates that represent ownership of specific amounts of gold.
ETFs are a very liquid investment since shares can be sold easily over the counter at any time.
The interesting thing about ETFs is the way they buy gold. Very few ETFs take physical ownership of their gold. They usually buy futures, derivatives, shorts or longs.
The fun part of owning shares in an ETF is matching your returns to the index it tracks. It can be eye opening to see how using the sophisticated investment techniques can affect performance. By watching how they perform on gold, you may learn enough about these complex ways of investing to try them out on some of your other investments.
Hedge funds often have strict rules for investors. You may be required to invest a minimum amount of cash. You may be bound by the terms of the fund to leave your capital in it for a specified period of time.
Hedge funds often have high management fees or complicated payout formulas. These items may affect your final rate of return. A hedge fund may not offer much liquidity because of timing restrictions and investment minimums.
A hedge fund that buys gold along with other investments may be a good choice for you if you can live with the added risk and restrictions. Understanding the methods the fund uses to make its profit may put you more at ease with the added risk.
The fun of hedge funds is learning about some of the other exotic assets they invest in. Many hedge funds invest in art, real estate, gems or even start up companies. Watching how these various asset classes perform, especially compared to their gold positions, can be enlightening. You may find that gold is one of the most stable and lucrative parts of the portfolio.
Some ETFs invest in other metals besides gold. Some invest in gold, silver and precious metals, for example. Still others invest in a broader range of commodities. You may want to consider an ETF that invests in more than just gold if you are looking for low to moderate risk and some growth.
This type of ETF is often very liquid since they trade over the counter.
You may want to read our recent newsletter articles “Investing in the Rarest Minerals on Earth” or “Titanium, Platinum and Gold” for information on some pretty interesting commodities.
Mining or Production Company
If you are interested in gold but more comfortable with a traditional stock, consider investing in a gold mining company. This option has all the same warnings, risks and liquidity considerations as investing in any other stock.
This is the option your broker will probably steer you toward if you confess your interest in gold. Just remember that you are at least one step removed from the gold. It’s also hard for mining companies to break from the pack because they all sell their gold at the same price. You’re not likely to get rich with this choice.
Investing in gold is exciting and offers good returns. There are many ways to take a position in gold. Consider all your options before deciding how to invest.
You might also think about using multiple investment choices. You could use some of your cash to buy gold bullion. Use the rest of your cash to buy shares in an ETF. This would give you the pleasure of having the gold on hand and the liquidity of an easy to sell ETF. Buying an ETF will make your broker happy. Buying physical gold will make you happy.
Don’t be dissuaded from investing in gold because your broker doesn’t believe in gold as a sound investment.
Remember, your broker can’t legally advise you to buy gold, but your returns will very likely make a believer out of that broker in no time.