How to invest in gold – Forbes Advisor
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Throughout history, few investments have rivaled in popularity with gold as a hedge against almost any type of problem, from inflation to economic upheavals or currency fluctuations to war.
When considering investing in gold, don’t limit yourself to buying physical gold like coins or bullion. Alternatives to investing in gold include buying shares in gold or gold mining companies exchange traded funds (AND F). You can also invest in gold by trading options and futures.
How to invest in physical gold
Investing in physical gold can be difficult for investors more accustomed to trading stocks and bonds online. When it comes to physical gold, you will typically be dealing with brokers outside of traditional brokerage houses, and you will likely need to pay for storage and get insurance for your investment. The three main options for investing in physical gold are bullion, coins, and jewelry.
When most people think of investing in gold, they are bullion: big shiny gold bars locked in a safe.
Gold bullion comes in bars ranging from a few grams to 400 ounces, but it is most commonly available as 1 ounce and 10 ounce bars. Given that the current price of gold is around $ 1,900 per ounce (as of September 2020), this makes investing in gold bullion an expensive proposition. And unlike stocks, there’s really no way to get a fraction of action of a gold bar.
Due to the high price of gold bars, it is especially important to go to a reputable dealer and pay for delivery – with insurance – or shell out for storage in a large safe or safe.
If you choose to invest in gold with bullion, it is also a good idea to stay up to date on gold price, so you can choose the right time to buy – most resellers update their prices based on current spot prices.
The most common gold coins weigh one or two ounces, although half-ounce and quarter-ounce coins are also available. Collectible coins, such as the South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles, are the most widely available type of gold coins. Some dealers even sell damaged or worn blanks and parts.
However, the prices of gold coins may not fully correspond to their gold content. High-demand collector’s coins frequently trade at a higher price. A one-ounce American Gold Eagle coin, for example, sells for just over $ 2,000 in mid-September 2020. That’s a mark-up of almost 5% over a comparable amount of gold bullion. gold.
You may be able to find better deals on gold coins from local collectors or pawn shops, but it is usually safer to buy from an authorized and reputable dealer.
You can also choose to buy gold that you can wear – or that someone has worn but has been damaged – in the form of gold jewelry. Investing in gold jewelry, however, comes with many risks that investing in pure gold does not.
First of all, you should be careful with jewelry purchases, because not all second-hand jewelry is sold by reputable dealers. Not only is authenticity important to you, but it will also be important to anyone you are trying to resell the coin to. So it is crucial that you buy investment jewelry from a reputable dealer and get as much documentation as possible.
Second, you will pay a certain markup depending on the company that designed and manufactured the jewelry. This can range from 20% to more than three times the gross value of the precious metal.
You will also want to know the purity of your jewelry or what percentage of gold it is. The purity of gold is calculated in karats, with 24 karats representing 100% gold. A lower purity decreases the melt value of your coin or the raw value of the components of your jewelry if it has been melted into pure gold.
Invest in gold by buying stocks in gold miners
Investing in the stocks of companies that mine, refine, and trade gold is a much simpler proposition than buying physical gold. Since it is about buying the shares of gold mining companies, you can invest using your brokerage account.
Some of the most popular stocks in this industry include:
- Newmont Corp. (NEM). Newmont is the world’s largest gold mining company, headquartered in Colorado. It operates mines in North and South America as well as in Africa.
- Barrick Gold Company (GOLD). This gold mining giant is headquartered in Toronto and operates in 13 countries around the world.
- Franco-Nevada Society (FNV). Franco-Nevada does not own any gold mine. Instead, he buys the rights to royalty fee other artisanal miners.
Keep in mind, however, that the actions Gold companies are correlated with gold prices but are also based on fundamentals related to the profitability and current expenses of each company. This means that investing in individual gold companies carries risks similar to those of investing in any other stock. Individual stocks can experience a certain level of volatility and do not offer you the safety of diversified funds.
Invest in ETFs and Gold Mutual Funds
Invest in gold AND F and mutual fund can give you exposure to the long-term stability of gold while providing more liquidity than physical gold and more diversification than individual gold stocks. There are different types of gold funds. Some are passively managed index funds that follow industry trends or the price of bullion using futures or options.
The SPDR Gold Shares ETF (GLD), for example, holds physical gold and deposit receipts, and its price tracks the price of physical bullion. VanEck Vectors Gold Miners ETF (GDX), on the other hand, is a passively managed fund that tracks an underlying basket of stocks of gold mining and refining companies.
Gold mutual funds like Franklin Templeton’s Gold and precious metals funds are actively managed by professional investors. These funds aim to beat the returns of passively managed index funds. In return, they charge relatively high expense ratios.
Remember that, like gold stocks, you are not buying gold, but only paper that is theoretically backed by debt or equity of mining companies or by futures and options contracts on mining companies. physical ingots. This means that the value of mutual funds and gold ETFs may not fully match the market price of gold, and these investments may not perform as well as physical gold.
Use futures and options to invest in gold
Of all the ways to invest in gold, the riskiest is to trade futures or options contracts, a form of speculative investing. Futures and options are derivatives, which means that their value is based entirely on the price of an underlying asset.
A futures contract is an agreement to buy or sell a security at a specified price on a certain date, regardless of current market conditions. An options contract, on the other hand, is an agreement that gives you the option of buying or selling a security if it reaches a certain price on or before a certain date.
In order to invest in futures or options, you need an account with an online broker that offers these vehicles. Many online brokerage firms allow trading in these securities, but they may require account holders to sign additional forms acknowledging the risk of investing in these derivatives.
Once you have created a brokerage account to trade options or futures, you can buy and sell them directly through the platform. Most platforms charge a commission for all options and futures transactions which varies depending on the number of contracts you buy or sell.
People who choose to invest in gold through options or futures should actively monitor their holdings so that they can sell, renew or exercise their options before they expire worthless. In addition, each of these options includes some degree of leverage, or debt, by default, so investors who abuse it and suffer market losses can see their losses increase rapidly.
Should you invest in gold?
If you are concerned about inflation and other calamities, gold can offer you a safe haven. Although in the shorter term it can be just as volatile as stocks, over time very long term, gold has held its value remarkably well.
Depending on your own preferences and risk appetite, you can choose to invest in physical gold, gold stocks, ETFs and gold mutual funds or speculative futures and options. Whichever form of gold you choose, most advisors recommend that you don’t devote more than 10% of your portfolio to it.
Any form of investment involves risk. Gold is no different. But the idiosyncratic gold market is forgiving and takes a long time to learn. This makes ETFs and gold mutual funds the safest choice for most investors looking to add some of the stability and sparkle of gold to their portfolios.
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