How (and Why) To Invest in Gold

The very first pieces of gold jewelry were cast in Egypt thousands of years ago. Today, gold is a sought-after investment for those looking to secure their financial futures. 

But is investing in gold a smart financial decision — or it is an old fashioned vehicle that has run its course? 

Here's what you need to know before laying money on the line. 

For generations, gold has been considered rare and valuable. Today's investors choose to invest in gold for a multitude of reasons, including: 

The main reason investors choose to invest in gold is for a sense of security. In general, the price of gold does tend to rise in the long term. However, keep in mind that no investment is completely safe and the price of gold can still be volatile. 

Here it helps to remember the difference between investing and trading. Generally, investors seek to hold on to an asset for the long term, whereas traders seek volatility in order to profit from short-term price fluctuations.

How do you get started investing in gold? The first decision you'll need to make is how you want to invest in gold. Below, we'll explore the different methods for entering the gold market as well as the pros and cons of each type of gold investment. 

One option for investing in physical gold is to purchase gold coins or bars for home delivery. Physical gold can be purchased from reputable dealers such as JM Bullion and Apmex.com. This is probably the most expensive way to buy gold however, since there is a markup (called a “premium”) on each coin or bar. 

To find out how much of a premium you are being charged to a Google search for the “spot pric” of gold. This is the current price for one ounce of gold. The subtract the cost of, say, a one-ounce gold coin you want to purchase, from the spot price. The difference is the markup you are paying. 

Since the coronavirus, premiums have gone up to 7-9% per one-ounce coin. 

A much cheaper way to invest in physical gold is through a service like BullionVault.com. When you buy gold through BullionVault you are invested in a portion of a large gold bar. If you increase your investment to equal a whole bar, you can take physical delivery of the bar. 

There are many ways to invest in physical gold through the stock market and CEFs (closed-end funds) are one of them. 

The world’s largest gold CEF is the Sprott Physical Gold Trust which trades under the ticker symbol PHYS. Shares are currently going for a bit over $14 per. This is one of the most cost-effective (and easiest) ways to invest in gold

Gold ETFs and mutual funds are baskets of assets designed to track the price of gold. The value of these funds generally goes up with the price of gold.

Note: some gold ETFs are fully backed by bullion, meaning they hold only physical gold and not mining stocks or stocks related to gold exploration. These types of ETFs can be expected to mirror the price of bullion.

Gold-backed ETFs include GraniteShares Gold Trust (BAR) and SPDR Gold MiniShares Trust (GLDM). 

Investors can gain exposure to gold via gold mining stocks. The drawback is that company stocks can be impacted by a number of other factors other than the price of gold, such as trade agreements or financial upheaval. 

Popular gold mining stocks include Barrick Gold Corp (GOLD) and Newmont Corporation (NEM). 

Gold Futures 

Gold futures are popular with traders who want to speculate on the price of gold. These contracts are for experienced traders only and require margin and upfront deposits. 

Gold futures can be purchased through registered brokers like Charles Schwab. 

To select the most appropriate gold investment method for you, consider your risk tolerance and your level of investment knowledge. 

Less experienced investors, for example, would be encouraged against entering the gold futures market. Buying physical gold, on the other hand, is often viewed as less risky. Keep in mind, however, that no investment is risk-free.