How to invest in gold
Learn about different types of gold investments
Gold and other precious metal IRAs are an investment and carry risk. Consumers should be alert to claims that customers can make a lot of money in these or any investment with little risk. As with any investment, you can lose money and past performance is not a guarantee of future performance results. Consumers should also obtain a clear understanding of the fees associated with any investment before agreeing to invest.
Gold has been a popular investment option for centuries, and it's not hard to see why. Not only is it a safe-haven asset in times of economic uncertainty, but it also provides investors with a tangible way to hedge against inflation.
“Investing in gold can also help you diversify your portfolio because it doesn't move the same way as stocks and bonds,” said Drew Rathgeber, owner of ProGoldTrader. “This means that adding gold to your portfolio can help lower the risk of your entire portfolio.”
In today’s times, investing in gold doesn’t mean hiding away solid gold bricks. Instead, there are several investment options you can choose from that don’t even require you to store the gold yourself.
- Although gold is considered a safe-haven investment, its prices can fluctuate in a short period of time.
- Physical gold requires safe storage and security, which can add to the costs of investing in gold.
- Investors can buy gold in various forms, such as bullion bars, coins and exchange-traded funds (ETFs), and individual retirement accounts (IRAs).
Pros and cons of investing in gold
In times of crisis, gold is touted as the most reliable investment. While these claims can be very biased, it is good to consider that investing in gold has both advantages and disadvantages, like other investment choices.
- Historically valuable
- Easy to buy and liquid asset
- Can hedge against inflation
- No guaranteed future return
- Potential storage and insurance costs
- Price volatility
Due to these pros and cons, gold investment is typically recommended as a supplement rather than as the foundation of a portfolio.
Ways to invest in physical gold
You can buy physical gold from precious metals dealers, banks or individual sellers or retailers. Most people purchase gold bullion when buying physical gold for investment purposes. These assets are typically stored in a home safe or with a bank or other depository.
- Gold bullion
- Physical gold bullion can refer to any gold bar or ingot that is at least 99.5% pure gold (i.e., 995 parts per 1,000 fine gold). Gold bars are required to weigh between 350 and 430 troy ounces (roughly 11 to 13 kilograms), but ingots can come in various shapes and sizes.
- Gold coins
- You can find bullion coins as well as numismatic, or collectible, coins. Collectors’ coins can sell for a higher premium than bullion because of their added numismatic value. However, it’s important to purchase through a reputable coin dealer if you want to invest in gold coins — you don’t want to wind up with a stash of gold-plated nickel. Popular gold coins include the Krugerrand, the American Gold Eagle and the Canadian Gold Maple Leaf.
- Proof coins: You’ll want to avoid buying proof coins if you’re investing in gold. Proof coins are commemorative coins that are typically polished and in special packaging to look more catchy than ordinary coins currently in circulation. While this type of gold coin has a higher value for collectors, its monetary value is not guaranteed to stick around over the long term, making it a poor choice for investors.
- Fractional coins: Coins are available in a variety of fractions; there are half-ounce, quarter-ounce and even twentieth-ounce options. You’ll be better off buying a full ounce because the fractional amounts have a higher premium.
- Gold jewelry
- Investing in gold jewelry makes sense because it holds value and is easy to liquidate. Like coins, jewelry might have added value based on its rarity and craftsmanship. Some people prefer gold jewelry because it can be worn and passed down from generation to generation.
» MORE: How to buy silver
How to invest in gold assets
In addition to buying physical gold, you can put your money into funds that hold assets related to gold, such as gold ETFs or futures contracts, or a retirement account backed by gold. Additionally, you can invest in a gold fund on the stock exchange, such as the SPDR Gold Shares (GLD), which holds gold in reserve.
Many investors diversify their portfolios with a gold IRA as a supplement to retirement savings. Instead of buying traditional stocks and bonds, this type of retirement account is backed by gold or other precious metals.
Gold exchange-traded funds are passive investment instruments based on the price of gold bullion. Rather than investing in physical gold, you can get an ETF, which is based on the changing value of gold and gold-backed assets. A gold ETF is a relatively affordable option for a new investor. This investment is also ideal for traders or those who don’t wish to own gold bullion or coins.
Bullion refers to gold that is at least 99.5% pure.
Owning stock in a gold mining company is a popular alternative to owning actual gold. However, this kind of investment can be vulnerable to the volatility of the stock market. Gold miner stock prices are based on the movements of gold, and therefore the values of the stocks reflect the value of gold.
Futures options are contracts between buyers and sellers stating that the buyer will purchase gold at a guaranteed price in the future. Gold futures options are worth what others have committed to paying for the commodity at a future date. In other words, the buyer doesn’t have to fund the investment upfront. Some investors seem to like gold futures options because they think they offer more leverage and flexibility.
Gold mutual funds
With mutual funds, several investors pool their money together to purchase securities. Gold mutual funds are available through commercial banks, investment companies and other financial institutions.
» MORE: Physical gold vs. ETFs
How is the price of gold determined?
Since it’s a commodity, the gold price is largely determined by supply and demand. Investors pay the most attention to the gold spot price, which represents the real-time value of 1 troy ounce of gold. The gold spot price is derivative of future contracts over the month, and it’s recalculated each day.
Do I have to report my gold investments on my taxes?
Sales of physical gold must be reported on Form 1040 of your tax return, according to the IRS. Gains from investments in physical gold and ETFs are taxed as collectibles. Additionally, the regular rules for taxes and penalties on IRA withdrawals also apply to gold IRAs. For more, read about how to trade gold.
Is buying gold coins a good investment?
Buying gold coins can be a good way to diversify your portfolio and provide access to a stable asset. However, it’s not a good idea to invest solely in gold coins because their value can fluctuate significantly.
Investing in gold can be a valuable addition to any diversified investment portfolio. While the price of gold can be volatile, it has historically served as a safe-haven asset during times of economic uncertainty. Whether you invest in physical gold, gold ETFs or gold mining stocks, it's important to understand the risks and benefits associated with each investment option.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page. Specific sources for this article include:
- IRS, "Issue Snapshot - Investments in Collectibles in Individually-Directed Qualified Plan Accounts." Accessed March 11, 2023.
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