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 is a popular investment in times of instability or fluctuating market prices. While it doesn’t have a large return on investment (ROI), it’s a good way to diversify your portfolio and provide extra stability to your assets.
Investing in gold is a straightforward process, but there are a few considerations you should make along the way. The steps below explain the process of adding gold to your portfolio.
- Consider your options: First, you should consider the ways you can invest in gold and choose an approach that matches your budget and long-term goals. For instance, if you want a small amount of gold that you can pass on to your kids, you might consider bullion or coins. If you’re more focused on your retirement strategy, a gold-backed IRA might be a more attractive option for you. Depending on your situation, some financial advisors might suggest diversifying a small portion of your portfolio in a gold mutual fund or a gold mining stock.
- Check the price of gold: The price of gold affects all types of gold investment, including mining stocks (though in a less direct way). You can find the most current price of gold online. Some investors like to set price alerts if they’re waiting for the right time to invest. You can also follow changes on an app.
- Buy physical gold: You can purchase physical gold as bullion, often with the option to store the purchase at a secure depository. You can confirm that a precious metals seller is trustworthy by reading client reviews or asking friends or associates for recommendations. Keep in mind that there may be transaction fees, though. For more information, read our other tips on how to buy gold.
- Store and insure gold: Gold can be stored in a home safe or in a precious metals depository. Storage fees are usually set as a percentage of the asset’s value and charged monthly or annually. Ask your gold seller which depository its clients use (there are allocated and unallocated gold depositories). As demand for gold fluctuates, you may want to keep or sell bullion or securities. Some people prefer to work with a financial advisor or trusted broker to help monitor gold prices and pinpoint the right time to sell assets.
- Sell or trade gold securities: The point of any investment is to eventually get a return. Keep in mind that sales of physical gold must be reported on Form 1040 of your tax return, according to the Internal Revenue Service. 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.
Ways to invest in gold
There are a few ways you might invest in precious metals. Some involve physical ownership of gold, while others offer more abstract assets like gold mining stocks and gold futures options. Here are some of the most typical gold ownership options.
Bullion refers to gold that
is at least 99.5% pure.
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. Collector’s 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, though, 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 doubles as a status symbol and can be passed down from generation to generation.
Additional gold investing options
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. If you have a stock trading account, you can invest in a gold fund on the stock exchange, such as the SPDR Gold Trust (GLD), which holds gold in reserve. Since the trust holds gold in reserve, its value is reflective of the price of gold.
- Gold IRA: 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 ETF: Gold exchange-traded funds (ETFs) 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.
- Gold stocks: 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.
- Gold futures: 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.
Gold investment pros and cons
People like investing in gold because it’s easy to buy and tends to be very satisfying. Gold investing is especially popular in times of crisis; historically the metal has held its value better than most other assets. This holds true particularly when the market is down or the U.S. dollar is inflated. Investors like that gold is a liquid asset, and there’s the perk that gold jewelry and collectible coins also make good sentimental gifts.
However, there are still downsides to gold investing. For one, past success does not guarantee future performance. Physical gold also offers a limited return on investment because it only turns a profit when it’s sold. As a result, gold investment is typically recommended as a supplement rather than as the foundation of a portfolio. Gold funds fluctuate with the market as the value of stocks rises or falls, but they are considered low in risk and reward compared to other stock options.
- Historically valuable
- Easy to buy
- Hedge against inflation
- Potential storage or insurance costs
- Price volatility
- Limited ROI
Gold investment FAQ
- What is gold investment?
- In simple terms, gold investment is when you purchase physical gold or a gold-backed asset with the hope that, in the future, it will be worth more than you paid for it. If this is the case, you can sell or trade it for a profit, which would make it worthwhile to invest. There are several methods for investing in gold with varying degrees of returns, costs and risks.
- Where can I invest in gold?
- You can invest in gold through online gold dealers, over the phone or in person through a broker, pawnshop or bank. Once you’ve chosen which type of investment suits your portfolio, the next step is to find a seller or firm to work with.
- Why do people invest in gold?
- People invest in gold for different reasons — to diversify portfolios or hedge against inflation, usually, but sometimes because it’s shiny and historically relevant. Many investors purchase gold as a response to geopolitical tensions and a changing economy. Others see it as a stable, long-term investment they can hold as a physical asset.
- 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.
- How is the price of gold determined?
- Since it’s a commodity, the gold price is largely determined by supply and demand. Investors pay most attention to the gold spot price, which represents the real-time value of one troy ounce of gold. The gold spot price is derivative of future contracts over the month, and it’s recalculated each day.
You’re signed up
We’ll start sending you the news you need delivered straight to you. We value your privacy. Unsubscribe easily.