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How to invest in gold

Learn about different types of gold investments

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by Kathryn Parkman ConsumerAffairs Research Team
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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.

In times of geopolitical uncertainty, some investors expect gold to be less volatile than stocks. Gold is a common choice for those interested in stability, historical value and a diverse portfolio. In this article, we explore ways to invest in gold and different factors to consider along the way.

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 common ways you can invest in gold.

Physical gold

Physical gold can be purchased from precious metal dealers, banks or individual sellers or retailers. Most people purchase gold bullion when buying physical gold for investment purposes. Coins are the most common style of gold purchases, but wafers, bricks and other forms of bullion are available. These assets are typically stored in a home safe or with a bank or other depository.

  • Gold bullion: Bullion can refer to any gold bar or ingot that is at least 99.5% pure (i.e., 995 parts per 1,000 fine gold). Gold bars are required to weigh between 350 and 430 troy ounces (11 to 13 kilograms), but ingots can come in a variety of sizes.
  • Gold 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 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 Kruggerand, American Gold Eagle and Canadian Gold Maple Leaf.
  • Gold jewelry: Investing in gold jewelry makes sense because it holds value and is easy to liquidate. Like coins, jewelry can have added value based on rarity and craftsmanship. Some people prefer gold jewelry because it also doubles as a status symbol and can be passed down through generations.

Additional gold investment 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 that is backed by gold. If you have a stock trading account, you can invest in a 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 traditional stocks and bonds, this retirement account is backed by gold or other precious metals.
  • Gold funds: Gold exchange-traded funds (ETFs) are passive investment instruments based on the price of gold bullion. Instead of investing in gold bullion, this method is focused on the changing value of gold and gold-backed assets. A gold ETF is a relatively affordable option for gold investment. Unlike ETFs, exchange-traded notes (ETNs) are based on the market performance of gold, rather than ownership of it. This investment is ideal for traders or those who don’t wish to own gold bullion or coins.
  • Gold stocks: Owning stock in gold mining companies is a popular way to circumvent the need to own gold. However, this investment can be affected by the volatility of the stock market. Gold stock prices are based on the movements of gold, and therefore the values of the stocks reflect the value of gold.
  • Gold futures options: 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 consider them to offer more leverage and flexibility.

Investing in gold for beginners

Investing in gold is a straightforward process, but there are a few considerations to take along the way. These steps help explain different ways to purchase gold in your portfolio.

  1. 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, 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.
  2. Check the price of gold: The price of gold affects all types of gold investment, even 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, or you can follow changes on an app.
  3. Buy physical gold: Physical gold can be purchased 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. For more information, learn about how to buy physical gold.
  4. 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. 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.
  5. 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 accounts.
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Gold investment pros and cons

People like investing in gold because it’s easy to buy and tends to be very satisfying. Gold investment is especially popular in times of crisis because gold has historically held its value better than most other assets. This holds true particularly at times when the market is down or the U.S. dollar has inflated. Investors like that gold is a liquid asset, and gold jewelry and collectible coins can also be given as sentimental gifts.

However, there are still downsides to investing in gold. For one, past success does not guarantee future performance. Physical gold also offers limited return on investment because it only turns a profit when sold. As a result, this investment is typically recommended as a supplement instead of the foundation of a portfolio. Gold funds fluctuate with the market as the value of stocks rises or falls but are considered low risk, low reward compared to other stock options.

Pros

  • Historically valuable
  • Easy to buy
  • Hedge against inflation

Cons

  • Potential storage or insurance costs
  • Price volatility
  • Limited ROI

Gold investments 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 it is worth more than you paid for it in the future. If it is, then you can sell or trade it for a profit, which would make it a worthwhile investment. There are a variety of methods to invest in gold with varying degrees of returns, costs and risks.
Why do people invest in gold?
People invest in gold for different reasons — to diversify portfolios or hedge against inflation, 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.
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.
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 is not a good idea to solely invest 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 for one troy ounce of gold. The gold spot price is derivative of future contracts over the month, and it is recalculated each day.

Bottom line: Going for the gold

Gold is a popular investment in times of instability or fluctuating market prices. While this investment doesn’t have a large ROI, it’s a good way to diversify your portfolio and provide extra stability to your assets.

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Profile picture of Kathryn Parkman
by Kathryn Parkman ConsumerAffairs Research Team

As a member of the ConsumerAffairs Research Team, Kathryn Parkman believes everyone deserves easy access to accurate and comprehensive information on products and businesses before they make a purchase, which is why she spends hours researching companies and industries for ConsumerAffairs. She believes conscious consumption is everyone's responsibility and that all content deserves integrity.