There are several ways to invest in gold, each having its own pros and cons to cater to a person’s investment objectives. Instead of simply investing in today’s “hottest” form of gold investment, what people should consider is the kind of gold investment that is appropriate to their circumstances.
Most private investors see the precious yellow metal as insurance to extreme government spending such as the U.S.’ previous stimulus, bad central-bank policies, or when there’s inflation. Gold is also turned to when returns on cash and bonds are negative and declining.
For example, we recently reviewed “The Global Expatriate’s Guide To Investing” which goes into a lot of detail on “The Permanent Portfolio”. This method of investing uses a rebalanced even split between stocks, bonds, gold and cash in order to achieve good returns with a lower level of variance.
To build such a portfolio, here are three ways to get exposure in gold, what they’re strengths are, and what investors should look out for when investing in them.
Different Ways To Invest In Gold – Physical Gold
This is the traditional and most direct way for investors to get exposure to the precious yellow metal. Investors buy the actual metal in order to preserve wealth, and at the same time cover their assets in case the economy gets really bad. Gold is considered as legal tender in many countries so even when currencies collapse, physical gold can be used in order to make a trade.
There are a lot of fees associated in keeping actual gold. Apart from the actual price of gold, investors would also need to shoulder the storage and shipping costs. Should investors decide to sell them, they would also need to pay for transaction fees, as well as find a buyer who’d offer a fair price for them. These days, a lot of gold buyers only purchase metals that originally came from them and offer a very low price for those that didn’t.
Different Ways To Invest In Gold – Gold Mining Companies
Investing in mining companies is one way to get a higher leverage for gold prices. When the physical metal’s prices are up, mining stocks skyrocket. This is what’s happening right now with the current gold rally. The drawback in mining investments is that it works both ways. When the prices of gold are down, mining shares decline. Investors are exposed to the operating risks and management mistakes of mining. People should choose miners that have sites with long service life, low operational costs, and produce a decent amount of gold on an annual basis.
Different Ways To Invest In Gold – Allocated Gold Accounts
Allocated gold accounts are for investors who want to own gold without worrying about storing the gold themselves. In this type of gold investment, banks keep an investor’s gold and provides them with a certificate. Unlike unallocated gold accounts, allocated accounts do not give a bank the right to sell an investor’s gold to meet its reserve requirements.
Allocated gold account investors need to pay for their gold’s yearly handling, insurance, and storage costs. Banks don’t usually have private vaults for each investor so all allocated gold accounts are stored in one safe.