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.
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I remember what feels like a lifetime ago I invested a small amount in Barrick Gold. Yeah that was a poor investment choice.
I try to stay away from precious metals as they are too volatile for me. Having said that, I do a have a small exposure in a diversified growth index fund.
Great advice for Precious metals investors,but in my little knowledge ,physical gold bears a lot of taxes and Gold mining stocks can go down if the company doesn’t get good yield from its mining,so in my knowledge I think a best way to buy gold is through an IRA account,where it is kept in a secure storage as well as it is under a tax deferred status,so the investor does’nt have to worry on both side.
I personally know people who hold their wealth in gold. They do it because they no longer believe in the power of paper money. They have seen their cash savings diminish in value. Apart from gold and other precious materials, people often purchase real estate to save money and gain profit in the future.
Sorry for not mentioning it in my previous comment – was too focused on the topic… Great post, Moneystepper! Very informative and to-the-point. Investing in gold is an immortal topic for discussion. It would be curious to read posts about investments in other precious metals.
It seems like there are quite a few people that invest in gold as part of their investment portfolio. I had never thought of some of these ways to get involved with the gold industry. I think looking into investing in gold mining companies would be a good thing to look into. There might be some capital gain to be had there.
Good advice for getting rid of your gold. Many people aren’t aware of their different option when it comes to selling gold so this is really helpful! Thanks for sharing.
My mom and I were cleaning out my grandmas house the other day and we found a bunch of old gold that she used to wear. She passed away last month, so we are trying to find the best way to get rid of it. This has some good points that I think can help us out.
Thanks for nice and informative post. This article is really contains lot more information about this topic.
It almost always makes more sense to sell a gold item for its retail price and the purity of the gold is an important factor in the final price.
Some friends of mine have been talking about investing in gold, however, I don’t know very much about this, so I appreciate all of the insight you give. Specifically, you talk about how physical gold is the most direct and traditional ways in keeping the gold, but you do have to keep in mind that there are fees and requirements that you have to keep in order to store the gold. This definitely will take some more looking into. Thank you for your insight!
I’ve been looking more and more into investing in gold lately, mostly because of the fact that it’s value can never reach zero. I like the idea of investing in the physical gold itself for that reason. However, I’m wondering if investing in the actual mining companies might be a better option based on the way that the stocks can skyrocket. Thanks for explaining the downsides of that kind of investment, though. It helps me to see both sides and make an informed decision.
I’ve never thought about investing in gold mining companies. You make a great point, however, that when physical gold prices rise, so will the stocks of those companies. I’m going to talk to my business friends about this. It could be a great opportunity! Thanks!
I like your explanation on investing in physical gold. Like you said, it’s the most direct method of investment, and gold can be used as currency even if the economy goes bad. I didn’t know that some gold buyers only purchase metals that originally came from them; that would be something to look into before choosing a buyer. Thanks for the information!
One problem for many is the cost of buying an ounce at a time. Here is a more affordable way.