If you want to invest in gold, you have come to the right place. Below, you are going how to invest in gold, the different methods for gold investing, the risks of investing in gold, when gold prices typically rise and fall, and reasons why you might want to buy or sell gold.
Learning how to invest in gold is actually a bit more complicated than it sounds. There are a lot of different ways to invest in gold, including buying actual gold bullion or coins, investing into funds based on gold prices, or even going the indirect route and buying stock in companies that mine gold.
Below, you will find information on each one of these methods as well as more article that will help you determine whether or not gold is right for you as well as the pros and cons of owning gold and other precious metals.
Investing in Gold Bullion
The most basic way to invest in gold is by buying gold bullion. Bullion simply refers to buying gold that has no ornamental or value but rather is simply worth its value due to its gold weight.
In a humorous notion, when many people think of investing in gold bullion they think of gold bars or ingots, but really most bullion is in coin form. The reason for this is simply due to cost; a gold bar is 400 troy ounces, and at the time of this writing gold is worth just over $1500 per troy ounce (of course, subject to market fluctuations). This puts the value of a gold bar at over half a million dollars; not something most investors are going to be able to afford!
Many governments and mints issue gold bullion coins in smaller amounts which are available for purchase. For example, in the USA, the Buffalo Gold Coin is a full oz of practically pure gold (.9999).
When buying bullion, you have to be careful about the price you are paying. You cannot afford to pay much more than market rate (spot rate) for the gold bullion, because any money you spend over the spot is money that you are going to lose unless gold prices rise beyond what you paid. It is pretty standard to pay 4 or 5% higher than market rate, but if you are paying 10% or over, it is simply too expensive and not a good investment.
Learn more about how to invest in gold bullion in our article on How to Buy Gold coins. Gold coins are the main form bullion takes for the average investor given how expensive gold bars can be. The full article contains details on how to calculate if you are getting a good deal on bullion, what types of bullion you need to stay away from.
Alternatively (and this is my recommended option) you can invest in gold online that is stored off-site. You can learn more in our article, How to Buy Gold Online. Gold purchased through a company like BullionVault is stored in a safe location for a very minimal overhead (much cheaper than you could do yourself) which is great for investing purposes. and everything else you need to know about investing in gold bullion and how you can invest in off-site bullion in order to save money.
How to Invest in Gold ETFs
The easiest way by far for anyone to invest in gold is by going through something known as an Exchange-Traded Fund (or ETFs for short). ETFs are essentially funds which are based on the price of specific currency (or group of currencies) and follow the price of gold.
To simplify, the managing company purchases a large amount of gold (typically billions of dollars worth). When you purchases shares of that fund, you are typically buying approximately 1/10th an ounce of gold. Of course, this may vary from fund to fund so be sure to read through their site carefully.
Note that these funds track close to the price of gold, but are not 100%. This is simply because owners of these shares are 1-step removed from the process. If you buy a share for example, the company needs to have a share available to sell to you (from another shareholder selling) or has to buy more gold. This slight lag in buying and selling may make prices of a given fund to track a little higher or lower than the value of gold, but overall they tend to be very close.
The most reputable of these types of funds in the USA is listed as GLD on the New York Stock Exchange, though there are other funds available. These fund typically take a small commission fee for sales and even a yearly maintenance fee. Be sure to do your research on the individual gold EFTs before investing in gold funds. Read more about EFTs in our article on how to invest in gold EFTs.
Investing in Gold Mining Companies
One way you can invest indirectly in gold is by investing in companies which mine gold. These are typically more risky investment than gold as the success of these companies will rise or fall rapidly with the movement of gold. This is simply because mining gold is not free, and the more expensive gold gets, the more expensive the mining techniques that can be used to extract it, allowing them to produce more gold and generate more profit.
The end result is that that price of gold could fall 20% and put a mining company practically out of business. However, the price of gold could rise by 20% and a company could gain by much more value out of such a rise.
As a result, this is generally not recommended for a new investor. However, if you think that a particular company is strong (not something you guess about) and that the price of gold is likely to remain strong, these stocks may be a good way to invest in gold. Just remember that they move up and down very quickly in price and are not always stable, just like any other company stock.
Other Precious Metals – Silver
Silver is another precious metal which investors like to buy into. While this is not as big of a market as gold, there still is a lot of potential to earn money in silver (and likewise, plenty of risk!).
Find our more about silver in our section on How to Invest in Silver. If you are not sure what the difference is between investing in gold or silver, check out our article on Gold vs Silver.
Why Invest in Gold?
Now that you know how to invest in gold, you might be wondering why people invest in gold and what drives the price of the market. Since this is a complicated topic, it is covered in a separate article: Why Buy Gold? Why Invest in Gold?. In this article, the reasons why people invest in gold and how much of their portfolio is dedicated to gold are revealed.
To summarize that article, most people invest in gold in order to protect their wealth, while a minority of investors buys into gold for speculating purposes.
How to Invest In Gold Conclusion
While there are a lot of different ways to invest in gold, the easiest way is to use an EFT. If you have more money to invest, then bullion is a viable option as well. If you are interested in more riskier investments in gold, mining stocks are an option.
Learn more how to decide on whether or not to invest in gold in our article: Is Gold a Good Investment? Should I Buy Gold?