Investing in gold means more than just adding coins, bars and jewelry to your investment portfolio. There are also stocks, ETFs and even futures on gold that provide various levels of exposure to the precious metal without the hassles of owning physical bullion.
Another way to make a profit off gold is to own the companies that mine it. But be aware that the profits from these investments may depend more on business factors than the price of gold itself.
Physical Gold
The simplest way to buy or sell physical gold is to invest in bullion bars and coins. These items can be purchased from local merchants or online, often at a premium over the market price of gold. Gold bars and coins can be a psychologically satisfying form of investment, as they have been used to store wealth for millennia. However, physical gold is subject to special taxes when sold at a profit since the IRS considers it a collectible.
Investors can also buy gold ETFs or exchange-traded funds, which allow them to gain exposure to the current gold price without owning the metal itself. This option carries some costs associated with storage and transaction fees, but it eliminates counterparty risk and allows investors to diversify their portfolios.
It is also possible to hold gold bullion, ETFs and other commodities in a self-directed individual retirement account (IRA), allowing investors to preserve their investments and benefit from the tax advantages of an IRA.
Gold Stocks
Gold stocks allow you to profit from changes in the price of gold without owning physical gold. They include gold mining companies, gold ETFs and gold royalty companies. While the prices of these stocks don’t exactly track the day-to-day price of gold on commodities markets, their revenues are correlated.
This makes them a good way to gain exposure to the price of gold, particularly for those who are concerned about inflation. Investors in these stocks also avoid the costs of storage, insurance and custodian fees that come with owning physical gold.
Gold stocks can be bought or sold like any other stock through a brokerage account or investment app. However, their prices often rise and fall faster than the price of bullion and are susceptible to issues unrelated to gold prices. Therefore, they’re a higher-risk way to invest in gold. Nonetheless, many investors use gold stocks as a diversifier in their portfolio. This helps them reduce the risk of losses in a market downturn. At this point if you are confused on the different types of gold investment, click here for more!
Gold ETFs
Similar to gold mutual funds, Gold ETFs track the price of gold and are a popular way to gain exposure to this precious metal. Since they are backed by physical gold and traded like stocks on the stock exchange, they can be bought or sold relatively quickly and at a low cost.
The share prices of these exchange-traded funds represent fractional ownership in the underlying physical gold, with each unit representing 1 gram of the precious metal. This is more convenient than storing and insuring physical gold, and it provides lower storage costs and better liquidity than buying bullion.
These funds may invest directly in gold or in the shares of companies that mine it. Some also use derivatives and debt to leverage the price of gold and boost potential returns. Consider your investing goals and risk tolerance to determine if one of these products is right for you. Also, be sure to check the fund’s fees and charges before deciding on your investment.
Gold Futures
Gold futures enable individuals to speculate on the price of gold rising or falling without owning physical gold. The contracts are traded on a commodities exchange and expire each quarter. When the contract expires, a buyer must either pay up or else they must agree to reinvest in a new period (known as rolling over). This is expensive and creates a lot of psychological pressure.
Speculators who trade in gold futures are often obligated to continuously top up their margin, which can become very expensive on sudden price declines. This is a big reason that futures trading is only available to institutions, hedge funds and very wealthy traders.
Unlike ETFs, futures require a high level of expertise in the commodity markets. Those who do not have the experience should avoid this investment. Gold stocks are a good alternative for those who want to own gold but do not have the time or resources to deal with the futures market.