Gold, often referred to as the “precious metal,” has held a special place in human history for centuries. Its intrinsic value, lustrous quality, and scarcity have made it a universal medium of exchange and a popular choice for investors seeking a hedge against economic instability. If you’re considering investing in gold, it’s essential to understand the various methods available, factors to consider, and the role of gold in your investment portfolio. In this comprehensive guide, we will explore different ways of buying gold, from physical assets like gold bars, coins, and jewelry to alternative options like gold stocks, mutual funds, and ETFs.
Buying Physical Gold
Physical gold is perhaps the most tangible and traditional form of investing in this precious metal. It offers a sense of ownership and security, but it also comes with responsibilities and considerations.
Gold bars, often referred to as bullion, are a popular choice for individuals looking to invest in gold. They are typically sold by weight, with common denominations including one-gram, five-gram, one-ounce, and kilogram bars. The purity, manufacturer, and weight are stamped on the face of each bar. However, purity is of paramount importance when buying gold bars for investment purposes. Investment-quality gold bars must be at least 99.5% pure gold. This is a crucial consideration if you plan to store your gold in a Gold IRA, as less pure gold, unless it’s a specifically pre-approved gold coin, cannot be held in an IRA.
You can purchase gold bars from various sources, including dealers, individuals, or reputable online retailers. Dealers often offer bars from respected producers such as Credit Suisse, the Perth Mint, and the Royal Canadian Mint. When buying online, consider the delivery fees and insurance costs to ensure the safe transport of your bullion.
Gold coins are another popular choice for those looking to invest in physical gold. Coins like the American Gold Eagle, Canadian Maple Leaf, and South African Krugerrand are not only valuable investments but also attractive collectibles. However, there are some important factors to consider when buying gold coins.
Gold coins typically have a lower gold content compared to gold bars. For example, a one-ounce American Eagle coin is only 91.67% gold. The remaining weight consists of silver and copper. This difference in gold content can result in a higher premium when purchasing coins.
When buying gold coins, you can choose to purchase from dealers, pawnshops, or individuals you trust. If you opt for online purchases, ensure that the dealer is listed in the U.S. Mint’s database to avoid counterfeit or less pure gold.
Investing in gold through jewelry, especially antique pieces, provides another avenue for acquiring this precious metal. However, it comes with its own set of considerations. When buying gold jewelry, you’ll likely pay a premium for the craftsmanship and design. This premium can range from 20% to 300%, depending on the manufacturer and the piece’s uniqueness.
One important aspect to note when investing in gold jewelry is the gold’s purity, which is measured in karats. Different karat levels correspond to varying levels of gold content:
- 10K: 41.70%
- 14K: 58.30%
- 18K: 75.00%
- 22K: 91.70%
- 24K: 99.90%
To ensure that you are making a sound investment, pay attention to the gold’s karat and its documented purity. Manufacturers often use alloys to combine gold with other metals, enhancing durability or adjusting color. Be cautious and make informed choices to avoid purchasing gold that is less pure than advertised.
Where to Buy Gold
Regardless of the form of physical gold you choose to invest in, you can acquire it from various sources. These include gold dealers, both in-person and online, pawnshops, individuals, and jewelers. However, when purchasing gold, especially for investment purposes, it’s essential to ensure that the source is reputable, and the gold is of sufficient purity to justify the value you’re paying for.
Factors to Consider When Buying Physical Gold
When deciding to invest in physical gold, several crucial factors must be taken into account to ensure that your investment is safe and secure:
Storage: Physical gold requires a secure storage location. While you can certainly keep your gold at home, many investors prefer to use a custodian service. When choosing where to store your gold, research the available options and consider the additional costs associated with safe storage.
Insurance: If you decide to store your gold at home, you should consider insuring it to protect against theft or natural disasters. This may add to the cost of your homeowners or renters insurance. Even if you store your gold with a custodian, it’s important to check their insurance policy to understand how it protects your investment.
Manufacturer: As you are making an investment, it’s crucial to buy from reputable sources that will help your purchase’s value grow over time. When buying gold, look for respected producers like Credit Suisse, the Perth Mint, and the Royal Canadian Mint.
Purity: The gold content in the coin, bar, or piece of jewelry has a significant impact on its value and worth as an investment tool. Ensure that any gold you purchase as an investment has the required purity level to stand the test of time. In most cases, you should target gold items that are at least 91%, if not 99%, pure.
Other Ways to Buy Gold
While physical gold has its allure, there are alternative ways to invest in gold that may suit different investment strategies, risk profiles, and preferences.
Stocks of Gold Mines
Instead of owning physical gold, you can invest in stocks of companies engaged in gold mining and refining. Some top gold mining companies include Barrick Gold (GOLD) and Newmont Mining Corporation (NMC). While the prices of these stocks may not perfectly mirror the trajectory of physical gold’s price, they are likely to be correlated, providing exposure to gold as an investment without the challenges of handling physical gold.
Gold Mutual Funds and ETFs
Gold mutual funds and exchange-traded funds (ETFs) offer diversified exposure to the gold market without directly owning physical gold. These investment vehicles may track the price of gold, include the stocks of multiple gold mines and refineries, or provide exposure to gold futures and options. Some of the top gold mutual funds and ETFs include iShares Gold Trust (IAU), Invesco DB Gold Fund (DGL), and Franklin Gold and Precious Metals Fund (FKRCX).
Futures and Options
For investors willing to take on more risk, futures and options can be attractive ways to gain exposure to gold. However, they are highly speculative and require a brokerage account and in-depth industry knowledge. Gold futures contracts involve committing to buy or sell gold at a specified price in the future, while gold options contracts grant you the right to buy or sell gold at a predetermined price by a set date. These instruments typically involve leverage, using borrowed money to buy securities, which can magnify both profits and losses. As such, they may not be suitable for all investors.
Why Is Gold Valuable?
The enduring value of gold can be traced back to its lustrous quality and scarcity. Although the United States is no longer tied to the gold standard, gold continues to hold value due to its use in jewelry and collectibles. Even in the contemporary era, gold remains a universal medium of exchange, valued irrespective of the fluctuations of fiat currencies and other financial instruments.
Is Gold a Good Investment?
The question of whether gold is a good investment has garnered much debate. While it may not be a surefire way to strike it rich, gold is often viewed as a safe haven from inflation and extreme market downturns. For example, during the 2007-2008 bear market, the overall stock market experienced a 33% plunge, while gold fell only 2%.
However, it’s essential to note that gold prices can be highly volatile, and gold is not considered a safe investment. In fact, it’s possible to build a diversified investment portfolio without including gold at all. If you are committed to adding gold to your portfolio, it should only represent a small percentage of your overall holdings.
Investing in gold can take various forms, each with its own set of advantages, considerations, and risks. Gold’s enduring value and historical significance continue to make it an attractive option for investors seeking to diversify their portfolios and guard against economic uncertainty.