Summary: In this article, you will learn all the basics about all the forms of investments you can make on gold.
Gold is a commodity that has granted those who possess its wealth and privileges since the dawn of civilization. That is a simple but potent fact of human societies that rings true even today. Capitalizing on this truth using the many modern forms of gold investment currently available in this day and age.
How to Invest in Gold - A Newbies Guide
Sadly, not many people are aware of the many ways people earn from gold. For you to expand your investment portfolio and earn from the highly lucrative industry centered around this lump of star debris, you need to be in the know. Below are all the basic ways in which gold can be bought, sold, traded, and utilized to earn you a hefty profit.
Besides stocks & options, I've been investing in Gold, Silver, and other precious metals since 2008.
By the end of this article, you're going to learn:
- 6 Common & Popular Ways to Invest in Gold
- 3 of these 6 ways I actually recommend
- How To Get Started Today, even if you've never invested a dime in your life
Gold & Precious Metals IRA (#1 Recommendation)
Have you thought about placing precious metal assets in your individual retirement account (IRA)? Many individuals, just like you, are building their nest egg with a Self-Directed IRA.
A gold IRA is an Individual Retirement Account in which physical gold or other approved precious metals are held in custody for the benefit of an IRA account owner.
It acts similar to a Traditional IRA, only instead of holding paper assets, it holds physical precious metals (stored in a secure vault).
So, you get the benefits of holding gold bullion, without all the inherited risks, such as knowing where to store it etc.
GoldCo Precious Metals is who I recommend for this, they help their customers transfer their retirement investments into Gold & Silver IRA's, which can be great for a long term investment.
They're one of the top trusted Gold IRA companies in the USA. They've got a 5 Star Rating on Trust Pilot as well as an A+ Rating with the BBB, which is why I do recommend them.
To learn more about GoldCo, see my review here: Goldco Review (Gold & Precious Metal IRA’s)
Gold Bullions and Coinage
Bullions are a piece of gold - that can take the form of bars, coins, etc. - that has been certified for its weight and purity. These also might come with serial numbers stamped on the surface for security purposes. Overall, bullions are the most form of direct ownership for gold.
Though the common conception people have for gold bullions is that they take the form of large gold bars, they are usually sold in much smaller sizes or take the form of coinage - usually minted and sold by sovereign governments around the world.
This is for the obvious reason that large gold bars are simply impractical to possess. Their very nature makes them hard to sell as you cannot sell anything less than the entire bar.
Older coinage or coinage that is exceptionally rare are usually treated as numismatic - they are priced at the collector's value rather than their worth in current gold rates.
Pros & Cons of Owning Gold Bullions/Bars/Coins
Gold Exchange-Traded Funds
An alternative option to direct ownership of gold is the investment of gold through gold-traded funds. Gold-traded funds operate the same essentially as stocks do - you buy a small fixed amount of gold in the form of a share which can be sold just like stocks can in most brokerages.
This method has the perks of being less risky than owning the gold upfront and is friendlier to small-time investors looking for something easy and somewhat dependable to put their money in. The fees incurred by an ETF are also considerably lower than most other types of gold investments.
If you are one of these small-time investors simply looking for an investment to make your limited funds work for you, an ETF is certainly one that should be added to the portfolio. That being said, the amount likely to be earned from these forms of investment might not be enough for the more voracious of investors.
Gold Mutual Funds
In the simplest of terms, a mutual fund is when investors pool their funds together and have it controlled under single management that gives them e dividend of the profits.
A lot of mutual funds either own or have shares in gold bullions and/or gold companies. This makes them a viable option for non-direct gold investment. Many mutual funds also exclusively deal in gold. Their low cost and minimal investment requirements make them, along with ETFs, some of the safer and easier forms of gold investment an individual can partake in.
Gold Futures and Options
A gold futures contract is a contract to buy or sell gold at a future time and a predetermined weight and amount. Whereas the ETFs offer you're to buy gold shares, contracts are what's bought and sold with this form of gold investment.
These are more suited for experienced investors who are looking for a higher-paying investment with a very low commission.
Options, on the other hand, are different because they give the owner the right to buy future contracts within a pre-set time frame and a pre-set price. Investors do this to leverage the original investment as well as mitigate any losses on the price paid. Fairly complicated for the inexperienced individual without proper research.
When investing a large sum in gold, Future Contracts and Options are the cheapest and probably most ideal ways to do it. Through engaging in such agreements, they require attention to the details of the agreement and the willingness to accept the increased risk.
Other Forms of Gold Investment
Though those were the main and most common forms of gold investments that investors engage in, no discussion of the forms of gold investment is complete without taking at these simple but effective methods:
Gold Mining Companies
Gold mining companies benefit just as much from the rising prices of gold as the financial institution do. These usually multi-national companies continue to post record number of profits every year especially seeing as gold only seem to be getting rarer and rare.
That means they post profits even when gold prices are low. Investing your money in shares of a gold mining company can be as good as if you had invested in the gold itself. That being, investment in a gold mining company, or any company for that matter, requires due diligence on the part of the investor.
That means putting the time and effort into researching these companies properly before committing your money to them. If you find giving the mining company background check too time-consuming, perhaps your money is better suited in a less attention-demanding investment like mutual funds or ETFs.
With 49% of the world's gold going into the manufacturing of jewelry, it would make sense to think that simply purchasing gold in the form of jewelry is an easy enough way to procure gold as an investment - maybe along the same line as bullions.
This, however, is not the case. Firstly, not every article of jewelry contains the same amount of pure, unadulterated gold. The karatage varies from item to item and sometimes the amount of gold is too menial to consider as a legitimate investment.
Also, when buying gold in the form of jewelry, you are not just paying for the gold but the craftsmanship, the brand name, and the retailer's markup as well. This means purchasing gold from retailers can be up to 400% more expensive than buying the pure gold itself.
Unless inherited, jewelry is simply far too expensive to attain to be considered a good investment. It might take decades for you to be able to sell your gold at a profit and by then, it will be worth more due to its status as a collector's item than its worth as a piece of gold.
Though there are risks involved, gold remains a fairly dependable and predictable commodity to invest in. Probably more so than any other form of investment because you are essentially bidding on an element that is known for being highly rare.
That being said, if you are looking for the form of gold investment that is minimal in risk, Gold IRA's, ETFs and Mutual Funds are perfect for medium to long-term investment plans.
Investment in gold mining companies is relatively safe and easy if you take enough time to do your homework. Any other form will require a bit more research and experience to manage effectively.
Though you might be tempted to own gold bullions outright, know that comes with a whole lot more consideration with keeping them safe and insured.
Finally, know why you are investing in the first place. Decide if it is simply to make a little more money on the side or are you trying to start a fund for something costly in the future? Knowing this will also give you an idea of what risks you are willing to take when making investments.