Here’s how to get started with the world’s most popular investment.
There’s an old adage that “cash is king” when the stock market is in crisis. However, other people want a safer haven for their hard-earned cash, and they turn to gold.
Gold was the most popular investment for thousands of years because it was the beautiful metal you could bend, re-form, bury, and reuse indefinitely.
You have a lot more possibilities these days. Still, if gold is your only option, here’s how to get started.
Is it wise to invest in gold?
Depending on whom you ask. Some say that commodities like gold and silver are too risky and don’t provide enough value as investments, while others claim that they can help diversify a long-term portfolio.
During difficult times, many individuals look for gold. Since the beginning of recorded history, the gleaming metal has remained valued, and it has held up well during stock market crashes and periods of severe inflation.
Warren Buffett, a well-known investor, has had mixed feelings regarding gold throughout the years.
“I have no idea where (gold) will go in five years,” he said CNBC in 2009. “But one thing I can tell you is it won’t do anything between now and then except look at you.”
“Whereas Coca-Cola, you know, will make money… It’s preferable to have a goose that keeps laying eggs rather than one that sits about and eats insurance and storage.”
Buffett surprised many of his followers when his company Berkshire Hathaway purchased shares in gold mining company Barrick Gold in 2020, only to sell them all the following year.
What is the best way to make money with gold?
You can acquire actual gold, such as bars or coins, invest in gold mining firm stocks or a gold exchange-traded fund (ETF), or invest in gold futures.
Purchase gold coins or bullion.
Purchasing and storing gold bars, coins, or jewellery is the most straightforward way to invest in gold.
You must have a realistic expectation that your gold can be sold for more than you paid for it in order to make a profit from it. Gold prices, unfortunately, are notoriously difficult to forecast.
On a good day in the 1990s, gold barely topped $300. Then, in the mid-2000s, when financial and political crises loomed, people did what they always did and began buying gold, driving up gold prices.
From $800 per ounce in 2009 to $1,900 in 2011, it has more than doubled in value. However, by 2013, the bubble had broken, and gold had fallen to $1,300 per ounce.
Then, in the summer of 2020, during the pandemic’s stress and uncertainty, gold momentarily soared to an all-time high of $2,000 an ounce before plummeting.
If you want to buy gold as part of your retirement plan, you can do so with a gold Individual Retirement Account (IRA). However, you’ll need to work with a specific custodian or broker, and you might have to pay a lot of money to cover the cost of storing the metal.
Purchase gold stocks.
By purchasing shares of gold mining businesses on the stock market, you can invest in gold without ever touching a speck of it.
The advantage is that you may not lose your shirt if the price of gold suddenly drops because the mining business may decide to focus on another commodity.
The drawback of owning mining stocks is that they can fall with the market, even if the price of gold remains stable. Business considerations, such as the company’s financials, the quality of its management team, and long-term production forecasts, can all play a role.
Commodity stocks can be easily purchased through a variety of investment applications, some of which will even give you a free stock just for signing up.
Invest in gold ETFs.
Investing in gold exchange-traded funds (ETFs) can help investors avoid the risk of investing in a single company.
Simply put, these funds are collections of money from investors that are invested in a variety of gold and mining firms. GLD, GDX, and GDXJ are some of the most popular gold ETFs, and they are traded like stocks.
You should expect to lose a certain proportion of the value of your investment each year due to the fund’s expenditure ratio. The largest gold ETF, SPDR Gold Shares, for example, will charge you 0.40 percent of the value of your investment each year.
Still, ETFs as a whole have relatively low management costs, and buying them through a zero-commission investing app saves you even more money.
It’s also worth noting that there’s still some risk involved in investing in ETFs. Although these funds are widely diversified to decrease risk, they are nevertheless exposed to stock market volatility.
Even if the price of gold stays the same, if the market crashes, the value of your investment could plummet.
Invest in gold futures
Gold futures are quite difficult to understand. They’re agreements to buy a specified amount of gold at a specific price at some point in the future.
Traders can profit from the shifting price of gold by carefully buying and selling futures contracts.
When commodities prices rise, futures contract buyers profit. When commodities prices fall, futures contract sellers profit.
A minimum purchase of 100 ounces of gold is usually required for the contracts. Due to the large degree of borrowing often involved with futures contracts, novice investors should exercise extreme caution.
The next stage is to purchase gold as an investment.
Take the following precautions before you go all King Midas and transform your entire portfolio into gold:
Determine your risk tolerance: While gold futures investments can be risky, ETFs can help spread out your risk.
Do your homework: If you want to invest in a gold mining company, look into its past performance and whether it also mines for other metals or minerals.
Begin slowly: The majority of people who invest in gold do so as part of a diverse portfolio. Consider a variety of investment options, such as real estate and even farmland.
Inquire for assistance: Don’t be afraid to question your financial adviser if gold would be a good addition to your portfolio.
Also, if you’re just getting started as an investor, it’s a good idea to look into some low-risk options.
How to invest in gold: 5 ways to buy and sell it
When circumstances are rough and the stock market is shaky, many investors turn to gold as a safe haven. With inflation on the rise and the stock market hovering around all-time highs, some investors are turning to gold as a safe haven with an established track record of returns.
Gold is popular among savers and investors for a variety of reasons, and it possesses characteristics that make it an excellent alternative to standard securities like equities and bonds. They regard gold as a store of value, despite the fact that it is a cash-neutral asset. Some investors consider gold as a hedge against inflation, fearing that the Fed’s stimulus measures, such as near-zero interest rates and government spending, will drive inflation soaring.
There are five different ways to buy and sell gold.
Here are five distinct methods to own gold, as well as some of the associated risks.
Buying gold in bars or coins is one of the more emotionally fulfilling methods to own it. You’ll get pleasure from looking at and touching it, but if you own more than a small portion of it, you’ll face major disadvantages. One of the most significant disadvantages is the requirement to safeguard and insure actual gold.
Owners of actual gold are completely reliant on the commodity’s price growing in order to make a profit. This is in contrast to the proprietors of a firm (such as a gold mining company), who can create more gold and thus make more money, resulting in a larger return on investment.
You can buy gold bullion from a variety of sources, including an internet vendor like APMEX or JM Bullion, or a local dealer or collector. A pawn store may sell gold as well. When you’re buying gold, keep track of the spot price – the price per ounce on the market right now – so you can get a good bargain. You might choose to trade in bars rather than coins because you’ll likely pay more for the collector value of a coin than for the gold content.
The biggest risk is that if you don’t keep your gold safe, someone will physically steal it away from you. If you need to sell your gold, you face the second-largest risk. It can be difficult to get the full market value for your assets, especially if they are coins and you require cash immediately. As a result, you may have to settle for selling your assets for a significantly lower price than they would otherwise fetch on a national market.
Futures on gold
Gold futures are a fantastic opportunity to speculate on the price of gold growing (or dropping), and you could even take physical delivery of gold if you wanted to, though that is not what motivates speculators.
The most significant benefit of using futures to invest in gold is the enormous amount of leverage available. In other words, for a relatively modest sum of money, you can possess a large number of gold futures. You can make a lot of money rapidly if gold futures move in the direction you anticipate they will.
Risks: The leverage available to investors in futures contracts works both ways. If gold prices fall, you’ll be obliged to put up large sums of money to keep the contract open (known as margin), or the broker will close the position and you’ll lose money. So, while the futures market can help you gain a lot of money, it can also help you lose a lot of money.
The futures market is mostly for sophisticated investors, and you’ll need a broker who offers futures trading, which not all of the main brokers do.
If you don’t want to deal with the trouble of owning real gold or the quick pace and margin needs of the futures market, an exchange-traded fund (ETF) that follows the commodity is a perfect option. SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and Aberdeen Standard Physical Gold Shares ETF are three of the most popular ETFs (SGOL). The purpose of these ETFs is to replicate gold’s price performance minus the ETF’s yearly expense ratio. As of September 2021, the expense ratios for the funds mentioned are merely 0.4 percent, 0.25 percent, and 0.17 percent, respectively.
Another significant advantage of holding an ETF over bullion is that it can be easily exchanged for cash at market rates. Just like selling a stock, you can trade the fund on any day the market is open for the current price. Gold ETFs, on the other hand, are more liquid than actual gold and may be traded from the comfort of your own home.
Risks: Gold ETFs provide you exposure to the price of gold, so if it rises or falls, the fund should do the same, minus the fund’s costs. Gold, like equities, may be volatile at times. These ETFs, on the other hand, allow you to avoid the two major dangers of owning gold: preserving your investment and gaining full value for your assets.
Stocks related to mining
Another option to profit from rising gold prices is to invest in the mining companies that produce it.
This may be the finest option for investors because they can earn from gold in two ways. For starters, as the price of gold rises, so do the miner’s profits. Second, the miner might gradually increase production, resulting in a double whammy effect.
Risks: When investing in particular stocks, you must thoroughly understand the business. There are a lot of extremely unsafe miners out there, so you’ll want to pick a reputable company. Small miners and those who do not yet have a producing mine should generally be avoided. Finally, mining stocks, like all equities, can be quite volatile.
Exchange-Traded Funds (ETFs) that invest in mining stocks
Don’t want to delve too far into particular gold mining companies? Then investing in an ETF might be a good idea. Gold miner ETFs will give you exposure to the market’s largest gold miners. You won’t be harmed as much by the underperformance of a single miner because these funds are dispersed across the industry.
VanEck Vectors Gold Miners ETF (GDX), VanEck Vectors Junior Gold Miners ETF (GDXJ), and iShares MSCI Global Gold Miners ETF are some of the largest funds in this category (RING). As of July 2021, the cost ratios for the funds were 0.51 percent, 0.52 percent, and 0.39 percent, respectively. These funds combine the benefits of particular mining companies with the security of diversification.
Risks: While the diversified ETF protects you against a single bad firm, it won’t protect you from something that impacts the entire sector, such as low gold prices for an extended period of time. Also, when choosing a fund, keep in mind that not all funds are made equal. Some funds have more established miners, while others have more riskier young miners.