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Precious metal investments are an excellent way to grow wealth, and gold is the most popular and versatile choice. But did you know that you have far more options for investing in gold than just purchasing bars or coins?
This post explores the best ways to invest in gold, including bullion, futures contracts, mining stocks, exchange-traded funds, and mutual funds. We’ll answer all your questions about the different ways to invest in gold, including the pros and cons, how to get started, and other important information.
Are You Ready to Invest in Gold? Here Are the Best Ways to Get Started
What image comes to mind when you think of gold investments? Is it a pile shiny gold bars stacked neatly inside a safe? Or is it stunning gold jewelry accented with flawless gemstones?
Many assume that purchasing physical gold is their only investment option, but that’s not the case. Read on as we discuss the best options for investing in gold.
1. Gold Bullion
The term “gold bullion” refers to any form of physical gold that is pure or nearly pure and has certification regarding its purity and weight. Pure gold bullion must have a gold purity level between 99.5 and 99.9%. Most bullion is either gold coins, physical gold bars, or ingots.
Bars of gold usually weigh between a few grams to 400 troy ounces. When buying physical gold as bullion, it’s important to familiarize yourself with the price of gold and the trends of the gold market. As gold bullions are often quite expensive, many beginning investors start their portfolios with gold coins instead. Also, owning physical gold (like bullion coins) means you’ll need to purchase insurance and find a safe place for storage.
- Tangible asset with inherent value
- Can take direct ownership
- Excellent way to improve portfolio diversification
- Expensive initial investment
- Low liquidity
- No upside potential beyond changes in gold prices
How to Buy Bullion (Gold Coins and Bars)
What are the best ways to fund your investment portfolio with bullion like gold coins or bars? First, you can purchase gold (pure bullion with a gold content of at least 99.5%) directly from gold companies. For example, at Oxford Gold Group, our personal finance experts spend every day helping people build a brighter financial future by investing in precious metals and gold IRAs.
Another option is purchasing gold coins, bars, or even gold jewelry from private dealers and collectors. Before buying gold bullion, consider which investment strategies will work best for you:
- Investing in physical gold for direct ownership
- Funding a precious metal IRA (Individual Retirement Account) with gold
Only IRS-approved investments are suitable for funding a precious metal IRA. For example, you can’t use gold jewelry to fund a gold IRA. Below we included a list of IRS-approved products for gold IRAs:
- Gold bars or bullion
- Gold mutual funds
- Gold stocks
- Gold Exchange-Traded funds
- Gold futures
Both direct purchases and gold IRAs require investors to find a suitable storage place for their gold. Unfortunately, the IRS doesn’t allow investors to store IRA gold at home. Instead, you’ll have to choose a third-party depository like Brink’s.
However, variables like the size, weight, and how much gold you need to store will affect your overall fees for storage and maintenance.
Where to Buy Physical Gold Bullion
Before you start investing, spend a few hours researching and comparing individual gold companies until you find one that will best meet your needs. At Oxford Gold Group, we make it easy and straightforward for you to invest in gold. Whether you want to buy a single pure gold bar, you’re considering a larger gold investment for your IRA, or you’re interested in gold coins, we’ll help you navigate the process for a smooth, stress-free experience.
2. Gold ETFs and Mutual Funds
Gold ETFs (Exchange-Traded Funds) and gold mutual funds are popular alternatives for gold investors who don’t want to directly purchase bullion. Remember, bullion has low liquidity and can be difficult to sell. However, gold ETFs and mutual funds offer higher liquidity and the benefit of long-term stability without the hassle or expense of direct ownership.
A gold ETF lets you invest in physical gold or shares from gold mining companies. On the other hand, gold-oriented mutual funds track the movements of the gold market, and you can purchase or sell shares (similar to the stock market) in any IRA or brokerage account.
However, gold funds have a catch: the ETF expense ratio determines how much of your annual investment you’ll lose in fees. Fortunately, most expense ratios are below 1%, typically around 0.57%. However, only some mutual funds deal exclusively with gold investments; most usually have several additional commodities.
- Strong upside potential
- Higher liquidity than physical gold
- Minimum investments and costs are low
- May underperform the price of gold
- Subject to management and expense ratio fees
- Selling units subjects you to the capital gains tax
How & Where to Buy Gold ETFs and Gold Mutual Funds
Despite the risk of ETFs and mutual funds underperforming the price of gold, they’re a popular choice for beginner investors as they’re easy to buy and relatively low-risk. Two well-known ETFs are the SPDR Gold Shares ETF (GLD) and the VanEck Vectors Gold Miners ETF (GDX).
The former holds deposit receipts and physical gold while tracking the price of gold bullion. The latter offers passive management and tracks refining companies and gold mining stocks.
You can buy and sell gold ETFs on the stock exchange using a direct or indirect method of investing:
- Direct: A stock broker opens a demat account for you and purchases units directly on the stock exchange.
- Indirect: Invest in gold funds that hold indirect investments in gold ETFs (known as funds of funds).
3. Gold Mining Stocks
Another way to invest in gold is by purchasing gold stock from a gold mining company. While it’s not a direct gold investment, it has excellent upside potential. When gold mining companies invest capital in their future production potential, they can often outperform the price of gold. For example, gold mining companies may expand by opening new gold mines or expanding their existing mines.
Investing in gold stocks is typically less risky than purchasing bullion. Plus, gold stocks can also provide more income in the form of dividends. As buying and selling gold stocks is easy, they’re a highly liquid asset.
Rising gold prices benefit both investors and gold miners, but the price of gold isn’t the only factor influencing upside potential. The overall success of gold mining, trading, and refining companies also increases risk, depending on variables like profitability, expenses, mismanagement, etc. Therefore, it’s crucial to spend time and effort researching companies before you invest.
Streaming and royalty companies offer additional options for a gold investment strategy. They provide gold miners with funds and operating capital. In return, the streaming companies gain the cost benefits of a fixed gold price for direct purchases, and royalty companies get a chunk of the mining company’s revenue.
- Lower risk than direct investments
- Can provide income from dividends
- Production growth provides an upside to the price of gold
- Provides less diversification than physical gold
- Subject to market volatility
- Stocks are paper assets with no real value
How & Where to Buy Stocks from Gold Mining Companies
Gold mining stocks can come from major or junior companies. Major companies are well-established and well-funded and most have mining operations in many different countries.
Conversely, junior companies are relatively new to the mining industry, with minimal operating capital but lots of enthusiasm and hope. Of course, some junior companies fail, others provide decent returns, and in rare cases, they can provide enormous returns in short time periods.
You can purchase shares from individual mining companies on the stock exchange or invest in ETFs that hold mining stocks.
4. Gold Futures Contracts
Investing is risky; that’s just the nature of the game. However, of all the different ways to invest in gold, trading gold futures or options contracts have the highest risk.
So, what are gold futures? Basically, they’re a standardized contract.
The buyer agrees to purchase a specific amount of gold at a future date for a preset price. It’s just like a regular sale; however, instead of the buyer paying and receiving the gold immediately, that occurs later. On the other hand, a gold options contract allows investors to buy or sell should the price of gold reach a certain amount on or before a specific date.
However, most futures contracts never end up with the buyer receiving a physical delivery of the gold. Instead, the seller gains a profit if the gold price declines and suffers a loss if the price increases.
Ultimately, one word perfectly describes the best advantage of trading futures contracts: leverage. You can hold a large amount of gold futures while only investing a small amount of money, but it goes both ways.
If the futures move in your favor, you’ll make a tidy profit. If not, you’ll have to put up cash to maintain the margin or take the loss.
- No hassle or expense from direct ownership
- Least expensive method of buying and selling large gold investments
- Allows buyers to trade much larger amounts of gold in a short timeframe
- High-risk investment (not suitable for beginners)
- Losses can multiply exponentially
- Many investors lose more than their initial investment
How & Where to Buy a Gold Futures Contract
Gold futures may not be a good investment for beginners or people with limited capital. You can trade futures on the New York Mercantile Exchange (NYMEX) in the COMEX division, 23 hours per day and six days per week. The standardized futures contract is 100 troy ounces of gold, although there are smaller contracts of 10 and 50 troy ounces.
To start, you’ll need a broker for futures trading, and you’ll have to set up and fund an account. Remember, futures have excellent leverage, but there’s a substantial risk of losing more money than you originally invested if the market moves against you. But don’t forget – big risks can provide big rewards.
Why Do Investors Want to Buy Gold?
- Gold assets can have very high liquidity.
- Gold makes an excellent hedge against inflation.
- Gold prices have risen fairly consistently throughout history.
- Gold is a physical asset with inherent value.
- Gold tends to increase in value when paper assets decrease.
- Gold investments are an effective way to diversify a portfolio.
- Buying and selling gold jewelry, coins, and bars can be exciting and fulfilling.
- Gold has a proven track record of good returns.
Invest in Gold Today with Oxford Gold Group
To sum up, some of the best ways to invest in gold include purchasing gold bullion, trading in gold stocks, ETFs, or mutual funds, opening a gold IRA, and buying gold futures. If you’re new to the world of gold investing, let the experts at Oxford Gold Group guide the way.