Investing in gold can be a great way to diversify your portfolio and potentially hedge against inflation. Here’s what you need to know to get started.
Due to its scarcity, Gold is often seen as a safe haven investment during times of inflation and economic uncertainty.
Investing in commodities like gold is often a popular move for many investors.
Here’s what you need to know about how to invest in gold.
4 Ways to Invest in Gold:
- Gold Bullion
- Gold ETFs and Mutual Funds
- Gold Futures and Options
- Gold Mining Stocks
1. Gold Bullion
Buying gold bullion is the most tangible way to invest in gold. Many stock market skeptics buy gold bullion because it’s a physical asset you can hold.
PROS: Tangible asset, intrinsic value
CONs: Storage costs, security risks, no dividends
- Gold Bars and Coins: Purchase from reputable dealers. Ensure purity and authenticity
- Jewelry: Not the best investment due to high markup and less liquidity
2. Gold ETFs and Mutual Funds
Gold ETFs and Mutual Funds are probably the easiest way to directly invest in gold without the hassle of physical ownership.
You can invest in ETFs that track the price of physical gold, such as SPDR Gold Shares or securities of gold mining companies.
PROS: Easy to trade, lower costs than physical gold.
CONS: Management fees, not tangible.
- Gold ETFs: Track the price of gold. Examples include SPDR Gold Shares (GLD) and iShares Gold Trust (IAU).
- Gold Mutual Funds: Invest in gold mining companies. Examples include Fidelity Select Gold Portfolio (FSAGX).
3. Gold Futures and Options
Trading gold futures and options is an advanced method of taking a positional view of the price of gold.
Trading Gold futures and options should only be done by advanced traders. It is best for beginner investors to avoid trading gold futures and options.
PROS: High leverage(with futures), potential for significant gains
CONS: High risk, requires expertise
Most gold futures and options trading is done by companies who use gold in their manufacturing process and therefore trade options and futures to lock in their production costs.
4. Gold Mining Stocks
Gold mining stocks are another way to invest in gold. However, they don’t necessarily directly correlate to the price of spot gold and can be influenced by other economic factors like expectation reports and changes in laws in which the country is located, production costs, and U.S. macroeconomic factors (like inflation) can dramatically impact the price of gold mining stocks.
2 Categories of Gold Mining Stocks: Junior and Major
Junior mines are newer mines without often unproven mining claims. Meanwhile, major mines are established mines with production and infrastructure in place. Both types of gold mining stocks can be publicly traded, and you can use a stock screener like Finviz to help you identify potential investment opportunities.
Explore whether investing in popular gold mining companies like Barrick Gold Corporation (GOLD) or Newmont Corporation (NEM) is right for you.
Popular Gold Mining Stocks
- Newmont (NEM)
- Barrick Gold (GOLD)
- Franco-Nevada (FNV)
- Kinross Gold (KGC)
- Alamos Gold (AGI)
PROS: Potential for higher returns, dividends.
CONS: Higher risk, company-specific factors.
Tips for Researching Gold
Like stock research, understanding what catalysts may drive the price of gold up or down involves thorough research.
Some factors to consider when researching gold include:
- U.S. macroeconomic factors (inflation, decline in value of the dollar)
- Production Costs
- Changes in laws in the country where the mine is located
Bottom Line
Investing in gold can be a valuable addition to a diversified portfolio, offering a hedge against inflation and economic uncertainty. However, it’s essential to balance gold with other assets due to its volatility and limited income potential.
