July 27, 2022

Best Way to Invest Gold

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Looking to invest in gold, but not sure how to go about it? Should you invest in paper or physical gold? Keep reading to learn more.

There are plenty of reasons you might want to invest in gold.

Gold has been valued for much of human history. It's one of our oldest and most widely used forms of currency.

Today, gold is primarily used as a hedge against inflation. Many believe it will hold value better than their local currency.

Others use it to protect their portfolio against ups and downs in the stock market.

Since the price of gold doesn't correlate with stocks, gold is considered a "safe haven asset." Meaning its price could be high when the economy is at a low point.

But how do you go about investing in gold?

Read on to learn everything you need to know.

What makes gold investment appealing to you?

Is Gold a Good Investment?

You have plenty of options to invest your money, so why gold? Before covering all the ways to invest in gold, let's consider why you might want to do it in the first place.

Gold has value for several reasons:

  1. It has a limited supply. This means the more people want or need it, the more demand will go up. And so will the price.

  2. It's useful. Gold has uses beyond just being pretty. While plenty of people buy gold as jewelry or other collectible items, gold can be used in electronics, has applications in space, and even in dentistry and medicine.

  3. It's a physical asset. Many people like gold because it is a physical asset, rather than a paper one—though you can invest in paper gold, as you'll learn below. If you want a currency that is sure to survive a technological disaster, gold may be it.

  4. It protects your portfolio from volatility. Gold can diversify your stock portfolio. As mentioned above, gold prices tend to move separately from the stock market. While there isn't an exact inverse relationship, there is a likelihood that when stocks are down, the gold price will surge.

All that said, it's important to keep in mind that no one can predict the future price of any asset. Plenty of people have invested in gold and lost money.

As with any investment, do your research beforehand, and never invest more money than you can afford to lose.

What type of gold investment interests you?

Do you have gold in your pocket right now? Some smartphones have circuits covered in small amounts of gold because it conducts electricity well.

The Best Ways to Invest in Gold

So what is the best option to invest in gold? The truth is, the answer to that question depends a lot on you and your investment goals.

If you're investing for the long term, you might consider the benefits of investing in physical gold through a gold IRA.

With a gold IRA, you can enjoy the tax advantages of a retirement account when you invest in coins, bars, bullion, or even jewelry.

So-called "paper gold," such as gold mutual funds and ETFs, provide greater liquidity because they're easier to buy and sell.

Which is best for you?

Let's look at them in detail so you can decide for yourself.

1. Physical Gold: Coins, Bars, and Bullion

First, let's cover the most obvious question: what is gold bullion?

Gold bullion is any gold that's pure, or approaching pure, that has been weighed, measured, and certified for purity.

Bullion can include coins, bars, and even the ingots you may picture when you think of gold in a bank.

Weird fact: Did you know the Aztec's called gold, "teocuitlatl." This roughly translates to the "poo of the gods."

When investing in these types of gold, you have plenty of options for reputable gold dealers like JM Bullion.

You can buy bars that vary by size and weight, the largest being 400 oz., sometimes known as a Good Delivery Bar.[1][2]

Coins come in dozens of varieties, from mints all over the world. Commonly traded coins include:

  • Gold American Eagles
  • Gold American Eagle Proofs
  • Gold Canadian Maple Leafs
  • South African Gold Krugerrands
  • Gold Australian Striped Marlins
  • Gold Austrian Philharmonics and plenty more

When buying gold coins to invest, you'll probably want to keep to more widely circulated coins. When you start trading in older or rarer coins, you will start paying for numismatic value—in other words, the value the coin holds as a collectible, beyond the simple price of the gold itself.

Dealers typically sell coins, bars, and bullion for between 1% and 5% above the value of the gold itself. Although in the 2020s, that number has sometimes risen as high as 10% due to demand.[3]

Here are a couple of things to keep in mind when investing in physical gold.

  • The larger the gold piece, the harder it is to sell. Large pieces of gold cost a lot of money. Therefore, these have lower liquidity. You'll likely have an easier time selling multiple coins than a single massive bar.

  • The storage and insurance cost may eat your profits.

You can minimize these challenges by working with one of the best gold IRA providers. It's their job to make the process of investing in gold a smooth experience.

Gold IRAs
If you're investing in physical gold for the long term, consider doing it through a physical gold IRA. There are plenty of reputable dealers out there who will walk you through opening an account and funding it.

What is the advantage of buying gold through a Gold or Precious Metals IRA? You save money on taxes.

The IRS taxes gold as a collectible. This means you'll pay a rate of 28% for capital gains.[4]

If you're investing in gold for retirement, doing it this way can save you thousands of dollars in the long run.

Gold Jewelry
You aren't required to keep your gold in a bank vault. Gold jewelry is one way of investing in gold that lets you enjoy your ownership a little more.

But gold jewelry can come with a hefty markup—up to 400%. That means as an investment, it may not be the best option. However, you may be able to find better deals by shopping around at gold dealers like Vaulted.

2. Paper Gold: Gold ETFs and Mutual Funds

Next, let's look at what's known as paper gold. Paper gold investments reflect the price of gold without providing you with ownership of physical gold.

Two of the most common ways to invest indirectly in gold this way are:

  1. Gold ETFs
  2. Gold Mutual Funds

You can also trade in Gold Futures and Options, but these should be left to experienced investors who understand what they're doing and know how to minimize risk.

Some of the best investment accounts let you invest in paper gold.

Investing in Gold ETFs and Mutual Funds has fewer associated costs than investing in physical gold. Therefore, they may prove to be better options for many investors.

Popular Gold ETFs and Mutual Funds include:

  • The SPDR Gold Shares ETF
  • VanEck Vectors Gold Miners ETF
  • Franklin Templeton's Gold and Precious Metals Fund and more

Typically the expense ratios for these range around 0.58%,[5] which is less than you'll usually pay for continued ownership of physical gold.

Make sure to carefully research any mutual fund or ETF before investing in it to make sure you understand what they're offering.

Mutual funds returned an average of 4.6% over the last 20 years. This is lower than the S&P 500 index returns.

3. Paper Gold: Gold Miner Stocks

Last, one way to get exposure to the gold market without buying gold itself is through investing in the stocks of gold mining companies.

These companies' value tends to reflect the market value of gold, but ownership doesn't require buying or storing coins, bars, or bullion.

Some relevant companies include:

  • Barrick Gold Corp. (GOLD)
  • Newmont Corp. (NEM)
  • Franco-Nevada Corp. (FNV)

Before investing in any gold miner stocks, look at the company yourself to know what you're investing in.

Bottom Line

As you can see, there are plenty of excellent ways to invest in gold.

If you don't mind dealing with a degree of illiquidity, physical gold in the form of coins, bars, and other bullion is a popular choice.

You can save money on taxes by investing in a gold IRA. The companies also have dedicated customer support teams to walk you through the process.

For easier access and likely a lower introductory price, consider investing in paper gold via Gold ETFs, Gold Mutual Funds, and the stocks of gold mining companies.

There's no guarantee that gold will be a good investment in the coming years, but if you're optimistic about the shiny yellow metal, you have plenty of options.

References

  1. ^ United States Gold Bureau. How Much Does a Gold Bar Weigh? Gold Bar Size and Weight, Retrieved 7/25/2022
  2. ^ World Gold Council. Gold Facts, Retrieved 7/25/2022
  3. ^ MarketWatch. Opinion: 'There Is No Gold': Bullion Dealers Sell Out Amid Panic Buying, Retrieved 7/25/2022
  4. ^ Internal Revenue Service. Topic No. 409 Capital Gains and Losses, Retrieved 7/25/2022
  5. ^ ETF.com. Gold ETF Overview, Retrieved 7/25/2022

Jeremy Harshman is a creative assistant at CreditDonkey, a personal finance comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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