Are you ready to dip your toe into the world of investing? You have an incredible array of choices, with companies going public daily. However, newer stocks can be volatile and hard to predict.
Gold, on the other hand, is an investment that will always have a physical value. Learn how to invest in gold—and you can reap a high rate of return, especially in long-term investments over decades.
What does investing in gold mean?
Like many other assets you might choose for investment, gold is a commodity. However, people tend to put their faith in gold more readily than in other assets, since gold is one of the world’s oldest commodities.
You can invest in gold in several different ways. Choices exist among physical, virtual, and adjacent gold investments. Be sure to learn the differences between these types of investments (and their potential risks and returns) before you jump into purchasing gold in any form.
The value of gold may change rapidly and frequently. These shifts make gold-based investments a poor choice for people who are anxious about day-to-day performance. So you should only invest in gold if you can handle a bumpy ride that promises risky moments but pledges a substantial potential payoff at the end of the road.
Why should you invest in gold?
Gold can feel like a volatile investment, but don’t let that discourage you. Historically, gold consistently goes up in value—and when other investments fall, gold can see gains. Your gold investment can carry you through periods when your traditional stocks may be faltering.
Gold investments let you choose how hands-on you want to be and then adjust your risk level accordingly. If you like physical assets, you can buy gold bullion or gold jewelry outright. If you prefer diversifying your portfolio, look into gold funds, or acquire shares of mining companies.
How to buy gold
Are you ready to buy gold now? Some people prefer to invest heavily in gold to profit in their distant future, while others want to buy into gold as a short-term investment and then sell off quickly.
Stalking pawn shops and estate sales is a superb way to find physical gold. Gold coins and gold jewelry often turn up at such places, and you can snag them for pennies on the dollar. Don’t forget to store your stash of gold in a safe place, though.
You can also shop for gold, virtually, without ever leaving your home (more on this below). If you already have a hefty investment portfolio, you may now want to consider diversifying and adding gold investments.
How to buy gold stock
The best way to prepare yourself to buy a gold stock is to study the different types of available gold investments. You can:
- Buy physical gold bullion in the form of bars or coins.
- Buy gold mutual funds or exchange-traded funds (ETFs).
- Trade gold options or futures contracts.
- Purchase gold certificates backed by a government mint.
- Acquire solid gold jewelry as an investment.
You can also find ways to invest in stocks that revolve around the gold industry, such as stock in gold mining, refining, and production.
If you choose to buy gold stocks, remember that gold can be a volatile market. Most investors allocate funds to both gold and traditional stocks to hedge their investments. By investing in only one type of stock, you can make yourself vulnerable to swings in the market.
Buying a gold stock is easy, too. For instance, if you use Robinhood, they have a collection of almost 100 different gold stocks to choose from. Simply open up your Robinhood app, type in the ticker symbol of the stock you want to buy, click buy (and say how many shares you want), and you’re done. The hardest part is picking which gold stock you like best.Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and MoneyUnder30, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. MoneyUnder30 is not a member of FINRA or SIPC.”
You should make gold a component of your portfolio without sinking all of your investment dollars into gold stocks. Gold acts to protect you against inflation but usually does not provide a fast return on investment.
You will want to get into gold stocks as soon as possible so your investment can mature over decades and help provide a safety net for your retirement. Gold prices can be volatile, but decades of continually rising gold values demonstrate that you can make steady gains over the long term. Many financial experts say gold is the ideal way to diversify your portfolio for stability.
How to buy gold bullion
Are you wondering how and where to buy gold bullion? The best option is to go through a reputable gold dealer or a gold seller connected to a government mint to ensure that you receive real gold bullion. Gold bullion is available by the ounce (or fraction of an ounce) or by the gram (or multiple grams).
Buy physical gold bullion if you want raw gold that you can hold in your hand. Buying bullion gives you direct exposure to gold, but you need to store it somewhere safe in case of an emergency. Remember that gold bullion bars are a long-term investment.
You can buy gold bullion locally or online (just search for “buy gold bullion near me”). Make sure to only buy pure gold (at least 99.5% pure gold) bars, too. You can look at sites such as JM Bullion or APMEX. You’ll also want to ensure that it’s minted by a popular gold minter such as Valcambi or Royal Canadian Mint.
Decide what currency you want to exchange for gold bullion. Almost any major currency, and even cryptocurrency, is tradable for gold. However, keep an eye on exchange rates to ensure your gold seller isn’t taking undue advantage.
Using a reputable dealer, you may not need a third party to appraise the gold. However, if you buy gold from an unknown source, check for a 99.99% stamp mark indicating its purity and obtain an appraisal, to be sure. You don’t want to end up with fake gold bullion.
Protect your investment by asking the seller about their buyback policy. A buyback policy prevents the dealer from charging you a second premium if you sell the gold back to them. Demand that your gold seller includes a buyback clause in your purchase paperwork.
How to buy gold coins
You will come across two primary types of gold coins: sovereign coins and numismatic coins. A government mint typically backs sovereign coins with a face value, but their value as raw gold may be higher than their face value.
Numismatic coins, on the other hand, are usually more valuable as collector’s items. Avoid numismatic coins unless you want to be a collector. Collecting rare coins isn’t an easily liquidated investment since your coins won’t be easy to sell.
For those who want to invest in sovereign gold coins, the best place to find authentic coins is from a government mint authorized dealer, who should have several different choices of sovereign gold coins. The most popular gold coins available include:
- American Gold Eagle and Buffalo. The U.S. government backs the American Gold Eagle (one-ounce, .9167 purity, 22-karat) and the American Gold Buffalo (one-ounce, .9999 purity). Each coin has a face value of $50. Half, quarter, and tenth-ounce denominations are available.
- Canadian Maple Leaf. The Canadian Commonwealth backs the Canadian Maple Leaf (one-ounce, .9999 purity), which has a face value of CAD 50. Half, quarter, tenth, and twentieth-ounce denominations are available.
- Austrian Philharmonic. The Republic of Austria backs the Austrian Philharmonic (one-ounce, .9999 purity). This coin has a face value of 100 EUR. You can also buy half, quarter, tenth and twentieth-fifth-ounce denominations.
- Australian Kangaroo. The Australian government backs the Australian Kangaroo (one-ounce, .9999 purity), which has a face value of AUD 100. You can also buy half, quarter, and tenth-ounce denominations.
- South African Krugerrand. The government of South Africa backs the Krugerrand (one-ounce, .9167 purity, 22-karat), which has no face value but is the oldest circulating modern bullion. It’s available in half, quarter, and tenth-ounce denominations.
Like bars, you can buy coins locally or online. If you shop online, WholesaleCoinsDirect is a reputable site to check out.
How to buy gold ETFs and mutual funds
Gold exchange-traded funds (ETFs) are commodity funds. Gold ETFs were first launched in Australia in 2003, followed by the first U.S.-based ETF in 2004. These funds trade like stocks and represent assets backed by gold, although those who invest do not own any physical gold. Instead, they are investing in small quantities of gold-related assets, creating more diversity in their portfolios.
Investors who do not have a substantial nest egg often choose a gold ETF, since it is a smaller investment than gold bullion or gold coins. Buying gold as an ETF also helps you avoid needing to store the physical commodity.
To buy a gold ETF, simply type in the ticker symbol of the one you want and buy it like a normal stock. For instance, if you’re using Robinhood and want to buy SPDR Gold Shares (GLD), just search for “GLD” you’ll be brought to the SPDR Gold Shares information page.Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and MoneyUnder30, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. MoneyUnder30 is not a member of FINRA or SIPC.”
Choosing an ETF, with its many different assets, reduces the risk you incur when you invest in a specific company. Gold ETFs expose you to a diverse set of holdings across a broad spectrum. You can buy more shares over time to increase the amount of your investment.
A primary reason to invest in a gold ETF is the low minimum commitment. You can buy gold without having a large sum to invest, and the broad exposure will be able to minimize your risk. If you’re looking for a way to ease into the gold market, gold ETFs could be an excellent choice.
Investing in a gold mutual fund is another smart way to protect yourself against inflation and provide a hedge against economic shock. If you already have an existing portfolio, you can diversify between 10% and 20% into gold savings funds to take advantage of ETF stocks that directly depend on the price of physical gold. You can also invest in other gold-related funds like gold mining stocks to further diversify your holdings.
How to buy gold futures and options
If you worry about risking a lot of capital, consider investing in gold futures or options on a gold ETF. Options are what they sound like: an option to buy or sell gold at a specific price during a particular window. You don’t have an obligation to buy or sell, and you aren’t paying for individual units; instead, you’re paying a premium for the option.
Options can be a low-risk way to play the stock market (though there are significant risks if you don’t know what you’re doing). You can take advantage of your option if you believe that the selling price of gold is moving up or down. If the price of gold moves in the opposite direction, you’ve contained your liability. The maximum risk is the premium that you paid for your options contract.
I’m oversimplifying the process of buying options intentionally for the sake of the article since that’s not the focus, but know that buying options is more for advanced investors.
Gold futures allow you to lock in your gain or mitigate your loss at any time. If you’re buying gold futures based on physical gold, you don’t take delivery until the contract has ended, eliminating storage needs in the interim. You can choose to roll your investments into other vehicles and avoid ever having to store physical gold.
E*TRADE offers futures contracts for a reasonable price. Gold futures, for instance, can only be traded during certain months of the year and during certain times during the day.
You can take either a short or a long position on your futures contracts, depending on your investment strategy. If you plan to sell the commodity and cover it later at a lower price, that’s called a short position. If you buy gold expecting that the price will rise, and you accept delivery of the gold, you assume the long position.
Choose futures contracts if you want more flexibility, financial integrity, and leverage than you can get from trading physical commodities.
How to buy gold jewelry as an investment
Buy gold jewelry as an investment only after doing your research into the industry. If you go to a jeweler and buy a necklace, bracelet, or ring, you will almost certainly be overpaying for the actual value of the gold. Since retail jewelers add a considerable markup for gold jewelry, it could take decades before gold prices catch up.
Instead, look for gold jewelry from private sellers, preferably not at auction. The gold jewelry at auctions is usually pre-appraised and priced at or above the gold value. You should have better luck with small private sellers or lucky finds at garage sales or junk markets.
Gold jewelry’s value depends upon the purity of the gold. Pieces that are marked 99.99% pure, 24-karat, or 24K should be high purity with worth equal to that of raw gold bullion. The lower the karat number, the less pure the gold.
Investing in gold by buying gold jewelry can be labor-intensive. You may be able to find some valuable pieces if the owner doesn’t know their true worth or thinks they are costume jewelry.
How to buy gold certificates
A gold certificate proves ownership of gold on paper. In the United States, gold certificates were originally gold-backed. They were worth their face amount in U.S. currency until the abandonment of the gold standard in the early 1930s. If you find an old U.S. gold certificate, however, don’t get too excited, since they only have collectible value now. You won’t be able to run to the bank to redeem any gold.
You can still buy gold certificates from a bank that has physical gold. If you do, the bank will technically owe you the gold, but you won’t own it. Instead, you will have “unallocated” gold, since the certificate represents gold value but not specific gold bullion.
Unallocated gold does not require a high premium, so you can buy it and forget about it. However, since you don’t own the physical gold, the bank can divest itself without your input and then reimburse you.
If the bank goes under and liquidates, you could lose your unallocated gold. The bank would still own the gold, which means you could lose your entire investment. It’s up to you to decide if this is too risky a proposition.
Alternatively, you can buy gold certificates for allocated gold. That means you will own the physical gold, and the bank will be required to give you the serial number of each gold bar. However, a bank can also charge you exorbitant fees for storing your gold in its vault.
Allocated gold belongs to you, not the bank, so it can’t be seized or liquidated. If the bank fails, you can take possession of your allocated gold by proving ownership with your gold certificate. You may be able to store physical gold at a lower cost than paying a bank to hold your allocated gold tied to a gold certificate.
Is investing in gold a good idea?
An investment in gold is considered a smart move by many financial analysts and can give you a safety net in case of a significant global event. Gold can hold its value and even increase in value during downturns in the overall stock market. Buying gold as part of a diverse portfolio can help hedge you against economic instabilities.
You’re better off buying gold as a long-term investment since it dependably holds and grows its value over time. Short-term investing is more volatile—you can find your returns fluctuate wildly. Overall, investing in gold is a solid plan and can strengthen your financial position for the long term.
When might gold be a poor investment?
If you do invest in gold, consider the following pitfalls for certain types of gold investments:
- Investing in gold bullion or coins means you’ll need to store them.
- Unallocated gold certificates can vanish if a bank goes into liquidation.
- Buying gold jewelry as an investment can take time and a lot of trial and error.
- Investing in gold can be a poor choice if you lack the time or patience to see your investment mature. You may want to hold off on investing in gold if you need fast returns or lack the capital for a significant investment.
If any of these scenarios sound off to you, gold may not be your best investment option.
Where does the demand for gold come from?
Gold is a safe-haven investment, meaning it should hold its value if paper currencies become worthless. Around 40% of the demand for gold is investment-based and includes gold coins, gold bullion, gold bars, and gold medals. Another 50% of pure gold demand comes from the jewelry industry, which maintains demand for other precious metals and stones.
The remaining 10% of demand for gold comes from various industries. Dental work can require gold, although this demand is slowly fading with the introduction of tooth-colored composites. Gold is a good conductor of electricity, so some electronics also use gold in the manufacturing process.
How is the price of gold determined?
Gold, like any other commodity, is affected by supply and demand. When more people buy gold, the price goes up, and when investors sell gold, the price drops. Most commodities rise and fall in waves as more of a product enters the market, but gold can fall and rise in the opposite direction.
The reason gold may behave differently than other commodities is that precious metal inspires trust. When other commodities start to fail, people run out to buy gold because they believe it will stay high in value. This demand drives prices higher, automatically creating the desired effect and reinforcing trust in gold.
How well does gold hold its value during a downturn?
In a recession, commodities can fall sharply, causing stock markets to crash and inducing panic in investors. People turn to gold as a safe-haven investment because gold has historically held its value when everything else starts to fall. This “gold rush” boosts the price of gold and strengthens it, encouraging even more people to invest in physical gold or gold stocks.
Almost every recession in the United States has seen gold hold its value and even climb to new heights. That’s why people put their trust in gold over fiat currencies around the world. Most countries continue to measure currencies against gold as the ultimate standard.
Long-term returns are likely for gold investors, regardless of whether you choose to put your money into physical gold, gold stocks, or futures. However, like any investment, gold shouldn’t be the only thing in your portfolio. Diversification of your investments in both traditional commodities and gold is key to maintaining steady gains over time.