The Best Ways to Make Gold Investments

When you decide you want to make investments of any kind, you need to understand having a balance between risky investments and more stable investments if you are looking to have a balanced portfolio.  With the uncertainty of the global economy, not to mention a pandemic, it’s becoming more difficult than ever to find an investment strategy that seems sound.  In times like this, investors should turn their strategy to gold and precious metals, and today we’ll cover how to invest in in gold for beginners.

Many investors don’t know how to invest in gold, and that’s unfortunate because it’s a solid hedge against economic conditions as gold has a perceived store value and can be a solid asset in any portfolio.  We encourage you to read this entry in it’s entirety and learn the best ways to invest in gold so you can start doing so at your leisure.

Why Is Gold Valuable?

A large reason why gold has value is because historically it’s been attached to the value of the world’s currency.  Hundreds of years ago, gold coins and jewelry were used in commerce as trade value and as the world moved to paper currency, they were designed with a use case to be tied to an amount of gold.  However, this no longer is the case and gold has it’s uses in the world and therefore has kept it’s value as a commodity.

bullion

The demand for gold on a global scale comes mostly from jewelry.  In fact, closely 50% of the world’s demand is in that sector alone, followed by another 40% that is tied to investments in physical gold, like bars, and coins.  There are even rare coins, such as the gold quarter, that is popular with coin collectors.  Gold is purchased by institutional investors as well as the average Joe investor, and it’s even traded in ETF’s (exchange traded funds) that purchase it for investors.  The remaining gold market is largely from industrial use, such as tech and medical.

Should You Invest in Gold?

We started Cayman Financial Review to educate investors about the importance of asset diversification.  Investing in gold can help you diversify your portfolio as the price of gold often strays towards the opposite of a more typical investment like a bond, mutual fund, or stock.  As these assets go south, gold generally goes north.  Many savvy investors allocate 5-20% of their portfolio to gold as they deem it a safer investment, and if you speak with any of the best gold investment companies, they will normally advise you to do the same with your retirement savings.  In fact, gold reached it’s highest price in 7 years in 2021.

The downside to gold investing is that it doesn’t kick off any cash flow the way a property investment or even a stock might do.  However, gold is traded often, and therefore gold is a liquid asset, so if you ever need to sell your gold, you don’t have any shortage of options.  When compared to other alternative investments like real estate and art, you can rest assured gold is a much more liquid asset.

Dating back through time and as the economy continues to revolutionize the world, there are few investments that have compared to gold. This precious metal’s popularity has stood up against wars, inflation, economic currency troubles, and yet has managed to gain attraction away from the mainstream challenges. When one thinks about investing in gold it’s important not to limit the options to purchasing physical gold — as in coins or bullion — but rather to invest in gold that includes buying shares in gold mining companies & stocks or gold ETFs & mutual funds, or gold futures contracts. These alternatives of gold investing can increase in value over time and maintain a level of one’s sanity whenever the economy takes a tumble.

Ways You Can Invest in Gold

For those interested in investing in physical gold, the first thought is estimating the value and whether an investor can overcome the challenges from their regular traditional online trading of stocks and bonds. Investing in physical gold requires working with dealers outside of regular brokerage houses, and more often than not, needing to pay for the gold storage and secure insurance for this type of investment. There are three main options to investing in physical gold — bullion, coins, and jewelry.

Gold Bullion

Thinking about investing in gold bullion always conjures up big shiny gold bars that are locked away in a vault for safe keeping. The most common type of gold bullion available are between one and 10-ounce bars, however, they can range from a few grams to 400 ounces, depending on what the current gold price is and the attraction to when it’s valued at over $1,000. Due to bullion’s high prices, it’s imperative to elicit a reputable dealer who will recommend insurance and a suitable storage place such as a vault of a safety deposit box. Staying up to date on the price of gold is also a good idea as a bullion investor, mainly because choosing the right time to buy and with which dealer will help an interested person base their decision on the current spot prices.

Gold Bar

Gold Coins as an Investment

Gold coins typically weigh one or two ounces, and the collectible coins from South Africa or Canada, or even American Gold Eagles are the more widely available types that dealers will sell to an investor. Oftentimes, a dealer might even sell damaged or worn out coins, as they’re aware the value continues to increase over time. The gold coin price might not always align with the actual gold content, as those in-demand coins tend to be traded at a premium price. Pawn shops and local gold collectors might be able to provide better deals on gold coins, especially if they are a licensed and reputable dealer.

Is Gold Jewelry a Solid Investment

Wearing gold jewelry isn’t for the faint of heart, however investing in this type of bauble does come with some risks. Secondhand jewelry purchases must be authentic to maintain its value, therefore seek out a reputable dealer. Also, buying gold investment jewelry requires some sort of documentation so the purchaser can have an idea of resale value as well as the gold’s level of authenticity.

Purity of gold jewelry is essential and determining what percentage of gold is included in the piece is imperative, as the estimate is calculated based on carats — 24-carat gold being the ultimate and 100% genuine type. If the piece of gold jewelry were to be melted, it needs to be pure gold.

Purchasing Gold Stocks and Gold Mining Companies

Gold mining companies & stocks investing is a more straightforward plan than purchasing gold in its physical form. Using an already established brokerage account means that buying gold stocks & mining companies are easier to attain and allows investors to ensure the purchase is legal and through a certified broker. The more popular gold mining companies & stocks include:

  • Newport Corp. – the world’s largest gold mining company
  • Barrick Gold Corp. – operates in 13 countries worldwide
  • Franco-Nevada Corp. – instead of owning gold mines, this company buys the rights to royalties from other gold miners

Remember though, the shares of these companies correspond to the latest gold prices, however, they are also focused on basics related to each company’s current profitability and expenses. Risks are involved with investing in individual gold companies, same as any other stock in someone’s portfolio.

Investing in Gold ETFs & Mutual Funds

Gold ETFs and mutual funds provide an investor with exposure to this precious metal’s long-term stability while offering more liquidity than physical gold and more diversification than individual gold stocks. With a wide range of various types of gold funds, check to see that industry trends are up to speed using futures or options. Index funds might be passively managed through your brokerage firm, so track the physical and gold receipts through the SPDR Gold Shares ETF. Another example to explore is VanEck Vectors Gold Miners ETF who also passively manage funds that track an underlying wealth of stocks of gold mining and refining companies.

Mutual gold funds such as Franklin Templeton’s Gold and Precious Metals Fund are solely managed by professional investors and considered very active, as these funds’ mission is to win out over the returns of passively managed index funds. In doing so, Franklin Templeton’s Gold and Precious Metals Fund come at a relatively high expense ratio compared to other mutual funds. One thing to note, these aren’t actual purchases of gold, but rather a paper investment that is probably backed by the debt or equity of gold mining companies or gold futures contracts in exchange for physical gold bullion. In simple terms, the gold mutual funds and ETFs might not align with the actual price of physical gold.

Gold Futures Contracts and Options to Invest in Gold

There are numerous ways to invest in gold, however the riskiest of them all is trading futures or options contracts, which means a form of speculative investing. The value of futures and options is based entirely on the price of an underlying asset. Investing in a futures contract is an agreement to buy or sell a security for a set price on a certain date, regardless of the current gold market conditions. An options contract, on the other hand, is an agreement that gives the investor the option to buy or sell a security if it reaches a certain price on or before a certain date.

To invest in futures or options, an individual needs an account at an online brokerage firm that provides these pathways for success. There are some online brokerages that allow for trading in these securities, however, they may require account holders to sign additional documentation that acknowledges the risk of investing in these spinoffs. But once holding an established brokerage account to trade options or futures, investors can buy and sell them directly through the platform who do charge a commission for all options and futures trades that varies based on the number of contracts bought or sold.

If investors choose to put their money in gold through options or futures contracts definitely need to monitor their holdings so they can sell, roll over, or exercise their choices before they expire sans worth. Also, each of these options includes a certain degree of leverage or debt, so investors who overuse them and experience any market losses will see their losses add up rapidly.

Final Word on Gold Investing

There’s no shortage of economic calamities or impending inflation in today’s market, so anyone worried about these cyclic events might want to invest in gold as it offers a truly safe haven. But remember, in the shorter term gold can be extremely volatile, as much as stocks over a long period of time. However, for peace of mind, it’s no surprise that gold continues to hold its value remarkably well. Check in with the brokerage firm to ensure what is happening moment-by-moment is an accurate account of the value of gold over the long haul. Streaming & royalty companies do really well when planning for a long road with gold, something to make note of and let it be.

Considering preferences and a knack for risk, choosing to invest in physical gold bullion, gold coins, gold jewelry, gold ETFs & mutual funds, gold futures contracts, or gold mining companies & stocks, it’s recommended by financial advisors that allocating more than 10% of an individual’s stock portfolio be dedicated towards gold investing. There will always be risks, just with any investments on the stock market, however, the long-term economic gold market takes patience and understanding to learn how it can be either volatile or easygoing, depending on market trends.

If investors are searching for a safer choice in the gold market, ETFs and mutual funds will surely add some of gold’s stability and sparkle to their portfolios.

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