If you’re new to gold investing, knowing where to start and how to make the best decisions to reach your financial goals can be challenging. Investors buy gold primarily as a hedge against inflation and a way to diversify their portfolios. You can invest in gold in many ways, including the following:
- Gold IRA investing
- Gold bullion and coins
- Gold exchange-traded funds (ETFs)
- Gold mutual funds
- Gold mining companies
- Gold futures
Out of these options, what’s the best way to invest in gold? Depending on the method you choose, you’ll either purchase gold directly or invest in stocks that have indirect ties to the value of gold.
In this article, we’ll highlight the most popular methods for investing in gold, including the risks, advantages, and drawbacks of each. We’ll also provide examples of companies offering each type of investment to help you start your gold investing journey.
Using Your IRA
One way to invest in gold is to use your retirement funds to purchase a certain amount of physical gold, which an IRS-approved depository will hold for you until it is ready for liquidation.
To buy gold with an IRA, you need to open a self-directed account, either a traditional or Roth IRA, that allows you to purchase precious metals. You must also find a custodian, such as a bank, credit union, or brokerage firm, to manage your gold.
Risk Level
The risk level of a gold IRA is similar to that of gold itself, with an unpredictable value that fluctuates. Unlike stocks, however, gold’s value doesn’t have the potential to drop to zero. Also, gold’s price tends to go up when paper assets go down, helping you keep your investment portfolio balanced.
Advantages
Investing in gold with an IRA gives you the typical benefits of a precious metal investment. Foremost among those benefits is the ability to hedge against inflation. It can also be safer than stocks or bonds because the value of gold can’t drop to zero.
Additionally, you get the tax benefits of using an IRA, either paying taxes on your contributions up front or deferring them until you start getting distributions after you retire.
Drawbacks
Compared to regular IRAs, gold IRAs typically incur more fees, including the following:
- Brokerage fees
- Storage fees
- Account setup fees
- Insurance
Also, when you reach retirement and start taking distributions from your IRA, you might need to sell your gold for a lower price because of the potential challenge of finding a willing buyer.
Companies That Offer These
The following are some of the best gold IRAs to trust with your investment:
- American Bullion
- Silver Gold Bull
- JM Bullion
- American Precious Metals Exchange
- American Hartford Gold
- Birch Gold Group
Investing in Gold Bullion and Coins
When you think about purchasing physical gold, you probably imagine stacks of shiny, heavy gold bars. Those valuable gold bars are known as gold bullion and come with a certification of weight and purity.
Physical gold can also come in the form of gold coins, such as American Gold Eagles and Canadian Maple Leafs.
Risk Level
The price of gold bullion rises and falls with the value of gold, meaning it typically goes up in times of economic instability and down when the economy is doing well.
Physical gold, especially large gold bars, has low liquidity, meaning you can’t quickly sell off your gold assets and might end up selling them for less than you want.
Advantages
Even if all your paper assets suddenly lose all value, gold will always have some value as a currency. Therefore, buying physical gold can be a way to secure your assets in times of economic uncertainty.
Drawbacks
When you invest in physical gold, you’re responsible for storing it somewhere safe, whether in your house, a safe deposit box, or a secure storage facility. This requirement, along with insurance, can make it quite costly to hold on to gold bullion.
Physical gold is harder to sell than stocks, and it won’t provide a passive income in the long term like holding on to a company’s shares would.
Companies That Offer These
The following are top-rated companies that sell gold bullion:
- American Precious Metals Exchange
- JM Bullion
- Gold Eagle Coins
- SD Bullion
- Orion Metal Exchange
Gold ETFs
You could invest in a gold ETF if you don’t want to worry about buying and handling physical gold. Gold ETFs give you access to a bigger slice of the gold market and operate similarly to mutual funds, where an investment advisor manages the fund for all its shareholders.
You can buy and sell gold ETFs the same way you would standard stocks because each share represents a fixed amount of gold, such as one gram.
Risk Level
Since investing in a gold ETF doesn’t involve owning the gold itself, the value may differ from the price of gold. However, the value of gold ETFs primarily rises and falls with gold and can be just as volatile as owning the real thing.
Advantages
Investing in gold ETFs is cheaper and easier than purchasing physical gold because ETFs have low expense ratios. You won’t have to pay additional fees or worry about where to securely store your gold assets.
Since gold ETFs work like stocks, they’re also much more liquid, making them easier to sell should the need arise.
Drawbacks
Finding ETFs that only invest in gold can be difficult because most funds also deal with other commodities. For that same reason, however, going the route of ETFs is great for portfolio diversification.
Companies That Offer These
The following are a few of the top-performing gold ETFs available on the stock market:
- SPDR Gold Shares ETF (GLD)
- VanEck Vectors Gold Miners ETF (GDX)
- iShares Gold Trust (IAU)
- Goldman Sachs Physical Gold ETF (AAAU)
- GraniteShares Gold Trust (BAR)
Gold Mutual Funds
Investing in gold mutual funds is another way to get the benefits of gold investment without the hassle of buying and owning gold bars or coins. Like gold ETFs, gold mutual funds invest in various securities related to gold, including futures, gold mining, and bullion.
Risk Level
While still dependent on the price of gold, the value of a gold mutual fund is a little different from other types of gold assets as it hinges on the performance of the fund and the securities it holds.
The price of a gold mutual fund’s shares comes from the total value of the fund’s securities and the number of outstanding shares. Since gold prices often fluctuate, the value of gold mutual funds can be similarly volatile.
Advantages
Investing in gold mutual funds isn’t as expensive as buying, storing, and insuring physical gold, and it’s a relatively easy way to invest in the precious metal. Gold mutual funds have higher liquidity than gold ETFs because you can sell back to the fund at any time instead of finding a buyer.
Since gold mutual funds manage shares in a wide range of gold-related areas, such as gold mining companies or bullion, they’re also an excellent choice for diversification.
Drawbacks
Unlike gold ETFs, gold mutual funds aren’t available on the stock market, and you can’t buy or sell them throughout the day. Also, gold mutual funds are actively managed securities, meaning they will include management fees, and the expense ratio is higher than that of gold ETFs.
Companies That Offer These
Most gold mutual funds also invest in other precious metals, such as silver, platinum, and palladium. A few of the gold mutual funds with the best performance include the following:
- Fidelity Select Gold Portfolio Fund
- Gabelli Gold Fund
- Allspring Precious Metals Fund
- Invesco Gold and Special Minerals Fund
- VanEck International Investors Gold Fund
Mining Companies
One of the best ways to invest in gold is through companies that have significant stakes in the price of gold, such as gold mining companies. You can buy gold mining stocks through a regular brokerage account, meaning you get the advantages of high liquidity and clear-cut pricing.
Risk Level
Purchasing stocks of gold mining companies is a lower-risk option for gold investment because the value of the shares revolves around the performance of the business, not just the price of the metal. Even if the value of gold goes down, gold mining companies have ways of hedging against falling prices.
Advantages
One of the downsides of owning physical gold is that you don’t get much long-term gain from the investment, so owning the stocks of gold mining companies can be better if extended growth is your goal.
The value of gold mining stocks goes up when the price of gold increases, and the company you invest in could get you higher returns by performing well.
Drawbacks
One of the drawbacks of investing in gold mining companies is the need to research each company, which can be very time consuming. When you invest in gold ETFs or mutual funds, you can depend on the fund manager to take care of the due diligence of researching the best companies.
Companies That Offer These
The following are some of the top gold mining companies you can invest in:
- Barrick Gold (GOLD)
- Newmont Mining (NEM)
- Franco-Nevada (FNV)
- Centerra Gold (CGAU)
- Equinox Gold (EQX)
Jewelry
According to the World Gold Council, 49% of mined gold becomes jewelry. As the most popular use for the metal, gold jewelry is easy to find and buy, whether you’re investing or accessorizing.
The value of gold jewelry depends on its purity, or karats, with 24 karats being pure gold. Generally, any gold jewelry that’s 14 karats or higher can be an investment.
Risk Level
Buying gold jewelry is quite a bit riskier than any other gold investing method. You must ensure you buy from reliable jewelry dealers so you don’t inadvertently buy fake or misleading gold products.
Getting proper documentation along with your gold jewelry purchase is crucial, which will hold a lot of weight with future buyers.
Advantages
It’s possible to find incredible deals on gold jewelry at auctions, estate sales, and other non-retail sources. While the process might take up much of your time, you could profit significantly from selling the pieces you find.
Drawbacks
There’s typically a markup involved with buying gold jewelry based on the company that designed and produced the piece. These markups can be far higher than the value of the precious metal, sometimes up to 300%.
With the markups and relative difficulty of finding a buyer, it can be hard to make a profit from buying and selling gold jewelry.
Companies That Offer These
You can find gold jewelry anywhere, but some jewelry sellers go above and beyond regarding design and quality. The following are a few examples of stores you can buy investment-worthy gold from:
- Brilliant Earth
- Blue Nile
- GoldSilver
- James Allen
Futures
More experienced investors can benefit from investing in gold futures, which are contracts to buy and sell a certain amount of gold on a specific date. Futures allow you to speculate on the price of gold and make money based on your prediction that the value will rise or fall.
Risk Level
Gold futures are typically high in value, so you might need to invest a lot of capital in purchasing contracts. Because of the volatility of gold futures, you stand to lose more than you originally invested in the contracts.
For these reasons, investing in gold futures is best for knowledgeable investors who can weather the potential losses.
Advantages
You can use gold futures as a store of value without purchasing physical gold, allowing you to hedge against risks in the traditional market and make money from speculating on the fluctuating gold price. Investing in gold futures is also less expensive than buying gold bullion.
Drawbacks
The main disadvantage of gold futures is that you must maintain the contract(s) no matter how unprofitable they may end up becoming. The risk and complexity of investing in gold futures make it a high-risk investment, especially for anyone new to investing.
Companies That Offer These
In the U.S., you can purchase gold futures through the New York Mercantile Exchange (NYMEX), where the standard gold futures contract sizes are 100, 50, and 10 troy ounces. Trading of gold futures takes place nearly all day, Sunday through Friday.
Tips on Gold Investment
If you decide buying physical gold is the best option for you, the following are some tips for success with your investment:
- Do your research to find trustworthy gold dealers
- Watch out for extra fees, such as management and distribution costs
- Have a solid plan for storing your gold
- Purchase insurance for your gold
- Buy gold when prices are low
Risk Tolerance
Gold is a relatively low-risk investment, but it’s still essential to determine what your risk tolerance is before you dive into gold buying. The price of gold can fluctuate drastically, and you should keep an eye on its value while managing your gold assets.
Books or Websites To Read
If you want more in-depth information on investing in gold, you can turn to books or, if that’s too old-fashioned, websites that provide reliable information about gold investment. Here are a few of the best sources you can use to learn about gold investing:
- Learnaboutgold.com
- Investopedia.com
- “Guide To Investing in Gold and Silver: Protect Your Financial Future” by Michael Maloney
- “The New Case for Gold” by James Rickards
How Much Gold You Should Have in Your Portfolio
How you decide to structure your investment portfolio mostly depends on your risk tolerance and financial goals. With that being said, the general rule for diversifying your portfolio is to have at least 10% invested in gold.
Having at least 10% of your investments in gold gives you a decent fallback strategy if the value of the dollar tanks, but investing too much of your portfolio in gold compromises your ability to gain passive income. It’s best to consult with your financial advisor to ensure you’re making the right decision.
Watch Out for Gold Scams
Unfortunately, gold scammers are out there, and even seemingly reputable companies might use tactics that cause you to make a bad investment. The following are tips for protecting yourself from gold scams:
- Check the dealer’s business ratings and customer reviews
- Research the company to uncover past fraud incidents
- Look for reviews from reputable websites
Using Diversification on Gold Investments
Investing in gold helps diversify your assets, acting as a counterbalance to traditional securities like stocks or bonds. When you invest in gold ETFs, mutual funds, or gold-related companies, you gain more diversification for your gold investments instead of relying on gold bullion alone.
Start Learning About Gold Investment Right Here
On our website, you can find an extensive library of educational resources on gold investing to get you started on the path to learning the best way to invest in gold. We’ll help you compare the top gold IRAs and the providers that are most suitable for you and your financial goals.
Take our quiz to find your gold IRA partner, or contact us with your gold investment questions.
