About · Press · Contact · Write For Us · Top Personal Finance Blogs
Featured In:

How to Invest in Gold – Stocks, Funds & Bullion

By Kurtis Hemmerling

invest in goldAmid government debt, economic uncertainty, and political unrest, you’re one of many investors aware of the frightening factors that can lead to heightened levels of inflation.

Given these concerns and the potential erosion of the value of paper currency, gold has become a more popular investment option than it ever was before.

But how do you include gold in your personal investment portfolio? Seven great tools are available to you.

7 Best Ways to Invest in Gold

1. Gold-based Funds
Though exchange-traded funds (ETFs) became popular in the early 1990s, exchange-traded commodities weren’t available until 2003. That’s when Gold Bullion Securities launched a gold-based ETF designed to move up or down with the price of gold. Soon after, many new precious metal ETFs hit the markets.

Gold-based ETFs, like GLD and IAU, give you an opportunity to get exposed to the precious metal and hedge against inflation. But keep in mind that most ETFs don’t let you physically possess the gold. You’re invested, but you don’t technically own the commodity.

2. Buying Gold Stocks
Alternatively, you can invest in companies whose businesses operate around the production and sale of gold. But like investing in gold through an ETF, you still don’t personally own the gold. The value of shares in these companies, like Barrick Gold (ABX), will generally fluctuate up and down very closely following the price of gold.

You’ll reap the benefits of good times, but you’ll also be subject to the business decisions of the company. Particularly, you’ll see that the share price reflects not only the price of gold, but also the company’s forecasts on future gold prices.

3. Gold Futures Contracts
If futures can have a major effect on prices, can you get in on the action? Futures contracts are one way you can invest yourself in the massive amounts of gold sold from producers and purchased by consumers.

The New York Mercantile Exchange offers contract sizes of 10, 50, and 100 troy ounces. If you buy a gold contract and hold it until expiration, you’ll receive a shipment of gold, which can be an excellent way to take physical possession of the precious metal if you really want to own large quantities of gold. Otherwise, you can trade your contract in the hopes of making a profit from fluctuating prices before you take ownership of the physical gold.

4. Gold Futures Options
Similarly, you can use futures options, a type of financial derivative, to leverage your investment before the specified expiration date. If you choose gold futures options over a futures contract, you’ll basically wager a guess about the direction of the price of gold, and then buy a corresponding call or put option contract. You’ll have until a set date to resell the contract on the open market or exercise the option and take claim. You can alternatively exercise the option if you want to take hold of the physical gold.

5. Buying Physical Gold Bullion
If you’re a purist and you want a hedge you can trust, nothing will do except for physical gold in the form of coins or bars. Plenty of companies, like Anglo Far-East Bullion and Perth Mint Australia, facilitate international gold purchases.

Don’t forget that buying physical gold comes with additional costs including shipping, storage, and security. Gold dealers often have suitable facilities to store and protect your gold, for a fee.

6. Gold Certificates
Some gold banks also offer gold certificates, and the Perth Mint certificate program is currently the only government-guaranteed system of its kind. Instead of receiving physical gold and dealing with the storage and security issues, you hold a legal certificate of ownership, much like a title deed.

The gold certificate may indicate allocated or unallocated gold. Allocated gold is set aside in an account, while a certificate for unallocated gold is the bank’s promise to produce the gold once you request it. Having unallocated gold certificates eliminates fees for insurance and storage, but of course you can’t hold the gold in your hands until you ask for it.

7. Digital Gold
A novel way to gain exposure to gold is through digital gold accounts. In these new systems, first you’ll set up an account and deposit funds. The bank will then convert your cash into equivalent gold units. Your currency will be in the form of gold ounces, grams, and milligrams. Though you won’t take possession of gold bullion, your specific amount will be set aside in a vault. What can you do with these digital grams of gold?

  • Speculatively keep the gold and convert it into currency later in the hope that gold will appreciate in value
  • Get a pre-paid debit or credit card backed by digital gold, which will be accepted nearly anywhere
  • Buy items online through a select few vendors that accept this form of currency

This digital gold currency (DGC), may or may not be regulated and audited. Before you open an account, carefully investigate whether the company reports the amount of physical gold bullion they have, whether they employ independent auditing, if they are regulated, and any fees associated with storage and processing. You want to be sure you’ve found a reputable firm that has proper reporting and accounting.

Some perceive that the DGC movement is run by dishonest people who are putting together pyramid schemes. The industry isn’t without its unscrupulous participants, but DGC institutions like GoldMoney, Liberty Reserve, and London Gold Exchange are trying to improve the tarnished image.

Final Word

Many economists encourage having at least a small portion of your portfolio exposed to gold, to hedge against economic and political woes and cover yourself when the effects of high inflation kicks in. But investing in gold can feel foreign if you’re used to more conventional stocks and bonds. Even if you’re comfortable with ETFs, investing in gold comes with new concerns and extra research.

Whether you choose to simply invest in a couple of gold companies, buy options on futures contracts, or hold physical gold bullion and coins, do so wisely and make sure you fully understand the investment opportunity and the associated risks.

Have you taken an interest in gold recently? What method of investing did you choose, and how’s it looking so far?

(photo credit: Shutterstock)

Kurtis Hemmerling
Kurtis Hemmerling is a personal finance enthusiast that has been putting his passion into writing since 1998. His goal is to demystify the investment world to benefit the readership of Money Crashers.

Related Articles

  • http://ArborInvestmentPlanner.com Ken Faulkenberry

    You have done a great job of introducing the different choices to invest in gold. Every choice will meet the needs of some investor. However, MOST middle class investors should not use gold futures or options because they have too much risk and require a level of sophistication that most investor do not have. Owning the bullion is also not a good option for most. If the world is coming to an end are you going to be able to use your gold and will you own enough to make a difference? Two questions that need to be examined before dealing with the problems of storage, transportation, fees, etc.
    Also, take VALUATION into consideration before making any investment in gold.
    Ken Faulkenberry
    http://AAAMPblog.com

The content on MoneyCrashers.com is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. References to products, offers, and rates from third party sites often change. While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. We may have financial relationships with some of the companies mentioned on this website. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors.

Advertiser Disclosure: The credit card offers that appear on this site are from credit card companies from which MoneyCrashers.com receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. MoneyCrashers.com does not include all credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, U.S. Bank, and Barclaycard, among others.