The appeal of investing in gold is easy to understand. Its value is obvious, you can feel and touch it, and its worth has stood the test of time. In tough economic times it is often sought after as a safe haven, as well as a hedge against the risk of more traditional investments.
How to invest in gold
Precious metals, such as gold and silver, are investable in just a handful of ways, each with their own pros and cons:
- In a physical form, such as in gold bullion bars and coins, including the Krugerrand or the American Gold Eagle — or as collectable currency, such as historic or rare coins. With physical gold comes the price of safe storage and insurance. And, it’s not always easy to sell – finding a buyer and completing a purchase can take time.
- As a commodity trade in markets such as the Chicago Mercantile Exchange. Trading commodity futures takes quite a bit of expertise and capital. Futures contracts are simply an agreement to buy or sell for a set price at a specified future date.
- Indirectly, such as investing in gold mining company stocks, mutual funds or exchange-traded funds. Mining stocks allow you to invest in a real operating business that can grow over time, but their value will be affected by market factors above and beyond the price of the commodity.
- And within an exchange-traded product that attempts to mirror the prevailing price of gold, such as exchange-traded funds (ETFs), notes (ETNs) or closed-end funds. ETFs are baskets of stocks, like mutual funds, but are traded continuously on the market, rather than priced just once a day like mutual funds. Created in 2004, SPDR Gold Shares, the oldest and largest U.S. gold ETF, trades under the stock symbol GLD. Another gold ETF is listed as IAU.
Investing in gold can offer a wild ride
You may be surprised by the volatility of gold prices. It can take you on a wild ride, so as an investor you need to strap in and hang on. Long considered as protection against inflation, gold responds to the rapid day trading of speculators.
The price of gold is set twice per day by the London Gold Market and is greatly impacted not only by supply and demand, but world events, as well. A nation’s currency can also affect the spot price of gold.
But determining the gold price today will depend on how you are investing in gold. For example, a collectable gold coin may have a large markup compared to the same weight of a bullion (non-collectable) gold coin. And each minted coin has its own daily price.
Commodity prices, such as silver, gold, agricultural products and minerals, are all impacted by the futures contracts of the commodity exchanges, so again prices can vary widely from day to day.
There is a lot to consider when making a move to buy gold: how, when and how much. And, as with any prudent investment, it starts with knowledge and a bit of research.