The most direct way to own gold is to buy physical gold bars or coins, but these can be illiquid and must be stored securely. ETFs and mutual funds that track the price of gold are also popular, and if you have access to derivatives markets in your brokerage account, you can also use futures and gold options. Of all the forms of investing in gold, the riskiest is trading futures or options contracts, a form of speculative investment. Futures and options are derivatives, meaning that their value is based entirely on the price of an underlying asset.
Investing in gold stocks, ETFs, or mutual fund is often the best way to expose yourself to gold in your portfolio. You may be familiar with the popularity of gold coins from infomercials and other ads. This way of buying and selling gold is well known and often more convenient than gold bars because of their smaller size. Investors can buy gold coins from collectors or private traders and eventually sell them for profit.
Dealers are located in most cities, making it easy to buy coins from. To make buying easier, gold coins are one of the best ways to invest in gold for beginners. Founded in 1976, Bankrate has a long history of helping people make smart financial decisions. We have maintained this reputation for more than four decades by demystifying the financial decision-making process and giving people confidence in the following actions.
One of the most emotionally satisfying ways to own gold is to buy it in bullion or coins. You will have the satisfaction of looking at it and touching it, but the property also has serious drawbacks, if you have more than just a little. One of the biggest drawbacks is the need to safeguard and secure physical gold. Gold futures are a good way to speculate on the rise (or fall) in the price of gold, and you could even receive physical delivery of gold, if you want, although physical delivery is not what motivates speculators.
The biggest advantage of using futures to invest in gold is the immense amount of leverage you can use. In other words, you can own many gold futures for a relatively small sum of money. If gold futures move in the direction you think, you can earn a lot of money very quickly. Contracts generally require a minimum purchase of 100 ounces of gold.
Novice investors should be extremely cautious with futures contracts due to the high degree of indebtedness that normally entails. You can buy physical gold from retailers such as JM Bullion and APMEX, as well as from pawnshops and jewelry shops. Both futures and gold options are considered volatile, making it more difficult to enter and manage compared to other forms of gold investments. More and more investors are concerned about the social and environmental impact of their investments, and gold mining can leave a significant toll on the environment and raise human rights and governance concerns, as gold mines are located in conflict-affected or high-risk areas.
Gold has a reputation as a recession-friendly investment. When the stock market has a big pullback, the price of gold often rises. Investing in gold ETFs and mutual funds can provide you with exposure to gold's long-term stability, while offering more liquidity than physical gold and more diversification than individual gold stocks. Investors could buy gold exchange-traded funds (ETFs) to avoid the uncertainty that comes with investing in a particular company.
You can also choose to buy gold that you can wear or that someone has ever worn but has suffered damage in the form of gold jewelry. Since most investors turn to gold to diversify their existing portfolios, a good rule of thumb is to keep around ten percent of their assets in gold investments. Gold mutual funds, such as the Franklin Templeton Gold and Precious Metals Fund, are actively managed by professional investors. Gold is considered a “safe haven” asset because when the prices of other investments, such as stocks or real estate, fall sharply, gold does not lose its value, it can even gain value, as frightened investors rush to buy it.
Buying physical gold has drawbacks, such as sellers' price margins and the need for storage, so financial advisors generally recommend investing in gold indirectly, through securities such as funds and gold stocks. That's one of the reasons why legendary investors, such as Warren Buffett, warn against investing in gold and instead advocating. Gold mutual funds typically invest in shares of gold mining or refining companies, although some also own small amounts of bullion. Investing in gold mining companies is an interesting way to combine investments in gold with traditional stocks.