Investing in gold is an investment strategy that dates back centuries, yet it still holds relevance in today’s financial landscape. The price of gold also tends to move in the opposite direction of the stock market, making it a useful asset during times of market turbulence.
There are many opportunities to invest in gold, including bullion (i.e., gold bars), founds futures mining companies, and jewelry. With few exceptions, only bullion, futures, and a handful of specialty funds provide a direct investment opportunity in gold. Other investments derive part of their value from other sources.
KEY TAKEAWAYS
Gold is a precious metal that can also serve as an inflation hedge and a portfolio diversifier.
If you’ve decided to buy some gold for your investment portfolio, there are several ways to go about it.
The most direct way to own gold is to purchase physical gold bars or coins, but these can be illiquid and must be stored securely.
Exchange-traded funds (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 buy gold futures and options.
To get at gold indirectly, you may also want to consider investing in gold mining stocks, although these companies’ share prices do not track gold’s value very well over the long run.
Gold Bullion
This is perhaps the best-known form of direct gold ownership. Many people think of gold bullion as the large gold bars held at Fort Knox, Ky. Actually, gold bullion is any form of pure, or nearly pure, gold that has been certified for its weight and purity. This includes coins, bars, and other forms of gold of any size. A serial number is commonly attached to gold bars as well, for security purposes.
Gold Coins
For decades, large quantities of gold coins have been issued by sovereign governments around the world. Coins are commonly bought by investors from private dealers at a premium of about 1% to 5% above their underlying gold value, but in recent years, the premium has jumped to around 10% in some case.
The advantages of bullion coins are:
Their prices are conveniently available in global financial publications.
Gold coins are often minted in smaller sizes (one ounce or less), making them a more convenient way to invest in gold than the larger bars.
Reputable dealers can be found with minimal searching and are located in many large cities.