As you build your investing portfolio, you might wonder: Is gold a good investment? While some investors may be interested in it as a hedge against inflation or market downturns, or to further diversify their portfolio, it’s important to know that investing in gold isn’t simple, especially for first-time investors. One reason is that there are so many ways to invest in gold, each with their own pros and cons.
Why Investors Like Gold
Historically, investors have turned to gold as a way to hedge against the possibility of inflation or events that could negatively impact the equity markets. And while it can be just as volatile as stocks in the short term, gold has historically held its value well over the long term. Even investors who are not particularly concerned about inflation or about calamities affecting the broader market, may turn to gold as a way to diversify a portfolio.
5 Ways to Invest in Gold
For anyone considering investing in this precious metal, it can be helpful to familiarize yourself with the different ways one can invest in gold.
Buy Physical Gold
When thinking of ways to invest in gold, the first image that may come to mind is piles of gold bars in a place like Fort Knox. Those bars are also known as bullion, and it comes in bars that can be as small as a few grams, or as large as 400 ounces. The most common denominations of gold bullion are one- and 10-ounce bars.
For many investors, even the one-ounce bars can be too expensive — roughly $2,200 per ounce in mid 2023. And because the bullion is a physical item, there’s no easy way to own a fraction of a bar. But if you do want to own bullion directly, the first order of business is to find a reputable dealer to buy from, and then look into the costs of delivery and insurance for the asset. Another option if you buy bullion is to pay for storage, either in a large vault or in a safety deposit box at a bank.
Buy Gold Coins
Gold coins offer another way to directly own the shiny yellow metal, in a variety of denominations including half-ounce and quarter-ounce. Well-known gold coins include South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles, which have been known to sell at a premium to their actual gold content among collectors.
While you may be able to buy gold coins at a discount from local collectors or pawn shops, most investors will likely opt for a reputable dealer. As with bullion, it is important to protect this hard asset, either through insurance, or with a vault or safe deposit box.
Buy Gold Jewelry
If you don’t want your gold investment to just sit in a vault, then gold jewelry may be appealing. But it comes with its own considerations. The first is that gold jewelry may not have as much actual gold content as the jeweler claims. Verifying the authenticity of a piece not only protects you, but it will also help when it comes time to sell the piece. One way to do this is to only buy jewelry from reputable dealers, who can also deliver documentation about the piece.
Another point to remember is that a piece of jewelry will also come with a markup from the company that made it, which can make the piece cost as much as three times the value of its metal. And jewelry typically isn’t 100% pure gold — or 24 karats — so it’s important to know the purity and melt value of the jewelry before you buy.
Buy the Stocks of Gold Mining Companies
One way to take advantage of growth in the value of gold with your existing brokerage account that you might want to consider is to buy the stocks of companies in the gold business, including miners and refiners.
While gold stocks tend to go up and down with the price of gold, they may also experience price changes based on the company’s own prospects.
💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.
Buy Gold ETFs and Mutual Funds
If the risks or individual mining and refining companies are too much, you may want to consider a gold exchange-traded fund (ETF) or mutual fund. These vehicles — which are available through one’s brokerage account — invest in gold in different ways.
Buy Gold Futures and Options
Experienced investors with some familiarity trading derivatives may consider investing in the gold market through futures and options. These contracts allow the investor to buy or sell gold for an agreed-upon price by a fixed date. To trade these contracts, an investor needs a brokerage account that offers the ability to trade them.
An investment in gold options or futures contracts, however, requires active monitoring. These contracts expire on a regular basis, so investors have to be ready to sell, roll over, or exercise them as gold prices change, and as the contracts reach their expiration dates.
💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
What Will Gold Be Worth in 2030?
Predicting the future price of an idiosyncratic and volatile commodity like gold is all but impossible. For instance, back in 2020, gold increased in value by 24.6% in U.S. dollars, and reached all-time highs in a number of currencies, in anticipation of a coming wave of inflation.
In its 2023 In Gold We Trust report, asset manager Incrementum predicted a “showdown in gold prices” and increased demand due to inflation and a possible recession, stating that “investment demand from gold ETFs could tip the gold prices scales.”
One reason why gold investors believe the precious metal may have strong prospects is that the broader economy has been in an inflationary period. One measure of this is the consumer price index (CPI). The latest CPI data in mid-2023 showed that inflation is slowing, but it’s still a concern for consumers and for investors.
The Takeaway
Investors interested in gold typically gravitate toward it as a hedge against inflation or as a means of diversifying their portfolios. Those who want access to this precious metal have some choices: They can buy bullion, coins, jewelry, mining stocks, ETFs, mutual funds, futures, and options.
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