Introduction
When you’re thinking of investments, your primary goal could be generating income and wealth. But gold investments often serve a different purpose. Gold is considered a safe asset with a track record of holding its value even during global financial crises. Here we will help you understand more about this commodity, track gold price, and show you how to buy gold step-by-step.
Highlights and Key Takeaways
- You can invest in physical gold by purchasing bars or coins. Or, you can consider alternatives to physical gold like miner stocks, gold ETFs, and futures.
- Gold typically doesn’t produce income in the form of interest or dividends.
- Gold is an effective portfolio diversifier as it acts as a hedge against inflation and has an inverse correlation to the stock market.
- Choosing the right brokerage and gold stocks/ETFs is crucial for a rewarding investment journey.
Understanding Gold as an Investment
Why Invest in Gold?
Why should you invest in gold if it won’t generate interest and dividends like other financial investments? Well, gold has several qualities that make it a worthwhile option for diversifying your portfolio, including:
- Historical Value: People have always associated gold with value and used it as a currency. Its scarcity and use in jewelry and collecting bring the assumption that it’ll continue being valuable for centuries. So far, it has stood the test of time as a reliable store of wealth.
- Inflation Hedge: When inflation rises, the purchasing power of your cash declines. However, gold has historically retained and increased its value or purchasing power, safeguarding people’s savings against the erosive effect of inflation over the long term.
- Price Stability: Gold has an inverse correlation with stocks and bonds. So, when they go down, gold could go up and vice versa. That is why investors often seek a safe haven in assets like gold, during times of uncertainty or crisis. It often shows price stability during economic downturns and times of market volatility.
Essentially, gold doesn’t provide cash flow or immediate returns like other financial assets. However, its price rises over time beating inflation and its stability during economic downturns provides a hedge that offsets the volatility of other financial markets. Remember, a well-balanced portfolio should include assets with varying risk profiles and performance characteristics.
Types of Gold Investments
Learning how to buy gold involves understanding the available options. Here’s how you can invest in gold:
- Buying physical gold.
- Purchasing gold mining stocks.
- Investing in gold ETFs.
- Trading gold futures.
Buying physical gold involves owning gold in bars (bullion) or coins, which can be satisfying. The primary drawback of this investment strategy is that you’ll incur extra costs to insure and safeguard the gold. Also, if you need to sell the bullion bars or coins quickly due to an emergency, you’re not guaranteed to find a buyer who’ll buy at the market value of your holdings.
If you’re not ready for the challenges that come with owning bullion or coins, consider purchasing gold mining stocks. These are stocks for companies that mine and refine gold. With this gold investment strategy, you can earn profit in two ways:
- The prices of the company stocks can rise when gold prices go up, increasing your investment value.
- The miner’s production can scale due to good management and business strategy, increasing the stock price.
Your main task will be to identify the best gold companies to invest in.
What if the idea of owning gold mining stocks appeals to you but you don’t want to tie yourself to a single company? A good alternative for you would be exchange-traded funds (ETFs). Gold ETFs are funds that allow you to invest in a basket of gold-related securities. These funds could track the price of the precious metal, own miner stocks, or expose you to futures and options.
Some of the largest and best gold ETFs include:
- SPDR Gold Trust (GLD).
- iShares Gold Trust (IAU).
- SPDR Gold MiniShares (GLDM).
- abrdn Physical Gold Shares ETF (SGOL).
- iShares MSCI Global Gold Miners ETF (RING).
- VanEck Gold Miners ETF (GDX).
The main benefits of gold ETFs are diversification and liquidity. You can easily exchange them at the current market price when needed, just like stocks.
If you want to trade the commodity more actively, consider gold futures. Options and futures involve speculating if the price of gold will rise or fall within a certain timeframe.
With gold futures, you can use leverage which allows you to borrow funds from your broker and own more gold futures than your capital. If the price moves in the direction of your speculation, you’ll make a lot of money in a short time. But leverage is a double-edged sword. If the price moves against your speculation, you could lose more than your initial capital in a short time. So, gold futures and options are best for sophisticated investors.
How To Buy Physical Gold
Where To Buy Physical Gold
If you’re ready to buy the shiny metal, you can get your bullion or coins in several ways. The main options are:
- Online dealers for instance JM Bullion and APMEX.
- A local collector or dealer.
- A pawnshop.
But to avoid falling for precious metals scams and fraud, you must vet the sources thoroughly to ensure they’re reputable. The U.S. Mint offers a directory of registered or reputable local retailers. Use the site to find out if there’s a reputable provider in your location.
Understanding Purity and Weight
One of the secrets to purchasing legit physical gold at fair prices is understanding purity and weight. Gold’s purity is measured in carats, with 24 carats being the purest form. The higher the carat value, the more valuable is gold. Assessing a gold’s bar purity involves checking the carat value on the side.
On the other hand, weight is measured in grams or ounces. Gold’s weight impacts its overall cost or worth. So, verifying the weight and checking market prices can help you get fair pricing.
How to Buy Gold ETFs and Stocks
Choosing a Brokerage
One of the most important decisions you’ll make when purchasing gold ETFs and stocks is selecting the right broker. The investment platform you opt for can make or break your investing experience.
Here’s how to choose the right brokerage for gold ETFs and stocks.
- Check the Reputation: Don’t create a brokerage account before ensuring the company’s stand on security and reliability concerns. You can assess a broker’s reputation by user reviews or ratings which are readily available online. Pay attention to the issues raised by several current or past users and how the company resolved them.
- Understand the Fees and Commissions: ETFs have a management fee but the amount varies by company. There may also be other fees related to buying and selling stocks or ETFs with brokers. Check their fee structures and compare them with other top brokers to ensure you get the most reasonable fees.
- Research/Educational Tools and Resources: Most good brokerages offer comprehensive research tools and educational resources. Look for platforms offering market analysis, real-time data, and insights into the gold market to support your investment journey.
- User-Friendliness: Choose platforms with an intuitive interface that allows you to navigate easily, execute trades efficiently, and monitor your investments seamlessly. Signing up for a demo account or checking video tutorials for the broker can help you assess this.
- Customer Support: If you ever encounter an issue with your chosen brokerage, you’ll need prompt customer support. Verify the support channels the broker uses by contacting them to evaluate responsiveness. Reviews can also help.
Selecting the Right Gold ETFs and Stocks
Besides selecting the right brokerage, you need to also select the best gold ETFs and stocks. Here are a few tips to guide your selection:
- ETF Expense Ratios: The expense ratio of an ETF tells you the annual cost of managing the fund as a percentage of its total assets. Go for ETF brokers who offer funds with lower expense ratios as they’ll minimize the cuts on your returns over time.
- Tracking Error for ETFs: Remember gold ETFs track and mirror the performance of the commodity? The tracking error measures the deviation. Opt for ETFs with a lower tracking error as it shows the ETFs are able to closely mirror the performance of the underlying gold index.
- Financial Health of Gold Mining Companies: When purchasing individual stocks, you will need to conduct in-depth research about the company as well. Examine factors such as debt levels, profitability, and cash flow as they determine how well a company can weather market fluctuations.
- Management Team: Good management can skyrocket a company by making strategic decisions and vice versa. Assess the management behind the ETFs or gold mining company to ensure its capability. Also, go for companies with a long history in the mining industry.
- Dividend Yield for Stocks: Depending on your investment goals, you can consider gold mining companies that offer good dividends, providing you with an additional income from your investment. A sustainable and growing dividend is often a sign of financial growth and stability.
Conclusion
You can invest in gold by purchasing bullions, ETFs, miner stocks, or futures. Each investment option has its upsides and drawbacks, so the best way to buy gold is determined by personal portfolio strategies as well as financial goals. Once you decide on the best gold investment option for you, choose a regulated broker and you’re ready to protect your wealth.
FAQ
How Can Beginners Buy Gold?
Beginners can buy gold by investing in physical coins or bullions or purchasing ETFs and Miner stocks.
Is Gold a Better Investment Than Silver?
Each precious metal has its unique characteristics but gold is often considered a more stable and conservative investment during economic downturns.
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