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Benefits of Investing in Gold
Gold is a unique asset class with a reputation for being an excellent hedge against the ever-decreasing power of money, also referred to as inflation. While gold, like many investments, suffers from short-term price fluctuations, gold has risen in value over the long term.
Often, during periods of economic or market instability, gold will rise in value while your other investments fall, making gold an excellent option for diversification.
For example, when adjusted for inflation, the value of gold rose by 350% in the Eurozone during 1999-2020.
This is because gold has historically had a negative correlation with the stock market. The 2008 financial crisis is a great example of this, which saw investors flock to gold.
Another upside of gold is its finite supply.
Gold reserves worldwide have been steadily declining since 2000, and setting up new gold mines can take as long as 10 years. This has a significant impact on the supply of gold.
Inversely, the demand for gold has been growing among both individuals and investors. It’s increasingly viewed as an asset into which funds can be allocated, leading to the SPDR Gold Trust becoming one of the largest ETFs in the United States.
When you couple this dwindling supply with an increase in demand, you have an asset that appreciates consistently, making it a worthy addition to your investment portfolio.
How to Invest in Gold
In the past, if you wanted to invest in gold, your only option was to buy physical gold. While that’s still a viable option today, there are several alternatives.
Here are the most common methods:
A. Invest in physical gold
If you prefer to invest in physical gold, here are your options:
1. Gold bullion
Gold bullion can range in size from a few grams to 400 ounces. Given that gold currently trades at $1,724 per ounce, buying gold bullion can be expensive.
The greatest advantage of owning gold bullion is having direct ownership over a sizable amount of this precious metal. However, if you opt for this method, you need to take transportation, storage, and insurance into account.
2. Gold coins
Purchasing physical gold coins from coin dealers is another easy way to start investing in gold. . The most widely available collectible coins include Canadian Maple Leafs, South African Krugerrands, and American Gold Eagles.
It’s important to point out that gold coin prices aren’t necessarily aligned with the weight or purity of the coin. Popular bullion coins can fetch a premium. An American Gold Eagle coin sold for about $2,000 in September 2020, 5% more than a similarly sized gold bullion.
Investing in gold jewelry has several risks that are absent from other physical gold investment avenues. If you decide that you want to buy jewelry as an investment, ensure you purchase items through reputable dealers to guarantee authenticity.
There are also markups to consider, ranging from 20% to three times more than gold’s value. This can take a significant chunk out of your potential returns.
Finally, ensure that you know the jewelry’s purity or how much gold it contains. Gold purity is measured in karats, with 24 karats being 100% pure and the most valuable.
B. Gold stocks
Purchasing stock in companies that mine, refine, and trade gold is another accessible option.
With gold stock, you also have access to regular dividend payouts, which is an advantage over physical gold. Gold mining stock also eliminates the need for insurance, storage, and authenticity verification, although as with all investments, you will have to pay tax on capital gains.
Some examples of gold stocks are:
- Newmont Corp. (NEM) is the world’s largest gold mining company with operations in North and South America and Africa.
- Barrick Gold Corp. (ABX) is a mining company headquartered in Canada. Barrick has operations in 13 countries.
- Franco-Nevada Corp. (FNV) doesn’t own any mines but buys the royalty rights from other gold mining companies.
C. Gold ETFs and mutual funds
Investing in a gold ETF (Exchange Traded Fund) or mutual fund can be an affordable and relatively safe method of investing in gold. Much like shares, ETFs are traded on a stock exchange. With a gold fund, you gain access to gold’s long-term stability with greater liquidity levels than owning physical gold bullion.
ETFs and mutual funds also take the hassle out of trying to find specific mining stock to invest in and can help you diversify your portfolio among various gold businesses.
It’s important to note that mutual funds are actively managed by professional fund managers and aim to beat the passive returns generated by ETFs. As a result, you may incur extra fees when investing in a mutual fund.
Some gold exchange traded fund examples include:
- SPDR Gold Shares ETF (GLD) holds gold and deposit receipts.
- VanEck Vectors Gold Miners ETF (GDX) tracks gold industry trends.
Some gold mutual fund examples are:
- Franklin Gold and Precious Metals Fund (FKRCX) invests in companies that mine, process, or deal in gold and other precious metals like silver.
- Sprott Gold Equity Fund (SGDIX) invests in companies involved in mining or processing gold all over the world.
D. Gold futures and options
Trading gold futures or options contracts is the riskiest way of investing in gold.
Trading a futures contract is a form of speculative investing, meaning that the value of the futures or options is derived from the price of the underlying asset.
When investing in futures, you enter into an agreement to buy or sell an asset at a set price on a set date. On the other hand, an options contract is an agreement that allows you to buy or sell an asset if it reaches a certain price on or before a specified date.
The upside of these investment types is greater access to liquidity than owning physical gold, and there are no management fees like there are with mutual funds.
Things To Keep In Mind When Investing In Gold
As an investor, there are several things you should keep in mind before deciding to enter the gold market. Some aspects to consider include:
- A gold investment is long-term. Therefore, if you’re looking to see returns quickly, you may be better off with other assets.
- Gold’s price is determined almost entirely by supply and demand, which makes its price highly speculative. If you’re looking for investments with minimal volatility, gold might not be the best option for you.
- If you invest in physical gold, you’ll need a place to store the items. This increases the risk of theft, loss, or damage. To compensate, you need insurance which can be expensive.
While investing in physical gold comes with most of these downsides, it’s still the go-to hedge option for most investors. Fortunately, there’s an easy way to invest in physical gold without any of the hassles typically associated with it:
The Best Way To Invest In Gold: Vaulted
Vaulted is an online platform designed to make becoming a gold investor as easy as possible. With Vaulted, you can directly invest in a gold bar manufactured and stored at the Royal Canadian Mint owned by the Canadian government.
The beauty of Vaulted is that you can invest in physical gold without any of the downsides. You can rest assured that the gold is pure and is taken care of safely. Additionally, Vaulted allows you to sell your gold whenever you need to liquidate with no waiting periods.
As you’re investing directly into physical gold, returns are primarily dependent upon how gold performs as an asset. The gold price has risen by more than 41% over the last five years. Further, as gold is a long-term investment, returns are likely to grow the longer you hold your assets.
What’s more, there’s no minimal investment, making this incredibly accessible, unlike most other physical gold investment avenues.
When purchasing through Vaulted, there is a one-time 1.8% fee on your purchases added to the wholesale price. There is also a one-time fee of 1.8% when selling your gold.
Vaulted also charges an annual maintenance fee of 0.4% of the cumulative average value in your account.
Gold investments can be a valuable addition to your portfolio, serving as a helpful inflation hedge and diversify your portfolio. While there are several methods for investing in gold, each has its pros and cons.
Fortunately, Vaulted makes it easier than ever to buy, store and sell gold with no waiting periods.
If you’d like to learn more about such alternative investments, consider taking the MoneyMade Investor Quiz. Answer a few quick questions and MoneyMade will present you with a list of investment opportunities that suit your financial needs.