There is no doubt how important gold is for global financial markets and their ecosystem. Gold is the asset that all investors turn to when the economy is having a hard time. However, although one of the most popular asset classes, few people are still aware of the possible ways to invest in gold. It is no surprise why questions like “How to buy gold?” and “How to invest in gold?” collectively generate over 5.8 billion results on Google. In the next few paragraphs, we will address these questions by helping you finding out which is the best way to invest in gold.
The 5 Best Ways To Invest In Gold
Investors looking at ways of buying gold usually have several choices. Depending on the goal of the investment, the investors’ preferences and experience, they can choose from purchasing the asset in its physical form, an ETF, digital assets, futures, options, stocks, and more. Here are the pros and cons of each of them to help you find the best way to invest in gold:
1. Physical Gold
The first and oldest way to invest in gold is by purchasing the asset in its physical form. You can buy physical gold in the form of jewelry, bullion (gold coins or bars), art, and more. If we are talking about jewelry or art, this procedure is pretty easy and straightforward. All you have to do is visit a well-renowned jewellery store and choose the items you prefer. With bars, it is a bit complicated as you would have to purchase them from specific locations, which may be abroad, and you will also have to cover the transportation costs.
If you think the best way for you is to buy gold coins or bars, make sure to consider several things. First of all, check the quality and deal only with reputable producers/distributors, which will provide you with the proper certificate. Next, consider the safe storage of your belongings – you will likely have to pay storage costs to ensure that your gold is safe in a secure vault. Last but not least, think of transaction fees, transportation and insurance costs.
2. Gold Funds
If you are looking at a more liquid way to include gold in your portfolio, then consider ETFs or mutual funds. These investment schemes are basically the easiest and cheapest way to get broad exposure to the asset class. Gold ETFs (like the SPDR Gold Shares, for example) and mutual funds are offered by every brokerage company out, while some even provide low-cost or commission-free investments. Investing through gold ETFs or mutual funds guarantees that you will enhance your portfolio with a highly liquid and less volatile asset that perfectly replicates the performance of the underlying commodity.
There are basically no downsides to investing in gold via a fund scheme. The transaction costs are significantly lower when compared to those related to the purchase, transportation, and storage of physical gold. You can also sell the gold quickly and with no hassle, should you need so. The only downside is for those who insist on acquiring the asset in its physical form.
3. Gold Mining Stocks
This is another viable option if you want to make a liquid investment in gold. Gold mining stocks are a perfect choice for those who prefer specific company exposure instead of investing in a basket with multiple constituents. Similar to ETFs and mutual funds, gold mining stocks can be bought with just a few clicks from the majority of the investment service providers. When the moment comes, you can sell them just as easily.
Before investing in gold mining stocks, however, make sure to consider a few key things. First of all, bear in mind that they may not replicate the price of gold perfectly. The reason is that each particular company has its own operating performance, capital, costs, and current projects. Companies are also subject to individual risks like political events, environmental issues, corporate-specific factors, and more. Depending on the success of the company and the mentioned risks, its price may rise or fall contrary to the general direction of the gold market. Also, investing in one or a few stocks doesn’t diversify your risk as well as a gold ETF does.
4. Gold Options
Next on the list are the gold options. The instruments represent the right, but not the obligation of the owner to buy the instrument they are issued on (may be a stock, futures, or an ETF) at a specific price for a certain period. Gold futures and options are preferred mostly by speculators, advanced traders, and experienced investors as they are a bit more complex than ETFs and stocks and can also be traded on leverage. They provide low risk (limited to the premium) but also aren’t as easy to start trading.
The most popular instruments in this class are the options on the SPDR Gold Shares ETF that can be traded through a standard account with an issued approval. Some also trade futures to take advantage of the short-term price changes of the asset. The most popular gold futures is traded on the CME under the symbol GC. Bear in mind, however, that both options and futures can experience increased volatility.
For a solid financial understanding of financial markets and options trading, consider using the best options trading course before getting started. Investors can also use options to trade based on the gold asset.
5. Digital Gold
In the era of digitized assets, we can’t miss mentioning the digital gold. There are several ways to invest in digital gold, but the most popular one is tokenized assets. This emerging opportunity was born thanks to the rise of blockchain technology.
The idea here is that you can buy a tokenized asset representing a specific amount of gold (or even other precious metals) that you immediately take possession of. However, you can keep the purchased gold at the guarded vault it is currently stored and redeem it whenever you like. The tokenized asset serves as a certificate of ownership, while at the same time eradicates the need for taking care of transportation costs, storage fees, security, insurance, and so on. When you sell your asset, you are basically transferring the ownership of the gold to the buyer.
You can also invest in gold by purchasing gold-pegged cryptocurrencies like PAX Gold and Tether Gold which mirror price of gold perfectly.
There is no doubt that the precious metal was, is, and will continue to be among the best investments. Thanks to its stable fundamentals, it is considered the one and only “safe heaven” asset. Luckily for those willing to invest, today we have multiple ways to take advantage of it – from gold coins and bars, through financial instruments like ETFs, stocks, futures, and options, to cryptocurrencies and tokenized assets. Thanks to this, when the next economic downturn is around the corner, you will have plenty of convenient ways to hedge your portfolio with the help of gold.