Gold investments offer an excellent way for investors to store wealth in tough economic times. Investors looking to buy gold will find that there are numerous options available, depending on an investor’s goal. The seven most popular gold investing options are listed below.
Investors who invest in physical gold will most often select an investment-grade gold, such as gold bullion. Gold bullion may be purchased in bars or as coins. Jewelry is typically not considered investment-grade gold bullion.
Gold bullion is not considered legal tender. Gold purity ranges from 22 karats to 24 karats. Investors seeking to purchase gold bullion may obtain gold bullion from gold dealers, Swiss banks, private dealers, coin dealers or directly from the producing mint. You can even buy gold online. Investors will pay a slight premium of approximately one to three percent above the price of the gold on the market. Some states will waive sales tax over purchases that exceed $1000. Free shipping and free insurance may also be offered by dealers for bulk purchases.
Individuals may not want to physically store gold at their homes because of the risk of theft. For this reason, gold may be stored at a safe facility such as a bank, off-site vault, or other locations. One such company that offers this type of service is bullionvault.com.
Bullionvault allows individuals to purchase gold and store the gold at their facility. Armed guards are available on staff and the gold is stored in a secure area for the investor. The storage is similar to a private vault. The vault is open 24 hours per day and 7 days per week.
Gold Mutual Funds
Gold mutual funds are another way to invest in gold without actually physically securing the gold. Mutual funds involve gold mining securities and futures. They may also involve ETFs and various gold related stocks. Gold mutual funds are diversified investments.
Investors should consult with a financial advisor to determine the best mutual funds to achieve desired investment goals. Before selecting gold mutual funds, the expense ratios, turnovers, fund loads and net asset values should be researched. Gold mutual funds may provide the stability in your investments; however, gold is still considered a volatile investment. Some gold funds are more aggressive than others, yet still safer than other investments.
Gold Mining Stocks
Investors seeking to invest in gold without physical possession of the precious metal may also select to purchase shares in gold mining companies. Investors expect the price of the gold mining company’s shares to rise as the price of the gold rises. However, these two events are not always congruent. Smaller gold stocks are considered a more volatile investment than other gold investments.
Investors may determine the success of the stock by examining the cost of the production costs of gold versus the price of gold. If the price of gold is $700 and the cost to produce gold is $300, then the gold mine’s profit margin is $400. If the price of gold increases by 10%, there will be approximately a 20% increase in the gold mine’s profit. Conversely, a decrease in price will also yield a 20% decrease. Some gold mining companies protect their investments by hedging the price of gold 18 months in advance.
Securities backed by stored gold are called Exchange Traded Funds (ETFs). ETFs are open-end investment companies. Investors buy and store gold bullion at the market price to secure the purchase. Forty percent of gold investments are gold ETFs. Gold prices are significantly affected by gold prices and demand. This method is more convenient than physically storing the bars of gold in a personal location.
ETFs will not sell directly to investors. The shares are issued in blocks of 50,000 and are called “Creation Units.” Investors trading gold ETFs may be charged a small commission and an annual storage fee. Storage, management fees, and insurance will accrue annually to cover the costs of the gold represented by each certificate. Because of these fees, the value of each certificate will decline over time.
Gold futures are another way to purchase gold without physically taking possession of the precious metal. Gold futures require making a contract to purchase a certain amount of gold on a given date. The price is also stated in the contract. If the gold price on the date of the contract is lower than the gold price on the date the contract was made, then the investor will yield a profit. However, if the price is lower, the investor loses money.
Investing in gold futures may be a risky investment, because investors must predict how the price of gold will behave at some future point in time. Investors may invest as little as 10 percent of the actual price in order to secure the contract price. If the price rises as much as 10 percent, an individual’s money may be doubled.
Likewise, if the price decreases by 10 percent, the investor will lose his or her initial investment. Investors in gold futures must be aware of currency markets, foreign interests, and other factors to determine how the price of gold will be affected.
Gold Jewelry and Rare Coins
Gold coins and gold jewelry are common ways of investing in gold. Rare coins are scarce or no longer in production. For example, the 1909 VDB Lincoln Cent is rare because only 4,000 of the coins have been certified. The Professional Coin Grading Service (PCGS) and the Numismatic Guarantee Corporation (NGC) will verify the value of the coin for investment purposes. Coins may be purchased for as little as $300 or as much as $25,000.
Gold jewelry is always in fashion in some form or another. Investors select both antique and modern jewelry for investment purposes. Individuals investing in gold jewelry must research the gold jewelry industry to determine which items will hold their value.
About the Author: Shaun Connell is a full-time finance blogger and investor. He blogs about investing in gold at Learn Gold Coins.
Published or updated January 12, 2011.