Gold has an enduring appeal to investors. Anyone who remembers gold’s meteoric climb during the aughts (or in the ’70s) knows that gold can be a sleeper. Long periods of stable or struggling prices are broken up by major leaps in price.
It makes gold an effective hedge and defensive asset, as most of the time you can expect long-term price gains unless you buy at peak prices. There are several ways you can own gold, and not all are created equally. You can invest in gold bullion, gold ETFs, or gold mining stocks.
Once you hold a gold coin in your hand, you start to see investments differently. You start to feel the abstractness of mutual funds, ETFs, and stocks. They’re vital investment vehicles, but the solidity of gold brings reassurance.
You can buy your bullion online and save significantly on premiums. With lower overhead, online gold shops can satisfy orders at prices much closer to spot. There are several other ways you can save when you buy gold bullion:
- Buy larger quantities of gold, i.e., a 1/10 oz. gold coin will cost more per ounce than a full-size 1 oz. coin, because there are costs associated with refining, minting, storing, and shipping gold.
- Buy gold bars or gold rounds instead of gold coins. The premiums are higher on gold coins as they are more collectible and more expensive to produce. Gold bars can also be found in larger sizes, right up to the 400 oz. ingot commonly pictured in the classic “vault full of gold.”
- Buy the most common gold coins in your market. For example, in the U.S. market, South African Krugerrand’s or Austrian Philharmonics may be more expensive than Gold Eagles and Gold Maple Leafs.
Although gold coins tend to be more expensive, they also come with better market liquidity, especially coins like the American Gold Eagle and Canadian Gold Maple Leaf. You will readily find buyers when you’re ready to sell gold coins like those.
A gold ETF (exchange traded fund) is similar to a mutual fund. You buy into a trust that owns gold on your and many others’ behalf. The big issue with ETFs is third-party risk. Most gold investors are more comfortable taking physical delivery of their gold assets. However, gold ETFs are a useful tool if you are a very active trader.
Some critics of gold bullion prefer gold ETFs as a cheaper option, citing storage and insurance costs when you own gold bullion. Owning ETFs isn’t free, though; the average ETF carries an expense ratio of 0.44%, i.e., $4.40 annually for every $1000.
Gold Mining Stocks
Buying stocks in gold mining companies is the riskiest way to own gold. Gold can have vastly different production costs depending on where in the world the mining company operates, while the market will only pay so much.
Poorly managed mining companies can decimate your investment even while gold prices rise; however, if you’re confident in your research, you may also be able to profit more than gold prices increase by picking the right company. When you buy gold, make sure you’re buying it in a form that makes sense for your investment goals.
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