There is always a debate about whether or not it is a good idea to invest in gold. Some people swear by gold and believe that this is the answer to surviving the zombie apocalypse.
Others say it just has no cash flows and has made poor returns. Whatever you think of gold, one thing is certain, it helps diversify a portfolio.
We won’t be discussing the benefits of investing in gold for this article. There is already a lot about it on the internet. In this post, we will focus on how you can start investing in gold. We’re going to split the investment opportunities into two avenues – paper and physical gold.
How to invest paper gold
Paper gold means investing in gold indirectly through stocks, ETFs, options and futures. There are a few reasons to go this route instead of investing in physical gold:
- No storage fee
- Lower transaction costs
- Possible dividends or cash flows
For investors who want exposure to gold without the hassles of owning the physical asset, paper gold products are an excellent choice. We mentioned four asset classes above. Let’s go over each one to understand what it is about.
Invest in gold stocks and ETFs
Gold stocks and ETFs have the cheapest transaction costs (possibly $ 0 with these brokers) and are the easiest to invest. You can invest in gold mining stocks and ETFs that track gold.
Popular gold mining stocks include Barrick Gold Corporation (GOLD), Jaguar Mining Inc. (JAG.TO), and B2GoldCorp (BTG).
Well-known ETFs backed by physical gold include the SPDR Gold Trust (GLD), the VanEck Merk Gold Trust (OUNZ) and the Aberdeen Standard Physical Gold Shares ETF (SGOL).
Invest in gold options
Gold options are a little more advanced in that they use a lot of leverage. One options contract is equal to 100 shares of the underlying stock or the ETF.
Especially when buying options, you need to be careful which strike you choose as they will decrease over time. Unlike a stock, which lets you hold the shares indefinitely, an option eventually expires, which can mean you lose all of your investment.
connected: Options Trading 101: What You Need to Know to Get Started
Invest in gold futures
Of the paper gold options listed in this guide, this is the most advanced. Futures are the closest thing to trading physical gold without actually owning gold bars.
In the following section on physical gold, the spot price is mentioned a few times. The gold spot price is based on the gold futures contract price.
Like options, futures are heavily indebted and eventually expire. You can also get physical gold if you don’t sell the futures contract before it expires.
How to invest in physical gold
Owning physical gold is somewhat mystical. Unlike paper products, you can touch physical gold. You can put it in your vault, ship it for storage at a remote location, or trade in secondary markets.
However, owning physical gold costs more than owning paper products, both to source and to store. We both set out below.
The price of gold bars or gold coins is based on the spot rate, which generally follows the gold futures contract. A premium from the gold dealer is added to the spot price.
This merchant markup is essentially the transaction cost, although a separate fee may apply. These transaction costs are much higher than any commissions you pay online for buying paper gold products.
Next comes the storage fee. You need to keep your physical gold in a safe place. This means both a safe and a fireproof place. Some people choose to keep their gold in a home safe. While this saves money on storage costs, it makes the gold prone to high heat in the event of a house fire.
Instead of keeping gold in a home safe, some keep it in a bank safe. The problem with lockers, however, is that the contents are not insurable. In addition, the bank is not liable if something happens to the contents of your safe deposit box.
There are also precious metal stores. They specialize in the storage of gold, silver and other precious metals. Some of these establishments can even buy your gold when they are ready to sell it. Some even offer insurance for your content.
Vaulted is an example of a company that sells physical gold and offers flexible storage options. With Vaulted, you can pay a 0.4% annual maintenance fee to hold the gold in the Royal Canadian Mint or have it shipped to you via FedEx. Buyers also pay a 1.8% transaction fee.
At some point you want to sell your gold. Now you need to find a buyer. Here, too, there are high transaction costs. Plus, nothing says the buyer will have to pay the spot gold price, which means you might get a worse price.
Buying paper gold products through an inexpensive stockbroker is an easy and inexpensive way to invest in gold today. However, once you’ve done your homework on buying and keeping options, investing in physical bars or coins can further diversify your gold holdings and overall portfolio.
Finally, you can invest in silver too!