How To Invest in Gold: Know Your Options For Diversifying With Precious Metals

By John Simpson

August 17, 2021

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Investing in gold is key to hedging against inflation and both balancing and diversifying your portfolio. Gold has historically held its store of value throughout time, and in fact, its price has continued to increase. Selecting stocks and other securities comes with additional risks and increased volatility.

Gold typically generates a respectable return over time, especially when held as a long-term investment.

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Investing In Gold For Your Future

Gold is just one of the many commodities that you can invest in to hedge against inflation. Since gold is a store of value, people have a lot of faith in precious metals. Gold is, after all, a commodity that has been used for many centuries.

There are quite a few ways for you to get started investing in gold. Knowing the differences among the types of gold investments is key to identifying risks and weighing them against potential returns. You want to make measured moves as an investor, and that requires the knowledge necessary to make the best investment decisions.

Gold prices do fluctuate quite often. Therefore, gold is not an ideal investment for people checking daily returns and worrying about dips. Only invest in gold if you are willing to hold the commodity for the long term. People holding gold over the long-term hedge against inflation, and their diversified portfolios typically fare better during economic downturns.

Why Choose Gold?

While gold prices may appear volatile at times, do not be discouraged. Throughout history, gold has continued to increase in value over the long term. Furthermore, when traditional securities and the rest of the market are waning, gold typically outperforms other assets.

Gold not only helps hedge against inflation and economic downturns, but it adjusts the level of risk for your portfolio in general. Physical gold is available in the form of bullion, coins, and jewelry. Gold funds or ETFs are another way to include this commodity in your portfolio, and you can also invest in gold mining companies.

Buying Gold

Do you plan to purchase some gold? Whether you plan to purchase a lump sum all at once or dollar cost average over time, gold is a great long-term investment. People do trade gold and gold futures as short-term investments, too.

You can find some great deals on gold at estate sales and pawn shops. Be on the lookout for various gold coins and pieces of gold jewelry. You might get lucky and purchase some physical gold for much less than it is worth. If you do buy physical gold, be sure to store it safely and securely.

It is very easy to purchase physical gold online, too. You are going to learn more about this in a minute. First, do you already have a substantial investment portfolio? If so, consider adding gold funds as securities.

Purchasing Gold Equities

Before you make any purchases, you need to familiarize yourself with the various types of gold equities available to you as an investor.

There are gold mutual funds and ETFs. You can purchase a gold ETF that tracks the spot price of gold, acting as though you had physically purchased the asset. Some investors like gold futures, primarily for trading purposes, and there are also government-issued gold certificates.

You can also invest in gold mining stocks, and there is even a gold ETN or exchange-traded note that is all about paying dividends based on the premiums from written covered calls. The ETN is available from Credit Suisse.

When deciding to invest in gold equities, consider the differences in volatility among your favorites. Many people choose to have both physical gold and gold equities. Remember that a lack of diversification always makes you more susceptible to market volatility.

Nowadays, purchasing gold equities is very easy. There are platforms like Robinhood that feature collections of gold equities. Apps make it easy to purchase securities. All you do is log in, find the stock you want, tap the buy button, and you are now the owner of gold equities. Of course, you have to decide what you want to buy first, and that is not always easy.

Gold should be part of your nest egg for sure, but you do need to determine the percentage of your portfolio you want to allocate toward this type of investment. Consider how gold helps you hedge against inflation and provides you many other benefits as an investor; however, gold is not an investment that typically generates quick returns.

Therefore, investors typically allocate anywhere between 5 and 15 percent of their portfolios to gold.

Ideally, the sooner you make a gold investment, the longer it is allowed to mature over the years. You are talking about building a foundation for your retirement. The historical gold charts and their data point to an asset that has always appreciated in value. Gold is the choice portfolio stabilizer, and many investment analysts would agree.

Purchasing Physical Gold Bullion

How do you go about purchasing physical gold? There are all kinds of reputable gold dealers out there, but it is best to always use a seller that is tied to one of the government mints. You can buy gold in quite a few different increments, including grams. Most people purchase gold bullion by the ounce.

If you are the type of investor that prefers a physical asset, then raw gold bullion is for you. This is about as good as it gets, but do you plan to store your own gold? If so, this long-term investment of yours must be stored in a safe location. Otherwise, some companies will store your gold for you.

APMEX and Royal Canadian Mint are two reputable sources to check out when looking to buy gold. When you do purchase gold, it is important to note the markup. You can compare how much companies charge over the spot price.

What currency are you going to use to purchase the gold bullion? You can even buy gold with crypto these days. Just remember, always note the exchange rates because you want to get the best deal.

You must go through a reputable dealer or seller so that you do not have to worry about having your gold appraised. A deal resulting in fake bullion would be heartbreaking. That is a lot of money down the drain. Do not cut corners when investing in gold as a precious metal.

It is also important to know about a seller’s buyback policy, even though you have no intention of selling the gold. In the event you did sell, however, you do not want that second premium charge. You want there to be what’s called a buyback clause in the paperwork for the gold you are buying.

Gold Coins

Numismatic gold coins and sovereign gold coins are the two major types. Sovereign coins are produced by a government mint. These coins have a face value that is overshadowed by their value in gold.

Collectors favor numismatic coins, and this can make them more valuable. While this makes numismatic coins sound appealing, investors steer clear unless they wish to become collectors themselves. Numismatic coins are rather illiquid when compared to most other types of gold investments.

Dealers authorized by a government mint are the best source for obtaining sovereign coins. You will be presented with quite a few options, and it is important to know the most popular choices. That will help you decide which sovereign gold coins to buy.

The American Gold Eagle is very popular among US investors, but many people prefer buying multiple types. There is the American Gold Buffalo, too, and then there are coins from other countries, such as the South African Krugerrand and the Canadian Maple Leaf.

Just like with physical gold bullion, sovereign gold coins can be purchased in person and online from multiple sources. One trustworthy site to check out is Wholesale Coins Direct.

Learn Why Now Is A Better Time Than Ever To Invest In Gold!

Buying Gold Funds

When buying gold funds, you want to distinguish between gold ETFs tracking the spot price and gold commodities ETFs. There are also gold mutual funds. The first gold ETF based in the United States was issued in 2004. You trade all types of gold funds just as you would stocks.

This is another easy way to diversify your portfolio by investing in gold. Choose a variety of these funds, and you will further diversify your nest egg.

Gold ETFs are great for smaller investors, too, because less of an investment is required to get started. Naturally, you also get to skip worrying about having to store any gold. All of your assets are represented digitally yet backed by physical assets.

When you decide to purchase a gold exchange-traded fund or mutual fund, you would simply visit your broker’s app, type in the symbol, and connect with the chart. Hit the buy button, and you are the owner of shares in whichever gold funds you plan to purchase.

Many new investors simply start with GLD, which tracks the spot price of gold. It is essentially the same as owning physical gold.

Investing in gold ETFs and mutual funds provides opportunities whose risk levels vary. Some are tied directly to the spot price of gold, while others are chasing after gold commodities futures. The more you dig, the more you find, like the gold ETF mentioned earlier.

Low minimums make gold ETFs quite attractive to most investors. You do not need a ton of cash for gold alone to invest in the asset. With a small amount of money, you can start diversifying and stabilizing your portfolio. It’s a cakewalk when you buy gold ETFs, and you can take that to the bank.

Gold mutual funds are great for investors, too. At this point, you also want to be thinking about what percentage of your gold allocation you are going to supply to each type of gold investment. Now, that does not mean you have to make investing complicated. Investing is two things: First, it is a business. Second, it is fun.

Therefore, spend some time getting to know gold mutual funds and the other types of investments. You want to know how much of your money you want to put into each one. While most investors with larger nest eggs do have more than one type of gold investment, they do not necessarily run the gamut.

In other words, do not feel as though you must put all the funds into your fold. You are a businessperson, not a mother hen.

Gold Futures

Options and gold futures represent an opportunity to make a substantial amount of money; however, they also represent an opportunity to lose big time. When dealing in gold, the risks are lower than trading stock options, but you still need to know what you are doing.

The best way to learn is through experience, so you would need a broker that provides you access to this type of account. Once you establish yourself within this niche, you can trade gold futures and options.

Buying Gold Funds

First, you need to practice trading. If you use a bank brokerage, you are not provided with that opportunity; however, there are opportunities online for you to practice trading gold futures and options.

Understand that options (yes even gold options) are for more advanced investors. Gold futures do provide you with more control, but they are also for more advanced investors. It pays to know what you are doing, and this nest egg deal is a lifelong process.

It is in your best interest to make as many smart moves as you possibly can, and that means starting with what you know, simultaneously learning what you do not know.

The rollover option for gold futures provides significant advantages to holding physical gold in terms of storage fees. If you are interested in this type of investment, but you are new to gold futures and options, this is a great place to start looking around. If you need a broker, E-Trade is one reputable broker you might want to use.

When trading gold futures, you can take long or short positions. If you take a short position, you are essentially short selling the commodity like you would a stock. You plan to use some of the money you are making now to buy that gold later for less. The long position is your buy-and-hold type strategy, only gold futures style.

Gold futures contracts do provide investors with certain flexible advantages, including leverage, that they do not get when simply trading gold as a physical commodity.

Gold Jewelry

Perhaps there is no other type of gold investment that prompts people more to know the industry before making investment decisions. Buying from a jeweler means you are significantly overpaying. You might end up making money one day, but it is likely to take quite a few decades.

Gold Jewelry

Private sellers offer gold jewelry at more reasonable prices. The only problem is that you must know what you are doing. It may seem easy, but there are quite a few situations that would surprise anyone that doesn’t have the right knowledge about gold jewelry. For starters, skip the auctions.

While they do offer appraised jewelry, that bit of help inflates the prices.

The value of each piece of gold jewelry highly depends on purity. You want to locate the 99.99% marking, and you want to note the karats. A 24-karat gold piece of jewelry at nearly 100 percent purity is going is worth its weight in relation to the spot price of gold.

Naturally, gold jewelry can also be worth more than that depending on the piece, and that is where things get interesting.

The antiquity of a piece of gold jewelry can make it extremely valuable. Granted, your hunt for buried treasure can be rather exhausting, and it should be stressed again that you seriously need to know what you are doing. You want to discover gold jewelry at costume jewelry prices, not costume jewelry at gold prices.

In all seriousness, most people would not make that mistake, but you do not want to overpay for gold jewelry.

Learn Why Now Is A Better Time Than Ever To Invest In Gold!

Gold Certificates

Gold certificates used to be more popular than they are these days. They are one of the more traditional options for investing in gold without having to worry about storing it yourself. Banks still issue gold certificates, but the terms have changed.

They essentially sign saying they owe you gold, but you do not hold a gold certificate that represents actual gold. This is true despite the bank itself owning physical gold. Banks can be so stingy, but hey, you need strong banking relationships as an investor.

Gold Certificates

This type of gold investment comes with a cheaper premium than some other investment vehicles mentioned. On the flip side, banks may divest without notice.

Here’s the catch: This is a long shot, but the possibility is enough to scare away many investors. Let’s say the bank goes bankrupt. You have an IOU, not the gold. The bank has the gold. You have a substantial risk of losing all the money you put into the gold certificates. Is this type of investment too risky for you?

Before you think about the time you heard someone mention allocated gold certificates, cut straight to the storage fees. Unless your name is Warren Buffet, you might want to pick a different storage solution for physically owning gold. Still, gold certificates do play their part in the industry.

Furthermore, some people prefer to build a substantial position in gold at the same bank in which they do business.

Just remember that investing is an enormous game of diversification. That is the reason you are investing in gold. There are ways to store gold for much cheaper prices. There is an app called One Gold that allows you to purchase precious metals and charges reasonable fees for storage.

Should You Invest In Gold?

After everything you’ve learned, you might still be wondering if investing in gold is right for you. Many financial analysts would certainly recommend at least a 5 percent allocation of your nest egg to precious metals with a heavy priority on gold. That percentage could fluctuate if you dip heavily into other types of commodities.

Remember, you can hedge against economic downturns and inflation.

That said, gold is better as a long-term investment. That goes for gold futures, too. If you want to short gold futures, you might have some unlucky days. Furthermore, options contracts provide a type of leverage people typically do not even think about. This leverage is great, but it also comes with additional risk.

Investors in gold must exercise patience if they want to benefit from their investment over the long term. If you are trying to make quick returns with your capital, gold is not for you. Most people would advise steering clear of gold if you do not have enough money but like with all other investment vehicles in today’s world, you can start buying gold with as little as $5.

Why Is Gold In Such High Demand?

Investors consider gold to be a safe, secure investment vehicle. The demand for gold is split almost right down the middle between the jewelry industry and investors. The demand for gold, however, is not what drives its value. Historically, and oddly enough, the value of gold has been driven by its store of value more than anything.

There is also a small amount of gold used in the dental and electronics industries.

People mistakenly think that gold is all about supply and demand. While this principle of business does weigh in somewhere along the way, that somewhere is long gone. There is much more gold in supply than this world will ever need. You could argue that supply and demand are then legitimate due to investor interest.

Investors are interested because the idea behind the old-school gold standard stuck around.

It is gold’s store of value that drives its price. Its store of value is determined by many economic factors and how investors relate to the market at any given time. Supply and demand have little to do with the price of gold, unlike with other commodities, including silver. Silver sets its own standard, but it is heavily used in manufacturing.

Ask yourself why people buy gold when the prices of other commodities are all free falling. It is an interesting thought to ponder. Gold is a safe haven.

During an economic recession, investors typically witness most commodities prices free falling. Everyone panics and people begin selling. Guess what happens next. The Gold Rush begins. Whatever gold you own starts increasing in value dramatically, and this, in turn, promotes newcomers to gold.

Gold typically holds its value and starts climbing during recessions, and paper currency just doesn’t hold a candle to that. The US dollar may no longer be technically backed by gold as it once was, but you can be certain it is measured against the price of gold. That is the new ultimate gold standard.

Final Thoughts

Gold investors are likely to do well over the long term, no matter the investment vehicle. The two exceptions are risky underperforming mining stocks and shorting gold futures. While gold is an important part of your portfolio, you want to branch out into other commodities as well. Think about how you want to continue your path of diversification.

Learn Why Now Is A Better Time Than Ever To Invest In Gold!

John Simpson

About the author

Welcome! In these perilous times of government overreach, reckless fiscal and monetary policies, shutting down small and medium sized businesses and paying people not to work, it has become my mission to protect my assets, my family's assets, and educate as many folks as possible on ways to protect their savings, retirements, and purchasing power, from rapidly devaluating fiat currency.

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