A Basic Guide on How to Invest in Gold
(Last updated in November 2023)
You have a number of options when it comes to investing in gold and silver. First we are going to start by looking at some of the most common ways that people answer the question of how to invest in gold. Starting with investing in jewelry.
▶ Investing In Gold With Jewelry
Many first-time gold investors decide to start their investments by buying jewelry. Jewelry is very easy to acquire but can also be very difficult to trade in. You need to ensure that you are getting gold that is at least 14 karats. Most jewelry will also have a pretty high markup due to the fact they are pieces of art not investment items.
Gold jewelry rarely reaches 24 karats because the gold at that point is too soft. You don’t want jewelry that will break too easily. When buying jewelry for investing in gold it is often done by looking for some of the most expensive pieces. Besides having a high karat count, you also want it to appear nice.
▶ Physical Gold As An Investment
One of the most popular gold investments is to purchase physical gold such as gold bullion, coins, or gold bars. Having something physical to hold means that you always have it at hand if you want or need it. As long as you buy from a legitimate seller, the gold will also be far purer than jewelry gold.
Physical gold does have downsides though. It can be difficult to liquidate if you don’t have a local gold buyer. Additionally, you have to worry about storage. If your gold is stolen, it is stolen! Most insurance companies will not cover precious metals stored at home. Collectible coins will also come with a markup.
▶ Gold Certificates As An Investment
You can also opt to buy gold certificates. These are certificates that you own certain pieces of gold that are stored at a company. You don’t need to worry about storing the gold and still have a gold investment. When buying gold certificates you need to be very careful to buy from a reliable backer. The number of companies that offer gold certificates is very limited.
▶ Gold Investments In The Form Of Gold Mining Stocks
A way to invest in a gold mine is to invest in mining stocks. You are basically backing the mining company and the prices of gold mining stocks follow the gold industry and the performance of the company. Gold mining has its risks though, remember it’s a dangerous business and this factors into the investment.
▶ Future Contracts For Gold Investing
When you buy a future contract you are looking to purchase gold that will be delivered at a later date. Sometimes this is from a gold company sometimes it is directly from the mine. The gold is bought at a set price and delivered later. It does have its downsides as you do have to trust the company to deliver on your gold investment.
▶ Gold ETFs As A Form Of Gold Investment
Stock markets around the world trade funds that change based on the price of gold. With a gold ETF you have a highly liquidated investment. There are often numerous fees involved in investments of gold ETFs.
These funds invest for their shareholders so you don’t directly own the gold. You own a portion of the overall gold in the form of a electronic fund.
▶ Mutual Funds To Invest In Gold
A mutual fund in gold is a collection of mining company stocks that are all pooled together. You get less risk by investing in a gold mutual fund because there are multiple companies. If one fails, you don’t lose your whole investment. You can find mutual funds from a variety of sources.
▶ Gold Investments By Allocated Gold Accounts
An allocated gold account is similar to a traditional bank account. Instead of storing cash in your bank account though, you store physical gold. In an allocated account you own specific pieces of gold. These accounts are typically only offered to those with high net-worth and not every bank offers these types of accounts.
There is another form of these accounts known as unallocated accounts. In an unallocated account you own a portion of gold but you do no own a specific piece of physical gold. These accounts can be somewhat merky as the gold is more of a credit from the bank.
▶ Different Forms Of Physical Gold For Investment
Several different types of physical gold exist when it comes to investing in gold. One of the most common types of physical gold is bullion. Most bullion takes the form of a slip of gold. A miniature bar that is made up of .999 purity gold.
Gold coins can also be considered bullion. A bullion coin is a standard piece of gold that is commonly trade. In general the purity is the same as a slip of bullion.
On the other hand there are numismatic coins that can also be invest in. These coins have more value than just the precious metal that they contain. That is because these are the type of coins that collectors trade in. While they may be a great option for when the financial world is doing well, if you want to be safeguarded, they are not a good option.
If the financial world isn’t doing well, buyers are looking to pay for the precious metal, not the collectors piece. This can make it hard to get the full value of a numismatic coin.
▶ Where To Buy Physical Gold As An Investment
For those that want to buy physical gold as an investment, they want to know where to go. You have a wide variety of options. Buying from the internet is a modern option that a lot of people choose to go for. When buying online, you want to make sure that you buy from a reputable dealer.
A better option than investing online is to find a local gold store. Most cities will have some form of gold or precious metal store. Sometimes these stores will be a part of jewelry store or a pawn shop.
Typically, the safest option to find a physical investment in gold is to go the US Mint. You can buy several different gold options directly from the US Mint. The mint tends to have a lower markup and is a reputable dealer. They won’t try to scam you.
Before buying physical gold you should come up with a plan for storing it. At the very least you should invest in a home safe. This will help to reduce the chances of someone getting access to your gold. You will want to look for a quality safe that can be bolted to the wall and isn’t easily countered.
Finding a safety deposit box is another option. If you decide that a safety deposit box is how you want to store your gold you will need to consider two factors: the monthly cost of the safety deposit box, and the trust you have in the bank. You want to pick a bank that you can trust.
As mentioned elsewhere in this article, most insurance companies will not insure gold or other precious metals kept on your property. It is important to contact your insurance company beforehand and discuss it with them. Those insurance companies that will insure it will want to verify the purity of the gold and the amount of the gold.
Insurance is crucial when storing gold in case of damage to your home and property or in case someone breaks into your home. This is especially true if you are looking to store a large amount of gold at your house.
▶ Another Way To Invest In Gold: Gold IRAs
Another option for gold investment is a gold IRA. Like traditional IRAs, gold IRAs are designed as a long term investment. Over time you add more gold into your retirement and then when it comes time to retire you can start to sell it off.
You can even rollover a traditional IRA into a gold IRA account.
Gold IRAs involve investing in physical gold. You find a company that sells gold for IRAs and then arrange for it to be stored with a custodian. Almost all gold IRAs require your money to be stored at a secure facility instead of at your home. This is partially for security and partially for the fact that you aren’t supposed to sell off your IRA until you retire.
Another thing to consider when looking at gold IRAs is that there are only certain types of gold that are allowed in an IRA. Bullion is the preferred investment method for an IRA. You can also invest in certain gold coins. Not all coins are eligible for investment in a gold IRA. Keep this in mind when shopping. The limit in gold investment options is one of the reasons that it is always best to shop with a company that has experience working with gold IRAs or specializes in selling gold for gold IRAs.
Investing in gold with a gold IRA is a very good option for investors as it allows you to invest in real gold that is secured for you. There are fees involved in the investment but they are typically minimal, especially if you spend the time to look around for the best sellers and custodians.
▶ How Should An Investor Invest In Gold?
Investing in gold is something that takes a fair amount of research. There is no option that is perfect for every investor. Each option has pros and each option has its cons too. Look at the option that you want to invest in and determine which one is right for you.
Gold investments are not completely safe investments. There is no investment that has a good return that doesn’t have risk. For this reason it is highly advisable that you do not put all of your eggs in one basket. You want to have a good mix of investments.
The most common reason to have a gold investment is to protect yourself when your other investments fail. That means you need to have other investments that have the potential to give you a payout. You should also consider the ability to liquidate gold, it isn’t that easy to liquidate gold at a moment’s notice. Especially since you want to sell gold when the prices are favorable for you. Most investment experts say that you should keep your investments in gold to around 10-20% of your portfolio.
In addition to this you want to determine your purpose for investing in gold. Are you looking for a long term retirement plan? Or are you looking to have a precious metal should the financial market completely collapse? Some investors are also just looking for a way to make money over time with no specific goals.
The reason this is important is that there are numerous forms of gold investments that don’t actually give you gold in hand. For investors that are looking to have a safety net that they can access at any time, having gold in hand is an important consideration. This is typically where physical gold is most popular.
At the same time, just stashing some gold under the bed may not give you the best return rate. Most of the other options have a bigger return rate but come with a little more work. This consideration further ensures that there is no one option that is right for everyone who is looking to invest in precious metals.
Those who are looking to invest in gold should take their time when making the investment. Not only do you want to pick the right type of gold investment for your needs, you want to make sure you buy at the right time. Gold prices fluctuate and you want to do your best to buy gold when it is at its lowest price.
Doing some research into the history of gold prices will help you to predict when it will be the best time to buy. You should keep in mind when buying that prices will always fluctuate, if you buy when it is low and it dips even lower, don’t stress out. Gold has dipped in the past but it always comes back up.
One thing to keep in mind is that with some gold investment options, there is no immediate need to plunge all of your money in right away. For some it may be better to build up your portfolio over time so that you always have your money available for when you need it.
It is important to consider if it is the right time in your life to be investing in gold. If you already have investments set aside and are just looking to diversify your money, it may be the right time for you. However, you don’t want to invest immediately if you do not have the money to spare. Always take your finances into account when investing in anything.
▶ Keep An Eye On Your Investment
An important note is that you should always keep an eye on your portfolio. Investments grow and shrink over time and you may come to a point where your gold investments are a higher percentage of your portfolio than you want it to be. If this point ever arrives it is time to decide whether you want to sell a small portion of your gold or you want to keep it as a continued investment.
Say gold is having a really good year and it is up to 14% of your portfolio and your original goal was to keep it at 10%. You may want to consider selling off around 4% of your gold investment so that gold isn’t overwhelming your portfolio. You can always invest the profits elsewhere in your investment portfolio.
Investing in gold is a choice that has to be made by each investor individually. It is a great way to hold money in case of a recession or depression in the financial world but it doesn’t come without its risks. You also want to ensure that you have enough money to make your starting investment. Consider all of the factors before making a decision.
It doesn’t hurt to go see a financial consultant if you are unsure of how to work gold into your current investment portfolio. They can help you to find a way to diversify your savings with precious metals while not putting too much at risk. Plenty of content on the internet is also available when it comes to investing in gold and other precious metals. Remember, an educated investor is a good investor.
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