How to Invest in Gold: Best Ways to Diversify Your Portfolio

How to Invest in Gold: Best Ways to Diversify Your Portfolio

Gold has always been a popular choice for investors throughout history. It safeguards against various uncertainties like inflation, economic instability, currency fluctuations, and even times of war.

When considering investing in gold, it’s essential not to limit yourself to physical forms like coins or bullion. There are other ways to invest in gold, such as buying shares of gold mining companies or investing in gold Exchange-Traded Funds (ETFs).

Options trading and futures contracts provide alternative avenues for investing in gold. These different options give investors flexibility and the chance to take advantage of the potential benefits of including gold in their investment portfolios.

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How to Invest in Physical Gold

For investors who are used to trading stocks and bonds online, investing in physical gold can present some challenges. Unlike traditional brokerages, dealing with physical gold often involves interacting with dealers outside the usual channels. 

Extra costs are involved, such as storage fees and needing insurance for your investment. When investing in physical gold, you have three primary options: bullion, coins, and jewelry. These different forms offer various advantages and considerations for investors looking to diversify their portfolios.

Gold Bullion

When most individuals consider investing in gold, they typically envision bullion, large, gleaming gold bars securely stored in a vault. Gold bullion is in various sizes, ranging from a few grams to 400 ounces. However, the most commonly found options are one-ounce and ten-ounce bars. 

The current price of gold stands at approximately $1,900 per ounce (as of September 2020), so investing in gold bullion is quite costly. Unlike stocks where fractional shares are possible, there’s no way to acquire a fraction of a gold bar.

Due to the high cost associated with gold bullion, it’s essential to engage with a reputable dealer and bear expenses for delivery, including insurance, or opt for storage at either a large vault or within a secure deposit box.

If you decide to invest in gold through bullion, it’s wise to stay informed about the fluctuating price of gold. This will enable you to identify opportune moments for purchasing, as most dealers update their prices based on current spot prices regularly.

Gold Coins

One or two-ounce gold coins are the most commonly found, although there are also options for half-ounce and quarter-ounce coins. 

The well-known gold coins that collectors seek after include the South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles. In addition to these collectible coins, some dealers offer blanks and damaged or worn pieces.

Note that the prices of gold coins do not always directly correlate with their actual gold content. Collectible coins in high demand often come with a premium price tag. For instance, a one-ounce American Gold Eagle coin was selling for just over $2,000 in mid-September 2020, nearly a 5% increase compared to its equivalent value in bullion.

While you may have the potential to find better deals on gold coins from local collectors or pawn shops, it’s generally safer to make purchases through reputable and licensed dealers.

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Gold Jewelry

Investing in gold jewelry can be an alternative option for those looking to buy wearable gold or damaged pieces that were previously worn. However, investing in gold jewelry comes with certain risks not present when investing in pure gold.

One of the main concerns when purchasing secondhand jewelry is ensuring its authenticity. Ensure that you buy from reputable dealers, as this will not only matter to you but also to potential buyers if you decide to resell the piece later on. 

To minimize risks, it’s advisable to obtain as much documentation as possible when purchasing investment jewelry.

Another factor to consider when buying gold jewelry is the markup associated with the design and manufacturing company. The price can vary significantly based on factors such as brand reputation and craftsmanship, leading to a markup ranging from 20% up to three times the value of the raw precious metal.

Understanding your jewelry’s purity level or gold percentage is essential. Gold purity is measured in karats, with 24 karats representing 100% pure gold. Lower purity levels result in a decrease in melt value, the weight of your jewelry’s components if melted down into pure gold.

While investing in gold jewelry offers unique opportunities for owning wearable investments, it’s important to be aware of the potential risks involved. By being cautious about authenticity and obtaining proper documentation from reputable dealers, individuals can navigate these challenges effectively and make informed investment decisions.

Gold IRA

A Gold IRA is a popular investment choice for individuals looking to add diversity to their retirement portfolio. 

This option allows investors to hold physical gold and other precious metals within a tax-advantaged account. The main advantage of a Gold IRA is its ability to act as a hedge against economic uncertainties and inflation. 

Throughout history, gold has been considered a safe-haven asset, providing security in market volatility. However, before deciding on a Gold IRA, it’s important for investors to consider associated fees, reputable custodians, and long-term performance compared to other assets to make an informed decision.

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Invest in Gold by Purchasing Stock in Gold Miners

Investing in the stocks of gold mining, refining, and trading companies offers a simpler alternative to purchasing physical gold. With this approach, you can invest through your brokerage account by buying shares in these companies. 

Several well-known stocks in this industry are highly favored by investors.

  • Newmont Corp. (NEM): Newmont stands as the largest gold mining company globally, with its headquarters based in Colorado. The company conducts mining operations across North and South America, as well as in Africa.
  • Barrick Gold Corp. (GOLD): This leading gold mining corporation, headquartered in Toronto, operates across 13 countries on a global scale.
  • Franco-Nevada Corp. (FNV): Franco-Nevada takes a unique approach by not owning gold mines but, instead, acquiring royalties from other gold mining companies.

Remember, that the stock shares of gold companies are connected to the price of gold but are also influenced by factors specific to each company’s current financial performance and expenses. 

This implies that investing in individual gold companies carries comparable risks to investing in other stocks. Individual stocks can be subject to a certain degree of volatility and do not offer the same level of security as diversified funds.

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Invest in Gold ETFs and Gold Mutual Funds

Investing in gold Exchange-Traded Funds (ETFs) and mutual funds can provide exposure to the long-term stability of gold while offering greater liquidity than physical gold and more diversification than individual gold stocks. 

There’s a variety of different types of gold funds available. Some are index funds that passively track industry trends or the price of bullion using futures or options.

One example is the SPDR Gold Shares ETF (GLD), which holds physical gold and deposit receipts, with its price mirroring that of physical bullion. On the other hand, there’s the VanEck Vectors Gold Miners ETF (GDX), a passively managed fund that tracks a selection of stocks from gold mining and refining companies.

Professional investors, such as those at Franklin Templeton’s Gold and Precious Metals Fund, actively manage their holdings in gold mutual funds. These funds aim to outperform passively managed index funds but typically charge higher expense ratios in return for this active management approach.

Remember that when investing in gold stocks, you’re not buying gold itself. Instead, you’re purchasing paper assets theoretically supported by the debt or equity of mining companies, as well as futures and options contracts for physical bullion. 

Consequently, the value of gold mutual funds and ETFs may not perfectly align with the market price of gold, and these investments may not yield the same results as owning physical gold.

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Top 3 Companies to Invest in Gold With

Goldco – Best Gold IRA Company Overall

Goldco, a privately owned gold IRA company based in California, brings more than ten years of experience to the table in the precious metals industry. Their expertise lies in gold IRA services and asset protection. They offer assistance for starting new gold IRAs and rolling over existing ones, as well as guiding customers through tax-advantaged retirement plans. 

It’s worth noting that Goldco doesn’t charge fees directly; however, additional costs are involved such as custodian fees, setup and annual maintenance fees, and storage fees ranging from $150 to $200 per year. 

To open a gold IRA account with Goldco, the minimum initial investment required is $25,000. Customers must also complete an account opening process with the help of a representative. With thousands of positive customer reviews giving them an average rating of 4.8 out of 5 stars, Goldco has clearly left many satisfied clients in their wake. 

These reviews highlight their excellent communication skills, efficiency in handling transactions, deep knowledge within their field of specialization and superior customer service standards. However, it’s important to mention that customers have raised some complaints regarding high markups on products offered by the company, misleading information provided during sales pitches, and delayed payout times. 

For any concerns or inquiries related to their services, customers can reach out for support between Monday to Friday from 7 AM till 4 PM PST either via phone or by using the chatbot available on their website. Check out our Goldco Gold IRA review.

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American Hartford Gold – Best Gold IRA Company for Small Investments

American Hartford Gold has built a reputation for delivering exceptional customer service in the precious metals IRA industry. They go above and beyond by providing online resources and a dedicated support team to assist their clients. 

On their website, you’ll find informative pages, news articles, price charts, fact sheets, and FAQs that cover everything you need to know about gold and other metals. One thing that sets them apart is their commitment to transparent pricing – they prominently display the current prices of gold and silver on their homepage.

Customer reviews consistently mention knowledgeable specialists who guide customers through various processes like purchasing gold coins or setting up gold IRAs. 

When it comes to choosing a precious metals dealer, it’s important to carefully consider both the advantages and disadvantages to find the best prices and services available. Check out our American Hartford Gold review.

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Augusta Precious Metals – Best Gold IRA Company for Customer Support

Augusta Precious Metals

Augusta Precious Metals, established in 2012 under the leadership of CEO Isaac Nuriani, provides a selection of silver and gold coins as well as bars for individuals looking to invest in an IRA. The company ensures that its metals are of high quality, with a purity level of 99%, except for the American Gold Eagle coin.

The pricing structure can be accessed through their online platform and is determined by adding a margin to the base price. This margin may fluctuate depending on supply, demand, and overall economic conditions. 

Augusta actively encourages potential investors to compare their prices with other dealers to make informed decisions. They offer new investors a seven-day grace period during which they can reverse transactions if necessary. Read the Augusta Precious Metals review for more information.

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Use Futures and Options to Invest in Gold

When it comes to investing in gold, trading futures or options contracts is the most risky approach. This type of investing is considered speculative and involves derivatives. Derivatives are financial instruments whose value depends entirely on the price of an underlying asset.

A futures contract is an agreement to buy or sell a security at a predetermined price on a specific date, regardless of the current market conditions. On the other hand, an options contract gives you the choice to buy or sell a security if it reaches a certain price before or on a specified date.

To engage in futures or options trading, you will need an account with an online broker that offers these investment vehicles. While many online brokerages provide access to these securities, they may require additional forms acknowledging the risks associated with investing in derivatives from their account holders.

Once you have set up a brokerage account for trading options or futures, you can buy and sell them through the platform directly. The platform typically charges a commission for all options and futures trades, which can vary depending on the number of contracts that are bought or sold.

Individuals who opt to invest in gold using options or futures contracts must actively monitor their holdings to sell, roll over, or exercise their options before they become worthless. It’s important to note that each option comes with a certain level of leverage or debt by default. 

Therefore, investors who rely too heavily on these instruments and experience market losses may find themselves facing significant losses rather quickly.

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Should You Invest in Gold?

Investing in gold can provide a safe haven for those concerned about inflation and other potential disasters. While gold can be volatile in the short term, it has consistently maintained its value over long periods.

Depending on your risk tolerance and personal preferences, there are various ways to invest in gold. These include physical gold, gold stocks, gold ETFs, and mutual funds, as well as speculative futures and options contracts. It’s advised by experts to allocate no more than 10% of your investment portfolio to gold.

Like any form of investment, there are risks involved with investing in gold. However, the unique nature of the gold market means that it takes time to understand its intricacies fully. 

For this reason, many investors opt for safer options, such as investing in gold ETFs or mutual funds. These choices allow investors to benefit from the stability and allure that come with owning some amount of physical or paper-based representation of this precious metal.

In conclusion, while investing in any asset carries risks, if you’re looking for stability along with potential gains over the long term, adding some exposure to Gold may be beneficial but remember not all eggs should go into one basket!

How to Invest in Gold? – FAQs

What Is the Highest Price of Gold in History?

In the past, Gold achieved its highest-ever level of 2074.88 in August 2020. The data, forecasts, and historical chart for Gold were last updated in July 2023.

How Do I Start Investing in Gold?

Investing in physical gold is typically done by buying gold bullion. Gold bullion refers to high-quality investment-grade gold, which can come in the form of bars, ingots, or coins. Investment-grade gold always has a minimum purity level of 99.5 percent. 

Gold bars are usually marked with the manufacturer’s name, weight, and purity information engraved on them.

Bottom line – How to Invest in Gold

Investing in gold isn’t suitable for everyone, and certain investors prefer investing in businesses that generate consistent cash flow rather than relying on the fluctuating value of precious metals. 

This is one of the reasons why well-known investors like Warren Buffett discourage investing in gold and instead recommend purchasing shares of businesses that generate regular income. Owning stocks or funds offers the advantage of high liquidity, allowing you to convert your investment into cash when necessary.

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