Invest in Gold in 2024
In general, investors who want to invest in gold directly have three alternatives: buy the actual metal, buy shares of a mutual or exchange-traded fund (ETF) that tracks the price of gold, or trade futures and options in the commodities market. Average investors, for example, may buy gold coins, whereas experienced investors use gold futures contracts to implement schemes.
Buying Gold Bullion
Gold is more accessible to the average investor than other commodities since it may be purchased directly from a precious metals dealer or, in some situations, a bank or brokerage.
Bullion bars range in size from a quarter-ounce wafer to a 400-ounce brick, although rookie investors often prefer coins. Not to be confused with vintage numismatic coins, these are new issues priced based on their gold content plus a premium. According to Jamie Whelan, CEO of First Capital Gold, most customers prefer the most commonly circulated gold coins, such as the South African Krugerrand, the American Eagle, and the Canadian Maple Leaf. Whatever you choose, make sure you buy from a reliable dealer, whether in person or on the Internet. Gold coins must be kept in a safe, either at home or in a bank. Also, make sure you insure them.
Gold jewelry also allows the investor in gold to experience the enjoyment of wearing it. Gold is often combined with other precious gems and metals to enhance the overall value and appearance of the jewelry. Pieces are often passed down to the next generation as family heirlooms, adding sentimental value beyond that of the piece itself. Jewelry is not typically the best option if it’s strictly an investment, because the retail price will usually far exceed the meltdown value. This is due to the workmanship involved and the retail markup. Always determine the purity of the gold before buying jewelry, so that you don’t pay for 18 karats when you are only getting a 14-karat piece.
Jewelry is covered by most homeowner insurance policies, which is an advantage should it be lost or stolen.
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Buying Gold Funds
Although it’s more feasible than, say, a barrel of oil or a crate of soybeans, owning physical gold has its hassles: transaction fees, the cost of storage, and insurance. Investors interested in a more liquid and low-cost entry into the gold market might instead consider mutual funds and exchange-traded funds that replicate the movements of the commodity
SPDR Gold Shares (GLD), for example, is one of the industry’s oldest ETFs, having been launched in 2004. Shares trade on the New York Stock Exchange and can be purchased or sold at any time during the trading day, just like stocks. Each share of the ETF is equivalent to one-tenth of an ounce of gold.1 For example, if gold is priced around $1,300 per ounce, the gold ETF will sell for about $130 per share. GLD only invests in bullion, offering investors direct exposure to the metal’s price movements. Other funds invest in both bullion and publicly traded companies that mine, refine, or produce gold.
Generally, gold stocks rise and fall faster than the price of gold itself. Individual companies are also subject to problems unrelated to bullion prices—such as political factors or environmental concerns. So investing in an ETF that owns gold stocks is a higher-risk way to play, but it does offer appreciation potential—which investing in bullion does not.
Buying Gold Futures Options
More experienced investors who do not want to put too much money at risk may want to look into gold futures or gold ETF options. These contracts provide the right—but not the obligation—to buy or sell an item (gold in this case) at a specified price for a certain period of time. Options can be employed whether you believe the price of gold is rising or falling. If you predict incorrectly, the greatest risk involved with purchasing options is the premium you paid to enter the contract.
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Put and call options on gold futures are available on the Chicago Mercantile Exchange in the United States and can be purchased and sold through a futures broker. Investors can also trade options on the SPDR Gold Shares ETF using a conventional brokerage account that has been approved for option trading.2 Meanwhile, some traders buy and sell gold futures contracts—traded on the CME under the symbol GC—to speculate on short-term price movements in the yellow metal.
Buying Gold Mining Stocks
If you can’t get your hands on actual gold, you may always check into gold mining stocks. Keep in mind, however, that gold stocks may not always move in lockstep with bullion prices. Mining businesses succeed or fail based on their particular operating performance and how they use capital and generate profits. You do not have the security of actual possession of the metal if the firms you acquire fail.
The Bottom Line
ETFs are the best way to go if you’re buying gold as part of a portfolio diversification strategy. If you want protection in the event of a system-wide crisis, you’d want to own the physical metal.