What’s the best way to invest in gold? 🤔
Gold is an essential part of every investor’s portfolio. But what’s the best way to own the precious metal? Does it matter what kind of gold you’re invested in? The answer is: yes! There are several ways to own gold, and each way offers different benefits and drawbacks depending on your situation. In this post, we aim to cover a few different ways you can own the precious metal and which one may be best for you.
One popular way to own gold is to buy it through a mutual fund or an Exchange Traded Fund (ETF) through an online stockbroker.
When you’re buying gold through an ETF, you are passing over your money to a “fund” that will invest in real, physical gold. That means the fund will pool people’s money together, buy a specific amount of gold and store it in a high-security vault. Depending on the ETF, all the money may be backed by gold bars or may be in the form of credit, i.e. a promise that the gold will be bought. Some examples of the best gold ETFs would be SPDR Gold Trust ETF and Perth Mint Physical Gold ETF.
Mutual funds are also funds, but the investments will be in gold mining companies rather than physical gold bullion – more on gold mining companies below.
With both ETFs and mutual funds, you do not actually own the physical gold – someone else owns it on your behalf. Although you can buy and sell your shares at any time online, you won’t technically own your gold unless you buy an ETF that allows your gold to be delivered. ETF investments are highly liquid and you’ll be able to sell your investments quickly.
Gold mining stocks
Buying gold through gold mining stocks means you are buying a small slice of a company that mines gold and delivers to gold refineries. This means that you are investing in the success of the company rather than gold itself. Your money is exposed to the fluctuations in the stock market as well as anything that happens in the company: change of leadership, office politics, business expansion, etc.
If you’re interested in buying gold at a low price and selling at a higher price in order to make a profit, gold mining stock may be worth investing in. However, once again, you won’t own any physical gold and you’ll need to do a lot of research before picking a specific gold mining company to invest in. You won’t be investing in gold, you’ll be investing in a company that mines gold. An example of a gold mining stock you could buy is Kinross Gold Corp and Barrick Gold Corp.
Gold derivatives are a form of online stock trading that requires sophisticated knowledge of trading investments. Gold derivatives use instruments such as future contracts and margin calls in order to buy gold at a discount and then bet on the price of gold to rise or fall. By using other instruments such as margin, investors can own a lot of gold with a small amount of money.
Although potential gains are higher, potential losses are much higher too, and therefore gold derivatives must be approached with caution. Gold derivatives involve quite a lot of speculation and are based on gold price fluctuations rather than the inherent value of gold. Once again, you won’t be able to claim any gold yourself and you’ll need a lot of experience to get started.
Buying gold jewellery is not a traditional way to invest in gold but it can be an option for those who may already have gold jewellery or enjoy wearing it. Although an aesthetically pleasing way to own an investment, gold jewellery is not a practical way to invest in gold. Due to the workmanship and effort put into producing a piece of jewellery, a beautiful gold necklace will be sold at a higher price than the real, bullion gold price. Gold jewellery is also mixed with metal alloy to make it more durable, which means it’s rare to find pure 24-carat gold jewellery.
Although most gold jewellery will be covered by home insurance and should be safe to store, it can be hard to sell and not a practical way to invest in large quantities of gold.
Physical gold bullion means buying gold coins or bars and storing them in a high-security vault. With this kind of gold, you do own the gold directly and can get it delivered home. When buying gold bullion you will need to pay a premium on the price and you’ll need to pay for insurance and storage. Depending on the dealer you use, you may be buying 10 grams or 1 kilo. Selling gold is relatively easy: you can sell it back to your dealer or sell it on the market – this makes gold a relatively liquid investment.
Owning bullion gold is the best way to invest in gold itself. This way, you are investing in the inherent value of gold and you also have complete control over your gold bars: no bankers or politicians can take your gold away from you or heavily influence the price. With bullion gold, you may not return a profit long term, but you’ll be able to hedge your money against inflation and diversify your portfolio.
The main difference between bullion gold and other forms of gold investing in gold is that ETFs, mutual funds and derivatives are basically an electronic book entry – you cannot claim the gold and you have no control over it. With gold bullion, you own what you buy. 🎉
Once again, the best method to buy gold depends on your circumstances and goals. If you are looking to make a higher return and don’t want to pay premiums, gold mining stocks or gold ETFs may be a better choice for you. At Minted, we believe that you gain the most from gold by buying real, physical bullion bars. We buy gold bars of 10 grams and allow you to start investing for as little as £30. Once you own 10 grams, you can get the gold delivered and only pay the shipping fee – and the first year of insurance and storage is free!