How can I invest in gold?
Investing directly in commodities, such as gold or oil, tends to be more difficult for investors than investing in stocks and bonds. A major reason for this is that stocks and bonds are readily transferable and easily accessible to the average investor. Traditionally, commodities have been more difficult to invest in due to the complex way in which they trade through the futures and options markets. In other words, an investor can't just buy a barrel of oil.
Gold is more accessible to the average person because an investor can easily purchase gold bullion (gold in its physical form), from a dealer or, in some cases, from a bank. However, with the advent of more advanced financial instruments, gold, along with other commodities, has become much easier to invest in without having to buy the physical metal.
Gold Exchange-Traded Funds
There are now exchange-traded funds (ETFs) that replicate the movements of the underlying commodity, giving investors direct exposure. While not every commodity has an ETF, both gold and oil have ETFs. For example, the SPDR Gold Shares ETF (GLD) trades on the New York Stock Exchange and can be traded at any time throughout the trading day. Each share of the ETF represents one-tenth of an ounce of gold, so if gold is currently $1,300 an ounce, the gold ETF will trade at $130 per share. This investment product is one of the easiest and least expensive ways to access the gold market. (To learn more, see: GLD: iShares Gold Trust ETF.)
In general, investors looking to invest in gold directly have three choices: they can purchase the physical asset, they can purchase an ETF that replicates the price of gold, or they can trade futures and options in the commodities market.
For more on the gold market, read: The Gold Standard Revisited.
There are a myriad of ways to invest in gold, including ETFs and mutual funds. However, I don't advocate those methods, since the primary motivation for buying gold is a mode of payment during times of extreme economic calamity. I don't think such an event will occur, being that we've been through two World Wars, and society and markets continued to function nonetheless. But in such an extraordinarily calamitous event, holding the physical yellow metal would be most valuable. That and, guns and water, of course.
There are many ways to invest in gold from ETFs, like the SPDRs Gold Shares, ticker GLD, to gold futures contract, to physical gold itself. If you are considering it a long term hold and hedge against monetary policy, then I suggest physical gold and silver. This way, you do not have the ongoing carrying costs of a fund or futures, but do have to figure out secure storage. In fact, I recommend to my client that they hold 10% of their assets in physical gold just in case this grand Fed experiment blows up and we experience high inflation.
For midterm over a couple of years (or short term if you are active), then the paper gold ETFs work well. As stated above, you can own GLD or even the gold miners via the VanEck Gold Miners, ticker GDX, or the VanEck Junior Gold Miners, ticker GDXJ. The miners will be somewhat more volatile than GLD, but are based upon the business of gold and gold mining, whereas GLD is based more upon the spot price of gold. And there are other gold ETFs, even leveraged gold ETFs, but I wouldn't recommend those except for active traders.
To be successful in gold futures, you must have knowledge of how futures contracts work, which gets complicated. And GLD is well correlated to the spot price of gold. So based the way you worded your question, I would recommend physical gold or gold ETFs, or some combination thereof.
If you decide physical gold is one of your solutions, Dillon Gage (Google them) is one of the most reputable gold companies I know. I use them regularly for myself and clients. You can have your physical gold delivered to your doorstep and your are not responsible until you sign at delivery. I have done my due diligence and know the CEO of the company and the President of the Metals Division.
Storage can be an issue, but if your purchase is large enough, DG does have fully insured storage facilities both inside the country and in Canada. I believe the storage fee ranges from .45% to .65%, depending upon volume. This is "allocated" gold versus "unallocated" gold, which means they are your own specific coins or bars, not a promise of a certain amount of gold. And with 48 hours notice, you can go visit and inspect your gold at their vault with proper ID. Many big investment banks provide storage for "unallocated" gold which means they give you a paper certificate of the gold they owe you and in what form, but it is not your own specific coins/bars.
Even if you decide to store in a vault, you should always keep some on hand that is easily accessible. At least one person you trust should be aware of your hiding place so if you get hit by a bus, some new homeowner doesn't find an unexpected windfall. You do need to be clever how you store on site and I never discuss this via email or text, but small safes in a wall are not usually adequate because the thief can simply break the sheet rock, take the safe, and figure out how to open later. Behind pictures and in the bedroom closet is the first place they will look.
I tried to be as detailed as possible because there are many variables and many people don't think the whole process through. But I do think you are on the right track considering owning some portion of your portfolio in gold and it is not correlated well to stocks. Just don't go overboard. The only ex-rich people I know are the ones who went too top heavy in a particular asset class because they thought they had it all figured out.
Just as an interesting FYI, it has been in a downtrend as of late and just recently has been trying to break out to the upside. So, odds are it is a good entry point for physical gold and is even getting close to a buy point on the ETFs if it can break through resistance, which is it currently just under.
I think you have probably heard enough of my rants, but I do follow very closely. Best of luck, Dan Stewart CFA®
Most gold investments fall into three categories.
1. Physical gold in your custody. This usually will take the form of gold coins, such as the one ounce South African Krugerrand or the one ounce American Gold Eagle. You can buy the Gold Eagle directly from the US Mint, but at a substantially higher price than offered through gold coin dealers, so I would not recommend buying directly from the Mint. That said, be sure you are buying from a reputable dealer, either in person or through the Internet. There have been instances of counterfeit gold coins. Gold coins obviously require safekeeping - either a home safe or a safe deposit box. If you're holding gold for an "end-of-the-world" scenario, arguably you should not leave them in a safe deposit box that might be inaccessible in a crisis.
2. Gold ETFs (Exchange Traded Funds). Gold ETFs (such as GLD and IAU) are a special kind of mutual fund that invest directly in gold bullion. The physical bullion is held in safekeeping by an independent custodian, for example, in a bank vault in London. Independent accountants must annually verify the ETF's gold holdings as part of their audit. You can buy and sell gold ETFs through any brokerage firm. The shares are very liquid, and the transaction costs through discount brokers (Fidelity, Schwab, etc.) are minimal. The value of your shares will very closely track movement in the market price of gold. In addition, you can buy or sell call or put options on gold ETFs (and also sell short), meaning you can implement complex strategies for almost any market view. Gold ETFs are the easiest and most cost-effective way to invest in gold. However, as the ETF owner, you do not have (and are not entitled to) physical custody of the gold itself. If that's important to you, option 1 above is preferable.
3. Gold mining stocks. These are stocks of companies that are in the business of gold mining. Generally, gold mining stocks rise and fall faster than the price of gold itself, making these a higher risk, higher potential gain/loss way of investing in gold. In addition, individual gold mining companies are subject to risks unrelated to the price of gold, such as political, environmental, currency and labor relations risks.
Bottom line: if you are buying gold as part of a portfolio diversification strategy, the gold ETFs are the best way to go. If you are buying gold as a potential store of value in the event of a system-wide crisis, you will want to own and hold the physical gold yourself.
Looks like you’re catching up the gold bug too. Let’s answer your urgent question first. There are several ways to invest in gold: 1) Owning the physical gold, most likely in the coin form for retail investors. You may want to clear up an existing fire safe or buy a new one to store the gold. 2) Invest through mutual funds or Exchanged-Traded Funds (ETFs) that own the gold. 3) Indirectly invest gold through funds (mutual funds or ETFs) that have companies taking part in the exploration, mining, processing or marketing of silver, platinum, gold, diamonds, or other rare minerals and precious metals.
Now, knowing where you can invest in gold is not the same as why you need to invest in gold. Is it because people around you own it, thus influenced you to make the same decision? Or, do you own gold for inflation protection? Adding gold into a well-diversified portfolio indeed enhances the value and diversification. However, there are some pitfalls you need to watch out for: 1) In the case of apocalypse scenario, food and medicine may be more precious and worth to fight for than the gold as you can’t dress with it or consume it. 2) As a precious metal, gold has a special tax rate, a flat 28%, which is equivalent to people whose adjusted gross income (AGI) in the range of $91K to $190K. Usually, people in that tax bracket pay a 15% long-term capital gain tax. By making a profit in gold, you will need to pay an extra 13% tax. Will that really benefit you? Lastly, 3) the storage issue.
Consider all those factors, and see if you still want to own the gold. If so, consult with a CFP® practitioner to own it properly. Best!