In this article we’ll be showing you the different options on how to buy gold, depending on your situation. We don’t know what your portfolio looks like, so don’t take this as personal investment advice. It is purely for education and edification purposes. If and how you implement what you read is entirely up to you.
We’ll be going over these different gold buying options from least risky to riskiest.
1) Individual Coins & Bars
This is the safest and easiest way to buy gold as you can buy it and own it physically, with gold bars, coins or jewelry.
Gold bullion bars and coins can be purchased from banks, bullions dealers or online dealers, while jewelry can be bought from jewelry stores. If you prefer to buy coins directly from your country’s mint, you most certainly can. A country’s mint is a bureau responsible for producing coinage for their respective countries, to conduct its trade and commerce, as well as controlling the movement of bullion.
However, the mints tend to charge well over spot price for whichever metal you’re buying. For example, the spot price of Gold on the market is $1,830 per ounce. In the US Mint Catalog, the American Eagle 2022 One Ounce Gold Uncirculated Coin costs $2,680. That’s a 46.7% premium over spot price.
When you contrast that with the Hard Assets Alliance (a bullion dealer), for example, a 1-ounce gold bar is $1,877.10. That’s only 2.58% over spot.
2) Gold ETFs
ETFs, or Exchange-Traded Funds, are investment funds traded on stock exchanges like individual stocks. An ETF will track the performance of an underlying index or basket of assets, such as bonds, stocks, currencies or commodities.
Here are 2 examples of Gold ETFs:
GLD
The GLD ETF is one of the largest and most popular ETFs investing in physical gold. ETFs provide investors with an easy and cost-effective way to invest in gold, without having to own and store physical gold themselves.
The physical gold is secured in a vault in London and the GLD shares represent a fraction of an ounce of gold. When investors buy shares of GLD, they are effectively buying a portion of the underlying gold GLD holds.
GLD is trading at around $170.
SGOL
If that’s too pricey for you, another option is SGOL ETF. It invests in physical gold, held in a vault in Switzerland.
SGOL ETF has a lower expense ratio than the GLD ETF. Right now, SGOL is trading $17.38, a bit under 1% of the spot price of an ounce of gold. So this is a cheaper way of starting with gold ETFs.
3) Gold Miners ETFs
The Gold Miners ETFs invest in companies that are involved in gold mining and exploration.
There are 56 companies in the GDX and 104 companies in the GDXJ, investors are well diversified within the miners’ spaces.
GDX
The GDX ETF is an ETF that invests in gold mining companies and its objective is to track the performance of the NYSE Arca Gold Miners Index.
It invests in a diversified portfolio of gold mining companies and its holdings are spread across various countries such as Canada, the United States, and Australia.
GDXJ
The GDXJ ETF (GDX Junior), invests in smaller gold mining companies. These companies are considered to be riskier investments than their larger counterparts, but they can also offer more potential for growth.
4) Single Stocks
There are 2 risks when investing in single stocks: systematic and unsystematic risk.
Systematic, or market, risk is the risk your stock may fall through no fault of its own, meaning it falls because the market is having a bad day.
Unsystematic, or specific, risk is the risk your stock falls even if the market is having a good day. This is the risk specific to your stock, which may have an earnings mis, or bad management.
You can choose any one of the constituent companies in the GDX such as Newmont Mining, Barrick Gold, Franco Nevada and more..
Remember, like any single stock, you are carrying more risk with single stocks than by investing in an index.
5) Gold Futures
Lastly, the riskiest of all, gold futures. You may want to stay away from those without the proper knowledge and experience. They’re just too risky.
Gold futures are just like any other futures. So what are futures in the financial markets?
They are legally binding contracts between a buyer and a seller to exchange some commodity or financial instrument at some point in the future.
Gold futures are futures contracts specifically made for speculators and hedgers to buy and sell gold. If you buy a December futures contract on gold, you are obligating yourself to take possession of 100 troy ounces of gold at the per ounce price of the contract on the contract’s expiration date, in late December.
Hopefully this article gives you food-for-though when considering your next move in the gold market. Don't hesitate to let us know if there are any topics you would like us to cover in future articles.
Stay alert, stay informed.
Wave Cap
Comments