How to Invest in Gold
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From ancient civilizations and medieval nobility to modern investors, gold has remained one of the most high-demand assets in human history. The precious metal is considered a store of value with its price stability offering a safe haven for investors and collectors alike.
There are numerous ways to add the precious metal to an investment portfolio, from purchasing physical gold to investing in gold-backed securities. As an investor, you need to determine which approach is the best fit for you given your unique financial situation — and whether investing in gold makes sense for you at all.
If you’re wondering if gold is a good investment, this comprehensive guide will explain how to invest in physical gold, gold mining stocks, gold exchange-traded funds (ETFs and mutual funds and gold individual retirement accounts (IRAs). We survey the advantages and disadvantages of each, and you’ll gain insight into gold prices and how to choose an appropriate investment strategy tailored to your needs.
What is the best way to invest in gold?
There are several ways you can invest in gold, each of which has advantages and disadvantages. It is crucial to carefully evaluate your investment goals before determining which option is best for you. Factors like your timeline until retirement, anticipated income needs (keeping in mind that gold typically does not generate income until you sell it) and your overall risk tolerance should be considered. Also, be mindful that investing in gold is typically not a good short-term strategy as the precious metal performs best in a portfolio when it is held as a long-term investment.
Gold bullion or gold jewelry
Physical gold includes anything from gold bullion — investment-quality gold with a purity of 99.5% (995) in the shape of bars, ingots, coins or rounds — to jewelry and other collectibles. There are many reputable dealers, custodians and depositories that can help you purchase the physical gold assets and securely store it.
To learn more about reputable sellers, read our guide to the best online gold dealers.
One advantage to investing in pure gold is that there’s robust global demand and transparent pricing. The spot price of gold is the current price at which gold trades internationally, making it easy for investors to know how much their gold is worth in real time. Furthermore, if you’re not interested in paying recurring fees for custodians and depositories, owning physical gold comes with the option of securing it yourself, thereby allowing you to hold the asset in your hands and even trade it face to face, which is appealing to some investors.
On the other hand, purchasing physical gold has its risks and drawbacks. For one, verifying the purity of the precious metal can be difficult, so it's crucial to ensure you buy from reputable dealers, whether you’re purchasing coins or jewelry in person or via an online metals broker. Additionally, you may have to pay other fees like transaction, processing, insurance and storage costs, which could reduce your overall return on investment.
Read our comprehensive guide on how to buy gold to learn more. If you’d prefer investing in gold through securities — rather than owning the physical metal itself — the following section discusses the various ways investors can add gold to their investment portfolios.
Gold stocks
Stocks of companies focused on mining gold or licensing the rights to the gold at a mining site are another option for investors who want to invest in the precious metal without buying physical assets. These stocks include shares of companies that extract gold through mining — senior miners (well-established companies) or junior miners (startups) — or that finance gold production and/or secure the rights to gold at a mining site (gold streaming companies).
Although these companies should theoretically benefit from an increase in gold prices, some are better positioned to take advantage of higher prices, while others may weather downturns in gold prices more effectively. However, gold mining stocks experience greater volatility than physical assets; therefore, investing in gold stocks can make your portfolio subject to significant price fluctuations.
Additionally, unlike physical gold, which always retains some level of value, there’s a non-zero possibility that an investment in a gold mining company could become worthless if the company goes bankrupt or its mine ceases production. The latter is a valid concern as gold is a finite resource and peak gold — the date at which maximum gold extraction has occurred — is a future reality.
Pros of buying gold mining stocks
- Some pay dividends, which you can’t earn with physical gold.
- Fractional shares can often be purchased depending on the investment app or brokerage.
- Price appreciation of shares can be considerably higher than that of the underlying metal.
Cons of buying gold mining stocks
- The price of gold stocks tend to be more volatile than gold itself.
- Stock prices are susceptible to factors outside of the price of gold, like management decisions and broad market trends.
- Shares of junior gold mining companies may not provide high liquidity.
Ways to buy gold stocks
Buying gold stocks is relatively simple and can be done via a brokerage account with an online broker or an investment app. Once you add funds to your account, you can pick a gold mining stock and place a limit or market order.
Some of the major gold companies include:
- Barrick Gold Corp. (GOLD)
- Newmont Corp. (NEM)
- Newcrest Mining Ltd. (NCM)
- Kinross Gold Corp. (K.TO)
- B2Gold Corp. (BTO.TO)
- AngloGold Ashanti Ltd. (AU)
- Karora Resources Inc. (KRR.TO)
- Sibanye-Stillwater Ltd. (SBSW)
- Dundee Precious Metals Inc. (DPM.TO)
It’s important to conduct thorough research by looking into each company’s financial strengths and weaknesses, and understanding the potential risks of investing in any particular gold stock before purchasing shares.
Gold ETFs and mutual funds
For investors who don’t feel comfortable picking individual stocks, gold ETFs and mutual funds provide a way to invest in the gold with greater diversification than you could get by investing in individual gold stocks or by owning the physical metal. These funds can hold stock in gold mining companies or gold streaming companies, and in some cases, physical gold bullion itself, providing you with greater industry exposure and reduced risk since your investment is spread out across numerous holdings.
The funds' prices are partially influenced by gold’s spot price but are also heavily dependent on how the companies among its holdings perform. Compared to buying individual gold stocks, gold ETFs and mutual funds are generally less volatile and can help you add liquidity and diversification to your portfolio without the risk associated with investing in a single gold mining or gold streaming company.
Gold ETFs
Gold ETFs can own physical gold, stock in companies engaged in gold mining and gold production or a combination of both.
Pros of buying gold ETFs
- There’s no storage needed for physical gold holdings as ETFs’ gold is stored in a bank vault.
- ETFs present simple, beginner-friendly options that offer exposure to the industry without having to own physical gold or individual gold stocks.
- Gold ETFs generally have high liquidity, making buying and selling their shares easy.
Cons of buying gold ETFs
- ETFs charge expense ratios, which are fees investors pay annually for fund management, administration, marketing and other costs incurred.
- Successful ETF investing requires some familiarity with the industry or sector the fund is leveraged to.
- Gold ETFs experience more price volatility than the physical metal.
Ways to buy gold ETFs
Investors buy shares in a fund via a brokerage, whether in-person or online. ETFs charge expense ratios — the fees assessed for management, administration and marketing — but they tend to be lower than the fees charged by mutual funds since most ETFs are passively managed.
Typically, expense ratios for ETFs are under 1%, meaning if you invested $1,000 in a fund with that rate, you’d be charged $10 annually. In some instances, gold ETFs will pay dividend yields that can more than offset the expense ratios they charge.
Some popular gold ETFs that trade on major exchanges include:
- VanEck Gold Miners ETF (GDX)
- SPDR Gold Shares ETF (GLD)
- iShares Gold Trust ETF (IAU)
- SPDR Gold MiniShares Trust (GLDM)
- Aberdeen Standard Physical Gold Shares ETF (SGOL)
- GraniteShares Gold Trust (BAR)
- VanEck Merk Gold (OUNZ)
Gold mutual funds
Gold mutual funds — like other mutual funds — pool money from multiple investors and are managed on your behalf in gold investments. They typically invest in gold mining or gold refining companies’ stock, though some own small amounts of gold bullion.
Mutual funds’ expense ratios are typically higher than those for ETFs because they’re usually actively managed, meaning there’s a fund manager or team of people conducting research, analyzing potential investments and then making investment decisions for the fund. Actively managed funds routinely charge 0.5%–1% annually and rarely exceed 2.5%.
Pros of buying gold mutual funds
- You don’t have to research individual gold stocks.
- Shares can easily be purchased through a brokerage or online trading app.
- Gold mutual funds generally have high liquidity, making buying and selling their shares easy.
Cons of buying gold mutual funds
- Mutual funds charge different fees and expense ratios, which can vary depending on the services they provide.
- Expense ratios for mutual funds are typically higher than they are for ETFs.
- The price of gold mutual funds can be more volatile than the price of physical gold.
- Many mutual funds require minimum investment amounts, which can make them prohibitively expensive for some investors.
Ways to buy gold mutual funds
Mutual funds can be purchased through a brokerage (in-person or online) or via online stock trading apps.
Some popular gold mutual funds include:
- Sprott Gold Equity Fund (SGDIX)
- Franklin Gold and Precious Metals Fund (FKRCX)
- Gabelli Gold Fund Class AAA (GOLDX)
- Invesco Gold and Special Minerals FD (OPGSX)
- US Global Investors and Prec Mtls Fd (USERX)
- First Eagle Gold Fund (SGGDX)
- Van Eck International Investors Gold Fund (INIVX)
- USAA Precious Metals and Minerals Fund (USAGX)
- Fidelity® Select Gold Portfolio (FGDAX)
Gold futures
Investing in gold futures can produce significant returns, but they’re also accompanied by much higher risk than gold stocks, ETFs and mutual funds. With gold futures, you agree to buy or sell a specific amount of gold at an agreed-upon price on a future date. Most people are unfamiliar with these types of investments, as they’re typically used by professional investors, seasoned traders and financial institutions.
Most people buying and selling these contracts are not interested in physical delivery of the gold but are trying to speculate on future price movements of gold. These contracts are highly leveraged, so small movements in the price of gold are magnified, which is why these instruments can be both potentially lucrative and very risky.
The contracts, whose value can also be settled for cash, can be traded among speculators who hope to make money by betting that the price of gold will increase or decrease in value before the settlement date. Futures contracts are usually for 100 troy ounces of gold, while their prices are quoted in U.S. dollars per troy ounce.
Pros to buying gold futures contracts
- You can manage positions nearly 24 hours a day.
- There is considerably high liquidity and low execution cost.
- Gold futures can produce significant returns.
Cons to buying gold futures contracts
- You can lose more than your original investment.
- Gold futures are higher-risk investments.
- These contracts aren’t suitable for beginners.
Ways to buy gold futures contracts
In the U.S., gold futures are traded on the New York Mercantile Exchange (NYMEX). To buy gold futures contracts, you need a brokerage account with a full-service broker that supports futures trading, such as Charles Shwab or E*Trade. You can also open an account directly with CME Group, the derivatives marketplace that manages NYMEX.
Futures exchanges typically require traders to stake only a small fraction of the contract’s overall value to buy or sell a futures contract. However, if the contract falls or rises, the exchange can demand additional collateral on short notice. This feature of futures trading makes it possible to lose more than the initial amount of your investment — even before the settlement date of the contract — making it dangerous for most novice investors.
Gold IRAs
A gold IRA is a special type of retirement account that allows investors to hold physical gold (and other precious metals like silver, platinum and palladium) via a gold dealer, custodian and depository. These self-directed IRAs, as the IRS classifies them, let people hold alternative assets like gold, cryptocurrency or real estate in a retirement account, which is not permitted with a traditional or Roth IRA.
However, similar to traditional IRAs, gold IRAs allow investors to make pre-tax contributions up to a certain amount each year. Growth is tax-deferred, and you pay taxes when you take distributions. There are also Roth versions of gold IRAs that allow investors to make post-tax contributions and make tax-free withdrawals at any point. Additionally, simplified employee pension plan (SEP) gold IRAs are available for self-employed individuals.
Pros of gold IRAs
- Gold dealers work with IRS-approved gold custodians, which follow strict rules and guidelines.
- Gold IRAs can help diversify your retirement portfolio, serving as a hedge against inflation or weakness in the U.S. dollar.
- Some may let you roll over part of another IRA or 401(k).
- Plans offer tax advantages similar to traditional and Roth IRAs.
Cons of gold IRAs
- Gold IRAs typically charge ongoing fees for account maintenance, storage and insurance.
- They require higher initial purchase orders, which can range from $5,000 to $50,000.
- This type of IRA requires you to take distributions after the age of 73, regardless of the price of gold.
How to buy gold in an IRA
To buy gold in an IRA you need to open an account with a gold IRA company. Some popular gold IRA companies include:
Reputable gold IRA companies are typically transparent about their fees and offer unbiased educational resources and responsive customer support. They also feature intuitive account setup and options to rollover different retirement accounts. If you’re interested in opening a gold IRA, we recommend you check our guide on how to buy gold in an IRA.
Is gold a good investment?
Determining whether or not gold is a good investment depends on your broader investment goals. For some investors, gold may make sense as a hedge against market volatility or as a way to diversify a portfolio. For others, gold’s lack of income generation or inefficiency as a short-term investment could be dealbreakers.
The following sections explore some of the main advantages and disadvantages of investing in gold.
The advantages of investing in gold
There are several potential benefits of gold investing:
- Gold is a tangible asset that cannot be defaulted on or printed out of thin air. It has intrinsic value and scarcity relative to demand, making it a preferred store of value for some investors.
- Gold has historically been considered a safe-haven asset, meaning its price tends to increase when other markets are volatile or in decline, like during recessions or periods of geopolitical or economic instability.
- Gold can diversify a portfolio and mitigate the risk of loss during economic downturns, as it can move inversely to stocks and bonds.
- You can buy and sell gold in many different forms, including coins, bars, ETFs and derivatives.
The disadvantages of investing in gold
There are also some drawbacks to investing in gold that investors will want to consider before making a purchase:
- Investments in gold have been greatly outperformed by stocks and other asset classes over the past several decades.
- Although its price has been reasonably stable over longer time frames, gold can be highly volatile in the short term, meaning investors should be prepared to hold their gold for a number of years or risk having to sell at a loss.
- Precious metals brokers charge markups from gold’s spot price, and investing in physical gold can also be expensive due to recurring storage and insurance costs.
Tips for making gold investments
The following section includes various tips about investing in gold and will help you get the most out of your assets while avoiding pitfalls that can cost you money.
Verify the purity of physical gold before purchasing it
When considering how to buy gold, verify that physical gold is of the proper purity and weight before purchasing it. Checking gold content or fineness is critical when buying gold bullion, coins or jewelry. This is why it’s important to buy precious metals from a reputable dealer. In other cases, you may want to have an independent third party, like a precious metals testing service, assess the purity of the gold.
Understand how gold prices work
Before investing, it is essential to have a working understanding of the numerous factors that can influence gold prices. Events or circumstances that can affect the spot price of gold include economic and geopolitical volatility, central banks’ policies, demand from industrial and investment markets, as well as supply fluctuations. Conducting your research before you buy can help you make informed decisions about the best times to buy or sell gold and gold-backed securities.
Choose an investment strategy
Before purchasing any gold-related investments, decide on an investment strategy. Figure out your time horizon, risk tolerance and whether you want to invest directly in physical gold or through other instruments like stocks and ETFs. If you need assistance, you can get investment advice from a financial advisor.
Note that any profits on gold investments are subject to capital gains tax, which can reduce overall returns. You owe capital gains tax when you sell an investment and make a profit. Short-term capital gains apply to profits realized on investments held for one year or less. These are taxed as ordinary income. Long-term capital gains tax applies if you hold an investment for more than a year and sell it for a profit.
If you choose to invest in physical gold, you’ll pay a higher long-term capital gains tax rate because gold is considered a collectible by the IRS. When you sell physical gold, your capital gains will be taxed at your marginal tax rate up to a maximum of 28%.
Thoroughly research gold mining companies
Conduct thorough research to make an informed decision before investing in the stocks of gold mining and gold streaming companies. This includes reviewing the company's financial statements and filings with the U.S. Securities and Exchange Commission and other regulatory bodies, researching their management team, history, past performance, market capitalization and trading volume. Additionally, assess any sociopolitical or environmental risks related to their operations, which can be as simple as researching where their mines are located.
Summary of How to Invest in Gold
Gold has long been seen as a valuable asset due to its relative long-term stability and potential to gain value during times of economic or geopolitical uncertainty. However, it isn’t without its risks, including short-term volatility, a lack of income generation and the high cost to store and insure physical gold.
There are many ways to invest in gold, from buying the physical metal and purchasing stocks of companies associated with gold mining and production, to gold-leveraged mutual funds and ETFs. Options and futures contracts let sophisticated investors trade gold, but these derivatives carry substantially higher risk than other securities and aren’t suitable for most retail investors.
To determine what type of gold investments are right for you, consider the purpose of your investment, your risk tolerance and how much of your portfolio you want allocated to gold. Most financial advisors suggest no more than 10%.