Safest and Cheapest Way to Invest in Gold
Gold offers excellent returns, liquidity and low correlation to stocks and bonds; however, investors should take care to consider storage costs and insurance before purchasing this asset.
An alternative to buying physical gold can be investing in mining companies that produce it. Their shares may benefit from an increasing gold price and as they increase production their profits may rise accordingly.
Buying Physical Gold
Physical gold bullion coins and bars provide the safest and cheapest way to invest in gold, although you could also store your precious metals securely at a storage facility – however this may incur significant additional expenses such as storage fees and insurance premiums.
Gold has historically provided investors with a secure way of protecting against inflation and currency devaluation. Although gold may be volatile, its long-term track record speaks for itself.
Investors can purchase exchange-traded funds (ETFs) or mutual funds that track the price of gold for instantaneous exposure to its price. Although these products do not involve physical gold ownership and could carry operating risks related to their own companies. Gold mining stocks may also provide exposure; however, you should keep in mind that their fortunes do not necessarily correlate to gold’s prices; instead they could decline due to other unrelated reasons.
Investing in Gold ETFs
Gold ETFs track the price of gold and are easy to trade on an exchange, like stocks. Furthermore, they avoid many of the logistical costs associated with physical gold such as purchasing from reliable sources and transporting and storing it safely and securely. There may still be add-on fees involved when investing in gold ETFs such as an expense ratio fee and transaction commission fee; some ETFs may even be leveraged which magnify losses as well as gains.
An alternative way of investing indirectly in gold is through gold mining stocks, which can offer both profits from rising gold prices as well as security from physical assets. Be mindful of their expense ratios though as this can significantly alter real returns. For more volatile options contracts or futures trading you could buy and sell futures or options contracts instead.
Investing in Gold Mining Stocks
Gold has long served as an inflation hedge, though its prices can fluctuate widely. Depending on your risk tolerance, you could purchase physical gold, invest in ETFs or mutual funds linked to gold, or trade futures or options contracts on it.
Stocks in gold mining companies provide direct exposure to price movements of gold, as well as potential dividends and capital gains. However, this investment option carries certain risks, including that profits might not rise at the same rate as gold prices do; furthermore it should be avoided from companies located in politically unstable nations where property rights may not be respected.
Option two is investing in an exchange-traded fund (ETF), which allows you to own shares in many gold mining companies at once – however, these ETFs may be more volatile than investing directly and may include other commodities as well.
Investing in Gold Futures or Options
Gold futures contracts on the Chicago Mercantile Exchange are traded by investors looking to take advantage of fluctuations in gold bullion’s price. Each contract on CME represents 100 troy ounces. Futures trading requires initial margin as well as ongoing maintenance margin deposits; for optimal success in gold futures trading Benzinga advises selecting an online broker as your partner in opening an account before beginning their investment journey.
Consider investing in ETFs or mutual funds that track gold prices instead. They tend to be less costly than purchasing physical gold, and provide a diversified portfolio. Unfortunately, fund fees could reduce returns.
Investors choose gold as an asset class for various reasons, including its low correlation with stocks and bonds and being seen as a potential safe haven during times of economic instability. Although gold may perform well over certain time spans, financial advisors generally advise only holding 10%-10% of your portfolio in gold investments.