How Investing in Gold Works

 There are many different ways to invest in gold and every individual investor needs to find their own comfort level, both in terms of complexity and exposure to market volatility.

Read on to learn the basics of investing in gold.


Buying Physical Gold

Buying gold jewelry, gold coins, or gold bars or bullion works much the same way as buying any other tangible goods.

An investor can walk into any merchant and walk out with their gold; there is rarely any need for brokers or contracts. When that investor wishes to sell, the process works the same in reverse.

The accessibility of physical gold makes this an attractive option for new investors, and so does the ability to wear gold jewelry or display gold coins.

The downsides of buying actual pieces of gold include full exposure to market volatility and a limited resale market (many investors are skeptical of purchasing from individuals).

The most often traded gold coins include the American Eagle, the Canadian Maple Leaf, and the South African Krugerrand.

If you are buying coins that are less liquid, always inquire about the melt value of the coin. This is the amount that the metal is actually worth, and it helps you determine how much of a markup you will be paying.

Gold jewelry and commemorative/collectible gold coins almost always cost more than the actual value of the gold.

This could be viewed as a negative, but on the other hand, the intangible value of having something that you actually enjoy is difficult to measure.


Buying Gold Futures

Put and call options on gold futures are traded through the Chicago Mercantile Exchange and most individual investors will need to go through a broker to purchase these.

ETFs centered around gold futures can be purchased through many brokerage accounts.
Trading futures is risky, high stakes, and generally not well suited for novice investors.

Investing in gold funds also carries some risk, as does any sort of investment, but the funds are generally well balanced and professionally managed, which reduces some of the risk.


Buying Gold Mining Stocks

As with gold ETFs, stocks in gold mining operations can be purchased through most brokerage accounts.

This makes them easily accessible to moderately savvy investors, which is attractive when you want to take an active role in managing your portfolio.

Keep in mind that when you buy stocks in gold mining companies, you’re investing in the company and not the metal.

This means that you stand to lose (or win) based on the company’s overall management and performance, which will likely track with the gold market at least loosely but is also subject to losses if the mining operations themselves do not do well.

When you buy stocks or funds, you don’t have physical possession of your gold.

This is easier in some ways, but it can be significantly less satisfying to track your progress on your computer or smartphone screen than to wear a beautiful necklace or display commemorative coins in a curio cabinet.

Gold Chart