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How to buy, sell and invest in gold
Learn more about gold and how you can start investing today.
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Global stocks crashed in 2020 as a result of the unexpected coronavirus pandemic, and the historic volatility has led investors all over the world to seek safe places to put their money.
For centuries, gold has been a popular store of wealth. In turbulent times, you might notice people talking about gold as an investment. After the initial panic subsides, you often see the price of gold rising while other stocks are falling.
If you’re interested in investing in gold, there are three main routes to do so:
What's in this guide?
Gold ETFs
ETFs are a simple option worth considering. ETFs give access to a whole load of assets without having to put all of your money into one or two firms.
Simply, ETFs allow investors to minimize risk while taking advantage of the performance and general popularity of a particular sector — in this case, gold.
There are several gold-based ETFs to choose from, covering a whole host of different companies within the industry. There are mining companies, exploration companies, as well as the actual asset itself. Gold ETFs are a pretty good choice for those who are new to investing, as well as those looking to secure their portfolio. Here are some popular ETFs:
- Gold price ETFs
- SPDR Gold Trust (GLD)
- iShares Gold Trust (IAU)
- Major gold miners
- VanEck Vectors Gold Miners ETF (GDX)
- iShares MSCI Global Gold Miners ETF (RING)
- Sprott Gold Miners ETF (SGDM)
- Junior gold miners
- VanEck Vectors Junior Gold Miners ETF (GDXJ)
- Sprott Junior Gold Miners ETF (SGDJ
- Gold explorers
- Global X Gold Explorers ETF (GOEX)
Gold miners are already leveraged to the price of gold because their profit margins can be multiplied with ordinary moves in the spot price of gold, but there are also several leveraged ETFs that aim to double or triple the returns of gold miners through the use of options and other derivatives. Be careful with leveraged ETFs, though, as they are designed for short-term trades only, not long-term buying and holding. To achieve their goals, these leveraged ETFs have to be rebalanced every day, so volatile periods of market activity can erode the basis of your investment.
Pros
- ETFs allow for instant diversification across the whole gold industry, at a low price.
Cons
- By placing your money in an ETF, you are trusting your gold portfolio to a preselected list of companies, so you naturally relinquish some control over the split of assets.
- Leveraged gold ETFs are designed for short-term trading, not long-term buy and hold.
Buy gold mining stocks
Another option is to invest in specific gold mining firms. You can find some of the largest firms listed on the S&P 500, including Newmont Mining (NEM) and Freeport McMoRan (FCX). Many other miners — the smaller firms are called junior miners — are also widely available through normal brokerage accounts. Through investing in mining stocks, you’re directly linking your capital to the success of these companies, and the changing value and price of gold.
While heavily correlated, the performance of gold mining stocks will not perfectly match the price of gold. Unlike the resource itself, companies are subject to a number of external factors such as employees going on strike, geo-political implications for the area, natural disasters and business decisions. In addition, because the cost of mining is often high, there’s usually a price point where increases in the gold price can influence the profit margins for gold miners exponentially rather than linearly. For instance, if the cost of mining is $1,000 per ounce, then a 13% increase in the price of gold from $1,150 to $1,300 actually represents a 100% jump in profits for the gold miner.
Pros
- You can pick and choose a range of stocks individually in your brokerage account, and cash out when you want.
Cons
- Like any investment, mining stocks are not immune to risk.
Buy solid gold
For some people, part of the appeal of gold is being able to hold it. If you’re one of those people, then the good news is that buying solid gold has never been easier. While you can buy gold directly from the US Mint, most investors do business with a local dealer or reputable online broker.
Gold is available in a variety of coins, ingots and bars as small as half an ounce and as large as 400 ounces. While the US Mint has produced numerous collectible gold coins in different themes, the standard gold bullion coin is called the Gold American Eagle. Other common gold coins include Canada’s Gold Maple Leaf, South Africa’s Gold Krugerrand, China’s Gold Panda and Australia’s Gold Kangaroo.
When buying physical gold, keep in mind these three factors that affect how much you’ll pay:
- Spot price: The momentary price of the value of gold that fluctuates constantly.
- Markup: Like any good that’s bought and sold, this is the difference between the wholesale cost and the retail price set by the dealer or broker.
- Premium: Some gold has additional collector’s value, and some issuers of gold — like the US Mint — command a higher premium than others.
Pros
- You have a tangible asset which is yours to hold, store or pass on to someone else.
Cons
- You will need to factor in the cost of secure storage and insurance if you plan to build up a stockpile of gold. These costs will stack up over time, even if the value of your gold decreases.
Gold bars
Gold bars generally range in size from 1/10 of an ounce to 1 kg (2.2 pounds), but there are also bars up to 500 ounces available. However, remember that precious metals use troy ounces and one troy ounce equals 31.1 grams.
There are two types of gold bars: cast bars and minted bars. Cast bars are produced by pouring molten gold into an ingot mold, while minted gold bars are manufactured via a minting or stamping process. Cast bars are cheaper to produce, but minted bars look better and are generally easier to sell.
Gold coins
Mints around the world also produce gold bullion coins. Typically smaller than bars and ingots, they’re generally considered to be a more convenient option for many investors. Not only are they cheaper to buy, but they also make it easier to liquidate a small portion of your investment when you need cash. Coins contain between 1/10 of an ounce and 1 ounce of pure gold.
These coins also have a nominal monetary value and can be accepted as legal tender in the country where they’re made.
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Updated April 8th, 2020
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