Gold for Investment

Gold has intrinsic qualities that make it unique, positioning the precious metal as a store of value despite changing world circumstances. Gold can act as a hedge against risk and diversify an investment portfolio. There are a variety of ways to invest in gold.

Why Turn To Gold for Investment?

As gold is relatively rare and does not move in line with other assets like property or equities, it makes a useful way to diversify your portfolio. Investment in physical gold is especially worthwhile. Physical gold is not only a universal currency, but it’s also a finite currency. Most central banks hold physical gold.

Gold can:

  • Serve as a form of financial insurance
  • Ensure wealth preservation
  • Offer a way to pass wealth from generation to generation

Gold for investment adds diversification to traditional portfolios of stocks and bonds. Though alternative assets like gold can pose risks, they can also raise the risk-adjusted return profile of your policy overall.

Gold acts as a hedge against systemic risk; this is especially the case during periods of stress in stock and bond markets. Uncertainty in the world even causes gold prices to rise [1]. Gold is also seen as a hedge against inflation.

There are various ways to leverage gold for investment. Many investors will start by adding gold bullion to their portfolio. Once you have that, you can also consider more speculative gold investments such as investment funds and mining shares. This content will explore the different ways you can use gold for investment.

Gold Bullion Bars and Coins As Gold for Investment

Modern gold bullion bars and gold bullion coins give investors a way to own investment-grade gold legal tender coins. You will pay a small premium on the spot price of gold as determined by markets. The bullion price of gold almost entirely determines the value of bullion bars and coins. Owning physical gold such as gold bars and coins is the most traditional, common and straightforward method to buy gold for investment.

Gold Bars

You can easily purchase gold bars from bullion dealers. You can also buy gold bars from major banks in countries including:

  • Austria
  • Canada
  • Liechtenstein
  • Switzerland

Investors can purchase gold bars in various sizes. Popular sizes include the 400 troy ounces (or 12 kilograms) of the Good Deliver bar and 1-kilogram bars.

London Good Delivery bars offer a verifiable chain of custody from the London bullion market, or LBMA, system. Chain of custody for these bars begins with the refiner and assayer and continues through storage in LMBA-recognized vaults.

Gold Coins

Bullion coins, including gold as well as silver and platinum, are minted in countries such as:

  • Australia
  • Austria
  • Canada
  • China
  • South Africa
  • United Kingdom
  • United States

You will find bullion coins minted in the following ways:

  • 1/10-ounce coins
  • 1/4-ounce coins
  • 1/2-ounce coins
  • 1-ounce coins
  • 2-ounce coins
  • 10-ounce coins
  • 1-kilogram coins

The most popular gold bullion coins for investments are 1-ounce coins, including the Britannia and the Krugerrand.

Gold Futures and Options

You can invest in gold via futures or options to use leverage to control a larger amount of the commodity than you could control with just the money you put at risk. This type of investment offers an efficient method to participate in gold price fluctuations.

Gold futures will generally respond to volatility in the stock market. Keep in mind that leverage goes both ways. You can get a large gain from a small amount of money, but you can also experience magnified losses.

Other Gold Exchange-Traded Products

Exchange-traded products, or ETPs, can include a gold exchange-traded fund (ETF) or a gold exchange-traded note (ETN). ETPs vary in the way you own gold. Ways to own gold via ETPs include:

  • Physical ownership
  • Futures
  • Options
  • Other investments

Before you invest in an ETF, you will want to consider the following aspects of the fund:

  • Charges
  • Expenses
  • Objectives
  • Risks

ETNs are not funds, and they are not registered investment companies. ETNs are also not secured debt. Most do not provide principal protection, but they do involve credit risk.

Gold Mining Stocks

You can also invest in gold via gold mining stocks. You’ll find both junior and major mining companies. Major miners are companies that are more established in terms of production and infrastructure, offering proven and sustainable claims. Junior mining companies are more speculative or simply newer; they may mine unproven claims in the hopes of finding a big score.

As the price of gold increases, the profit margins of these companies can also increase. This, in turn, can be reflected in stock prices. However, the actual price of gold is only one factor that plays into the underlying value of gold mining companies. Other hard-to-predict factors may impact the profitability of individual mining firms you invest in, including:

  • Corporate governance
  • Cost of energy
  • Cost of labor
  • Geopolitics

Gold Certificates

Banks can issue gold certificates for gold that is either unallocated (pooled) or allocated (fully reserved).

An unallocated gold certificate is a form of fractional reserve banking. It does not guarantee an equal exchange for metal if there is a run on the gold on deposit of the issuing bank.

An allocated gold certificate should be correlated with a specific numbered bar. It can be difficult to determine if a bank improperly allocates one bar to more than one party.

Investing in gold certificates allows you to avoid risks or costs associated with transferring and storing physical bullion. However, you will take on a different set of costs and risks with the certificate, including:

  • Commissions
  • Credit risk
  • Storage fees

You will find various ways to leverage gold as an investment. Choosing the right method for your needs and investment goals will allow you to use gold for investment as you diversify your portfolio and have a hedge against inflation and other changing aspects of the economy.

1. CNBC Make It. ‘Gold has surged due to the pandemic ” and it could keep going. Here’s what to know about investing now,’ Accessed September 5, 2020.