How to Invest in Gold
Gold is one of history’s most famous and important metals and has been the basis for monetary systems for thousands of years. Although no country today still uses the gold standard, the demand for the product as an alternative to fiat money has picked up in recent years thanks to the impressive stability of the precious metal.
Gold has appeal as an investable asset for several reasons.First, if investors continue to lose faith in the fiat currencies and the U.S. dollar in particular, demand for gold could rise. Gold is also seen as a potential hedge against inflation allowing investors to protect at least part of their portfolio from this phenomenon. If any of this fails to take place, investors can still take solace in the fact that gold is still in heavy demand across the globe for its use in jewelry, a function for the metal that seems unlikely to disappear in the near future.
Investors seeking exposure to gold have a multitude of options. In addition to buying futures contracts on gold or purchasing and holding the physical metal in the form of coins or bars, there are a number of ETF and equity options available as well. Investors can purchase stocks or ETFs of companies that mine the metal or ones that search for new deposits of gold. Lastly, investors also have the option of buying gold ETFs either ones that track the futures for the yellow metal or those that physically hold the product in secure vaults.
Ways to Invest in Gold
There are 4 ways to invest in Gold: ETFs, Futures, Physical, and Stocks. Click on the tabs below to learn more about each alternative.
What are Gold ETFs?
Exchange-traded funds have become a popular option for investors seeking exposure to gold, as this structure minimizes expenses while eliminating challenges associated with physical storage. There are dozens of gold ETFs available to investors around the world, including both physically-backed funds and products that achieve exposure through gold futures contracts. Some of the most popular gold ETFs available to U.S. investors include:
|GLD||Gold SPDR||Second largest U.S.-listed ETF|
|IAU||COMEX Gold Trust||Cheapest gold ETF (0.25%)|
|SGOL||Physical Swiss Gold Shares||Underlying bullion vaulted in Switzerland|
|SGOL||Physical Asian Gold Shares||Underlying bullion vaulted in Singapore|
|DGL||PowerShares DB Gold Fund||Futures-based fund|
There are a number of inverse and leveraged gold ETFs as well. In addition, there are ETFs that offer exposure to stocks of companies engaged in the extraction of gold. These companies provide exposure to gold prices because their profitability depends on prevailing market prices:
- Gold Miners ETF (GDX)
- Junior Gold Miners ETF (GDXJ)
- Gold Explorers ETF (GLDX)
- Pure Gold Miners ETF (GGGG)
What are Gold Futures?
Gold futures are traded on the COMEX under the symbol GC, in one of the most active and liquid futures markets in the world. COMEX futures contracts represent 100 troy ounces of gold, and are priced in U.S. dollars and cents per troy ounce. Trading is conducted for delivery during the current calendar month; the next two calendar months; any February, April, August, and October falling within a 23-month period; and any June and December falling within a 72-month period beginning with the current month.
COMEX gold futures are for physical delivery, and trading terminates on the third last business day of the delivery month.
Additional gold futures resources:
How to Buy Physical Gold
Some investors seeking exposure to gold prefer to own physical gold bullion. This strategy ensures that the value of the assets held will move in unison with spot gold pricing, removing the nuances of futures contracts. Because gold has a high value-to-weight ratio, it is relatively cheap to store a material amount of gold bullion. However, the value of gold also means that investors must make arrangements for secure storage.
There are a number of companies that sell gold coins and gold bullion. Investors should understand that there may be a premium to purchase gold coins, and should determine if any bullion purchased meets quality standards.
Investors also have the option to gain exposure to physical gold through exchange-traded funds whose underlying assets consist of bullion stored in secure vaults. Many gold ETFs are physically-backed, including GLD (stored in London), SGOL (stored in Switzerland), and AGOL (stored in Singapore).
How to Buy Gold Stocks
For investors seeking to establish exposure to gold prices, the stocks of companies engaged in the extraction of the precious metal may be an intriguing opportunity. Gold miner stocks tend to exhibit a strong correlation to spot gold prices, and often trade as a leveraged play on the underlying commodity.
There are a number of publicly-traded gold exploration and mining companies headquartered and traded around the world. Some of the best-known companies include:
- Barrick Gold (ABX)
- Goldcorp (GG)
- Newmont Mining (NEM)
- Eldorado Gold (EGO)
- Gold Fields Limited (GFI)
For more complete lists of gold-related stocks, see the holding of the following ETFs:
Gold in the News
Contango Report: Metals Stare at Rising Prices
A Look at Commodities in the First Half of 2014
Gold and Silver Miners Making a Comeback
An ETF First for Gold Investors (OUNZ)
Leaders and Laggards: Commodity Stocks
Gold Sits at a Pivotal Point
February Contango Report: Precious Metals and Softs
Commodity Earnings on Tap: The Stragglers
Gold and Silver Miners Rebound in 2014
Commodity Earnings on Tap: Big Week for Oil (COP, PSX, XOM)