How to Invest in Gold

14Since the beginning of recorded history gold has been the symbol of power and wealth. There is something about gold that mesmerizes our society and we just can’t get enough of this shiny yellow metal. Throughout the ages, governments and ordinary citizens held physical gold as an investment, and with introduction of modern day technologies, many other investment options are readily available for investing in gold.

Gold is seen as the ultimate hedge investment against inflation and a safe investment in unstable financial and political times which is what makes it such an attractive investment option in recent years. I have seen a dramatic increase in people looking to invest in gold and I am going to discuss a few popular investment options in this article.

The most obvious choice when investing in gold is direct ownership of physical gold bars or gold bullion coins. There are vast varieties of different denominations of bars and coins produced by many countries around the world and their beauty and designs inspire collectors and investors and that is what makes it the most desirable investment choice. The most common include Canadian Maple Leafs, American Eagles and South African Kruggerands. The downside to investing in physical gold is that there is a retail and wholesale market for such bars and coins and you will always pay a bigger premium when buying physical gold. The reality is that there is a manufacturing cost that has to be considered and there is going to have to be a greater price jump just to break even so don’t expect to make a fast profit. One more thing to consider when investing in physical gold is the aspect of security. You will have to worry about where to store your gold and perhaps invest in a safety deposit box which is again becomes an extra expense if you didn’t require one beforehand.

For the more experienced investor there are alternatives to holding physical gold such as gold options and futures. In the options market, you speculate on price movements in either direction. If you think prices will rise and you buy a call and if the spot price will indeed rise, you can exercise your options and the greater the margin between your fixed option and the market price the more you win. In other direction when you buy a put, you expect the price to fall. A few things to consider is that options expire within a fixed time and in general options market is highly risky and is not for the faint of heart. Fortunes can be made or lost in an instant when you decide to speculate in gold options and it is a very complex investment choice.

Gold mutual funds are becoming very popular in recent years and this is the next investment option that we are going to discuss. This option is often offered by major banks and mutual fund companies around the world. If you are hesitant to invest in physical gold and think that an options market is a risky business then mutual funds may be your answer. These funds are usually managed by an experienced asset manager and often hold portfolios in gold mining companies. Mutual funds are not as risky and if managed well, there is a potential for profit. The downside to mutual funds is the fact that some of the profit is being lost due to management fees (known as MER’s) being charged by the mutual fund company.

Gold exchange traded funds also known as ETF’s are becoming a very popular investment option as well and is the last choice for investing in gold that we are going to discuss. An ETF trades like an ordinary stock but is actually a type of mutual fund. What makes gold ETF’s different from mutual funds is the fact that their only asset is physical gold bullion. When buying into these ETF’s, you are investing directly in physical gold without having to worry about where to store the actual precious metal.

I hope this article gives you a chance to understand better the various investment choices when it comes to investing in gold. Most investors and financial advisers would agree that at least 5%-15% of your portfolio should contain gold and it is never too late to start investing in this wonderful yellow shiny metal.