Throughout history, few investments have rivaled gold in popularity as a hedge against almost any kind of trouble, from inflation, to economic upheaval or currency fluctuations, to war. Alternatives to invest in gold include buying shares of gold mining companies or gold exchange-traded funds ETFs. You can also invest in gold by trading options and futures contracts. Investing in physical gold can be challenging for investors more accustomed to trading stocks and bonds online.
The three main options to invest in physical gold are bullion, coins and jewelry. When most people think about investing in gold, bullion is what they think of—big, shiny gold bars locked away in a vault. The most common gold coins weigh one or two ounces, though half-ounce and quarter-ounce coins are also available. Some dealers even sell blanks and damaged or worn coins. Gold coin prices may not entirely align with their gold content, though.
In-demand collectable coins frequently trade at a premium. You may also opt to buy gold you can wear—or that someone once wore but has been damaged—in the form of gold jewelry.
First, you have to be careful about jewelry purchases as not all secondhand jewelry is sold by reputable dealers. Not only does authenticity matter to you—but it will also matter to anyone you try to resell the piece to. This makes it crucial you buy investment jewelry from a reputable dealer and obtain as much documentation as possible.
Investing in the stock of companies that mine, refine and trade gold is a much more straightforward proposition than buying physical gold. Since this means buying the stocks of gold mining companies, you can invest using your brokerage account. This means investing in individual gold companies carries similar risks as investing in any other stock.
Single stocks may experience a certain level of volatility and do not provide you with the security of diversified funds. There are a range of different types of gold funds. A mining firm would also borrow gold if it entered into a forward hedge contract in which gold, that has not yet been mined or extracted from the earth, is pre-sold to buyers. If some or all of its buyers expect a physical delivery of the gold bullion, the mining firm would opt to borrow the gold from the bank, which would subsequently be delivered to the buyers on the other end of the forward agreement.
Bullion is traded in the bullion market , which is primarily an OTC market open 24 hours a day. Trade volume in the bullion market is high since it includes the vast majority of bullion trading prices throughout a given day. Most transactions are completed electronically or by phone.
The price of gold bullion is influenced by demand from companies that use gold to make jewelry and other products. The price is also impacted by perceptions of the overall economy. For example, gold becomes more popular as an investment during times of economic instability. Although gold tends to have greater demand, both gold and silver bullion are viewed by many investors as safe-haven investments. The safe-haven status usually leads to price increases during geopolitical events such as war, terrorist activity, and any instability that can lead to a conflict.
Also, global financial issues such as a fear of a government default on debt or the financial collapse of a country lead to increased demand for bullion.
Rising prices or inflation in an economy tend to erode the return on investments. If overall prices are rising, commodities tend to rise as well. As a result, gold and silver bullion are used to hedge investment portfolios against inflation.
There are various ways to invest or own bullion. Please note that similar to any other investment, bullion prices can fluctuate, meaning there's a risk for loss. Below are a few of the popular ways that market participants invest in bullion. An investor who wants to purchase precious metals can purchase it in physical bullion form or paper form. Gold or silver bars or coins can be purchased from a reputable dealer and kept in a safe deposit box at home, in a bank, or with a third-party depository.
Also, you can purchase bullion in an allocated account at a bank which holds the bullion for the client. The client has full legal ownership of the gold. If the bank faces bankruptcy , its creditors have no claim to the bullion in the allocated account since it belongs to the client or owner, and not to the bank.
Although it's not equivalent to owning gold, investing in gold or silver through exchange-traded funds ETFs allows investors access to the bullion market. ETFs are funds that contain a collection of securities while the fund typically tracks an underlying index. With Gold or Silver ETFs , the underlying asset might be gold certificates or silver certificates , and not the physical bullion itself.
Gold certificates can be exchanged for the physical gold or for the cash equivalent at a bullion bank. ETF funds can be bought and sold similar to equities using a standard brokerage account or an IRA brokerage account. Part Of.
Introduction to Gold. Investing in Gold. Trading Gold. Gold and Retirement. Commodities Gold. Table of Contents Expand. The Gold-Buying Process. Buy Pure Gold Only.
Bars vs. Buy Gold in Workable Sizes. Shop Around. Avoid Rip-Offs. The Bottom Line. Key Takeaways The most standardized way of directly owning physical gold is by acquiring bullion bars. Be sure you are doing business with a reputable dealer and check the bars' purity, form, size, and weight before purchasing.
Keep in mind that purchasing gold bars comes with extra costs including storage and insurance and a sales mark-up. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. You can insure them under certain circumstances. We ship precious metals to people who want to bury it in the backyard, literally, or store it in their garage in a hidden place.
Storing gold bullion in a safe deposit box works for a lot of people, says Clark. For one, they are inexpensive. For example, gold bullion coins , such as American Eagles, which are guaranteed by the federal government, have inherent liquidity because they are bought and sold by coin dealers, banks and commercial dealers without question, says Clark. If you store them in a safe deposit box, you can be sure if you go retrieve them someday and take them to a coin dealer they will buy them over the counter, without exception.
You also have the security risk going to and from the bank. Finally, size can be an issue. If an investor chooses to make a large investment in coins, the holding could be bulky, exceeding the capacity of the ordinary box.
Storing your gold at home also has practical considerations, says David Small, a New Jersey-based gold-bullion buyer.
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