How To Invest In Gold Most Profitably
Throughout history, no other investment has been as popular as gold as a hedging tool against almost any risk, including inflation, economic turmoil, currency instability, and war.
Investing in gold doesn’t have to mean buying physical gold, such as coins and bullion. You can also buy shares in gold mining companies, gold ETFs, and gold options and futures contracts.
How To Invest In Gold Most Profitably
If you’re more used to trading stocks or bonds online, investing in physical gold may be a bit more difficult for you.
You’ll usually have to deal with dealers outside traditional brokerages and pay for storage as well as insurance for your gold.
There are three main types of gold investments: physical bullion, physical coins, and physical jewelry.
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Gold Bullion
When most people think of investing in gold, they think of large, shiny gold bars stored in a vault. Gold bullion comes in a variety of shapes and sizes, from a few grams up to 400 ounces. Most are available in one-ounce and 10-ounce sizes.
The current gold price is about $1,900/oz (September 2020). This means that gold bullion is a very expensive investment. Unlike stocks, there is no way to buy a fraction of a single gold bar.
Because gold bullion is so expensive, it is essential to use a reliable dealer and pay for delivery (with insurance) or storage (in a large vault or safe deposit box).
If you decide to invest in gold bullion, it is also important to keep up to date with the price of gold so you can choose the right time to purchase. Most dealers adjust their prices based on spot prices.
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Gold Jewelry
You may also choose to purchase gold that you can wear, or that someone once wore, but has been damaged. However, investing in gold jewelry comes with many risks that are not present in pure gold.
First, you must be careful when buying jewelry. Not only do you care about the authenticity of the jewelry, but you will also care about who you try to sell it to.
That’s why it’s important to purchase investment jewelry from a reliable dealer and get as much documentation as you can.
Second, you will pay a markup based on the company that designed and manufactured your jewelry. This markup can range from 20% to over three times the raw value of the precious metal.
You will also want to know the purity of your jewelry, or what percentage of gold it is. The purity of gold is determined by karats, and 24 karats are 100% gold.
If your jewelry were to be melted into pure gold, the lower the purity, the lower its melt value, and the lower its raw value.
Gold Coins
The most popular gold coins are the one-ounce and two-ounce coins, but there are also half-ounce coins, quarter-ounce coins, and blanks and worn coins.
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The most popular types of gold coins are collectible coins such as South African krugerrands coins, Canadian Maple Leafs coins, and American Gold Eagles coins. Some dealers sell blanks as well.
However, gold coin prices don’t always reflect the actual gold content of the coins.
In-demand collectible gold coins often trade at a premium price.
For example, an American Gold Eagle one-ounce coin, as of mid-September 2020, retails for slightly more than $2,000.
That’s almost 5% more than a comparable quantity of gold bullion!
While you may be able to get a better deal on gold coins from your local collectors or pawn shop, it’s generally safer to buy from a licensed dealer.
Should You Invest in Gold?
If inflation or other calamities are on your mind, gold may be your best bet as an investment safe haven. While it can be volatile in the short run, it has been remarkably stable over the long run.
Your choice of gold investment depends on your taste and risk tolerance. You may opt for physical gold or gold stocks. You may also want to consider gold ETFs/ETFs/MMFs or speculative futures/options contracts.
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Regardless of the type of gold you decide to invest in, most advisors advise keeping it within a 10% range.
Risks are inherent in any form of investing, and gold is no exception.
The idiosyncratic nature of the gold market means that gold ETFs/MMFs are the safest options for most investors who want to add some stability and shine to their portfolios.
Use Futures and Options to Invest in Gold
Futures or options contracts are the most risky way to invest in gold. They are a type of speculative investing. The value of futures and options is based on the price of the underlying asset.
What is a Futures or Options Contract?
A Futures contract is a contract to purchase or sell a security at a predetermined price on a specified date, regardless of current market conditions.
A Futures option is an agreement to sell a security if the price of the security reaches a certain point on or before a specified date.
How do I invest in Futures or Options?
To invest in Futures and Options, you must have an account with an online broker that provides these vehicles. Most online brokerages allow trading in these securities.
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However, account holders may need to fill out additional forms acknowledging the risks associated with investing in these derivatives.
Once a brokerage account is set up for trading options or futures, options, and futures can be purchased and sold directly on the platform.
Most options and futures platforms charge a commission on all trades, which varies depending on the volume of contracts purchased or sold.
Investors who decide to invest in gold through options or futures contracts must actively monitor their holdings to sell, roll over, or exercise options before they become worthless.
All options and futures include a certain amount of leverage (or debt) by default, which means investors who overuse options and futures and experience market losses will see their losses rapidly increase.
