Gold is a different beast from most other investments. Generally, when there’s a lot of fear about where the future is heading — when stocks do poorly and gold does well.
However, gold is also a physical product that you own completely. But it also doesn’t produce anything of value on its own. For these reasons, it’s a riskier investment and requires special considerations.
Why Invest in Gold?
If you’re worried about the economy (and even society) tanking, gold is an touted investment option. It’s considered a “safe-haven investment” because when the stock market sinks, the gold market sails steadily on, often even increasing in value. When the stock market rises, though, gold doesn’t gain much value.
This likely occurs because of the unique nature of gold compared to more traditional investments. Unlike a share in a company (i.e., a stock), gold doesn’t produce anything. It doesn’t hire employees, pay taxes, or contribute anything aside from being a shiny object that people like.
Its value comes from what we give it, and when we’re afraid of economic factors, we value it a lot. After all, in a post-apocalyptic world you might be able to trade gold for things you need to survive, whereas a stock share would be useless.
Generally, when there’s a lot of fear about where the future is heading — when stocks do poorly and gold does well.
That’s not to say that we should all be investing in gold, however. It’s far more likely that things will chug along as normal, in which case, gold is a bit of a hassle at best. Your money likely won’t grow as fast if you hold gold versus stocks.
If you own physical gold, you’ll have to professionally store it and insure it. And if you don’t want to bother with physical gold, you’ll need to suss out the pros and cons of other gold alternatives, like gold ETFs and gold cryptocurrencies.
|-Holds value (or grows) during a recession|
-Gives you real, tangible wealth
-Might be able to barter gold for goods and services in difficult times
-Gold alternatives allow you to invest in gold without actually storing it
|-Doesn’t grow much wealth in a robust economy|
-Requires storage and safety solutions
-Can be lost or stolen
-Gold alternatives can be confusing and complicated
-Doesn’t produce anything of value on its own
How to Invest in Gold
There are actually a lot of different ways to invest in gold. Depending on your goals, some are better than others.
Since gold is primarily a wealth-preservation tool you might be interested in investing in it as a part of your retirement strategy. The good news is you’re not the first person to have this idea and there are ways to do it. The bad news is it’s not as simple as plopping some money in your brokerage account, and there are only a few places to do it.
Orion Metal Exchange is one example of a place where you can invest in gold within an IRA.You can even roll over funds from an existing IRA into a Gold IRA.
Another place you can invest in gold within an IRA is Patriot.
You do get actual gold with this strategy so you’ll need to store it inside of an independent third-party vault. Orion Metal Exchange offers suggestions for where to store it, and can help walk you through the process of opening a gold IRA.
Gold Futures Options
As a rule, trading in futures of anything isn’t a strategy for new investors, and that’s true for gold too. When you invest in gold futures contracts, you’re betting on whether the market will go up or down rather than buying the actual gold itself — and that requires a deep level of knowledge about how the gold market works.
You agree to buy a certain amount of gold at a predetermined time in the future for a predetermined price. Most investors sell the contracts themselves before it actually comes time to buy the gold, however.
If you thoroughly understand the process — and that’s not an easy feat — you could rake in a lot of money. You can also leverage your existing cash to magnify your returns far beyond your initial investment amount.
Since this is such an advanced and risky strategy, there aren’t that many markets where you can buy and sell contracts in gold futures.
The most obvious and probably most popular way to invest in gold is simply to buy it. But you need to buy the right kind of gold.
Many people think that buying jewelry is a good investment, but this is usually not the case.The additional labor and materials involved in making jewelry can actually result in a melted-down gold value that isn’t as high as the cost of the jewelry itself. To the untrained eye most collectable coins are also poor investments, because they’re often made of a gold veneer or alloy material.
Instead, most gold investors recommend buying gold bullion, which is a defined amount of pure gold with its weight stamped right on it. Bullion can come as a gold bar or as coins. Bullion coins are easier to store, parcel apart, sell (how would you sell half a brick of gold?), and they’re easier to buy over time with a dollar-cost averaging approach.
Some things that are important to remember when investing in gold:
- Know what you’re buying — is it pure gold? What’s its weight? What’s its value?
- Insure your gold in case of fire, theft, or some other disaster
- Buy gold from a reputable dealer like Oxford Gold Group, Lear Capital or Goldco
- Use safe storage, either in a safe deposit box at the bank, or an off-site vault like with Norman Sellers
Gold Mining Stocks
Aside from melting down family heirlooms, the only way more gold is being put into production is by mining it. By investing in gold mining stocks, you don’t have to worry about physically storing and securing your own gold. But you can still own a share of the companies that mine gold.
Gold mining stocks are a risk on their own, too. Mining, in general, isn’t great for the environment, so many gold mines are located in countries with lax environmental regulations. These tend to be less-developed countries, where wars and civil unrest are more widespread. This can be a big risk for your stock strategy; if you get unlucky and the company you invested in has a major mine collapse with negative PR, for example, your stock value could tank.
If you still want to invest in gold extraction, but don’t want the hassle of vetting individual companies, investing in a gold ETF can be a good option.
Like investing in regular ETFs, gold ETFs are essentially a basket of different gold mining stocks rather than individual mining companies. This also spreads your risk across multiple companies so that you’re not betting on a single horse. SPDR Gold Shares (GLD) is one of the most popular gold ETFs on the market today.
Invest in Gold Through Crypto
You can actually blend old-world investment strategies with new-world ones by investing in the PAX Gold (PAXG) cryptocurrency. Gold is notoriously expensive to even start purchasing (the current price as of this writing is $1,913 per ounce), and PAXG offers a big advantage because you can get started for just a hundredth of a troy ounce, or about $20.
You don’t get your own pieces of gold when you buy PAXG but it is linked to “allocated” gold. This means that each PAXG token is linked to a physical piece of gold, with your name on it, in a storage vault. In this way it’s similar to how the U.S. dollar was originally backed by gold before becoming fiat currency (i.e., not linked to actual gold in a vault).
One of the general disadvantages of investing in gold is that you can’t earn any interest on it like with a bank account. Unless, of course, you open a Blockfi account to store your PAXG, which pays out interest and even lets you borrow against your digital wallet.
The Bottom Line
Gold is a specialized investment that’s often overhyped. Still, it might still have a legitimate (if small) place in your portfolio. To know if investing in gold is right for you — and if so, which option — we recommend speaking with a financial advisor.
Even if you’re a pro and feel ready for complicated gold futures contracts, it’s still a good idea to sit down for a chat with an impartial third party. It’s a good way to double-check your investment plans, lest you catch a case of shiny-object syndrome and get too carried away.