April 2020 - onthemark

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The Beginner’s Guide to Investing in Gold

Imagine yourself sitting in a stream swirling water in a pan, desperately hoping to see a small yellow glint of gold and dreaming of striking it rich. America has come a long way since the early 1850s, but gold still holds a prominent place in our global economy today. Here’s a comprehensive introduction to gold, from why it’s valuable and how we obtain it to how to invest in it, the risks and benefits of each approach, and advice on where beginners should start.

Why is gold valuable?

In ancient times, gold’s malleability and luster led to its use in jewelry and early coins. It was also hard to dig gold out of the ground — and the more difficult something is to obtain, the higher it is valued. 

Over time, humans began using the precious metal as a way to facilitate trade and accumulate and store wealth. In fact, early paper currencies were generally backed by gold, with every printed bill corresponding to an amount of gold held in a vault somewhere for which it could, technically, be exchanged (this rarely happened). This approach to paper money lasted well into the 20th century. Nowadays, modern currencies are largely fiat currencies, so the link between gold and paper money has long been broken. However, people still love the yellow metal.

Where does demand for gold come from?

The largest demand industry by far is jewelry, which accounts for around 50% of gold demand. Another 40% comes from direct physical investment in gold, including that used to create coins, bullion, medals, and gold bars. (Bullion is a gold bar or coin stamped with the amount of gold it contains and the gold’s purity. It is different than numismatic coins, collectibles that trade based on demand for the specific type of coin rather than its gold content.) 

Investors in physical gold include individuals, central banks, and, more recently, exchange-traded funds that purchase gold on behalf of others. Gold is often viewed as a “safe-haven” investment. If paper money were to suddenly become worthless, the world would have to fall back on something of value to facilitate trade. This is one of the reasons that investors tend to push up the price of gold when financial markets are volatile.

Since gold is a good conductor of electricity, the remaining demand for gold comes from industry, for use in things such as dentistry, heat shields, and tech gadgets. 

How is the price of gold determined?

Gold is a commodity that trades based on supply and demand. The interplay between supply and demand ultimately determines what the spot price of gold is at any given time.

The demand for jewelry is fairly constant, though economic downturns do, obviously, lead to some temporary reductions in demand from this industry. The demand from investors, including central banks, however, tends to inversely track the economy and investor sentiment. When investors are worried about the economy, they often buy gold, and based on the increase in demand, push its price higher. You can keep track of gold’s ups and downs at the website of the World Gold Council, an industry trade group backed by some of the largest gold miners in the world. 

How much gold is there?

Gold is actually quite plentiful in nature but is difficult to extract. For example, seawater contains gold — but in such small quantities it would cost more to extract than the gold would be worth. So there is a big difference between the availability of gold and how much gold there is in the world. The World Gold Council estimates that there are about 190,000 metric tons of gold above ground being used today and roughly 54,000 metric tons of gold that can be economically extracted from the Earth using current technology. Advances in extraction methods or materially higher gold prices could shift that number. Gold has been discovered near undersea thermal vents in quantities that suggest it might be worth extracting if prices rose high enough.  

How do we get gold?

Although panning for gold was a common practice during the California Gold Rush, nowadays it is mined from the ground. While gold can be found by itself, it’s far more commonly found along with other metals, including silver and copper. Thus, a miner may actually produce gold as a by-product of its other mining efforts.

Miners begin by finding a place where they believe gold is located in large enough quantities that it can be economically obtained. Then local governments and agencies have to grant the company permission to build and operate a mine. Developing a mine is a dangerous, expensive, and time-consuming process with little to no economic return until the mine is finally operational — which often takes a decade or more from start to finish. 

How well does gold hold its value in a downturn?

The answer depends partly on how you invest in gold, but a quick look at gold prices relative to stock prices during the bear market of the 2007-2009 recession provides a telling example.

Between Nov. 30, 2007, and June 1, 2009, the S&P 500 index fell 36%. The price of gold, on the other hand, rose 25%. This is the most recent example of a material and prolonged stock downturn, but it’s also a particularly dramatic one because, at the time, there were very rea­l concerns about the viability of the global financial system.

When capital markets are in turmoil, gold often performs relatively well as investors seek out safe-haven investments.

Ways to invest in gold

Here are all the ways you can invest in gold, from owning the actual metal to investing in companies that finance gold miners.

Jewelry

The markups in the jewelry industry make this a bad option for investing in gold. Once you’ve bought it, its resale value is likely to fall materially. This also assumes you’re talking about gold jewelry of at least 10 karat. (Pure gold is 24 karat.) Extremely expensive jewelry may hold its value, but more because it is a collector’s item than because of its gold content.

Bullion, bars, and coins

These are the best option for owning physical gold. However, there are markups to consider. The money it takes to turn raw gold into a coin is often passed on to the end customer. Also, most coin dealers will add a markup to their prices to compensate them for acting as middlemen. Perhaps the best option for most investors looking to own physical gold is to buy gold bullion directly from the U.S. Mint, so you know you are dealing with a reputable dealer.

Then you have to store the gold you’ve purchased. That could mean renting a safe deposit box from the local bank, where you could end up paying an ongoing cost for storage. Selling, meanwhile, can be difficult since you have to bring your gold to a dealer, who may offer you a price that’s below the current spot price.

Gold certificates

Another way to get direct exposure to gold without physically owning it, gold certificates are notes issued by a company that owns gold. These notes are usually for unallocated gold, meaning there’s no specific gold associated with the certificate, but the company says it has enough to back all outstanding certificates. You can buy allocated gold certificates, but the costs are higher. The big problem here is that the certificates are really only as good as the company backing them, sort of like banks before FDIC insurance was created. This is why one of the most desirable options for gold certificates is the Perth Mint, which is backed by the government of Western Australia. That said, if you’re going to simply buy a paper representation of gold, you might want to consider exchange-traded funds instead. 

Exchange-traded funds

If you don’t particularly care about holding the gold you own but want direct exposure to the metal, then an exchange-traded fund (ETF) like SPDR Gold Shares is probably the way to go. This fund directly purchases gold on behalf of its shareholders. You’ll likely have to pay a commission to trade an ETF, and there will be a management fee (SPDR Gold Share’s expense ratio is 0.40%), but you’ll benefit from a liquid asset that invests directly in gold coins, bullion, and bars.

Futures contracts

Another way to own gold indirectly, futures contracts are a highly leveraged and risky choice that is inappropriate for beginners. Even experienced investors should think twice here. Essentially, a futures contract is an agreement between a buyer and a seller to exchange a specified amount of gold at a specified future date and price. As gold prices move up and down, the value of the contract fluctuates, with the accounts of the seller and buyer adjusted accordingly. Futures contracts are generally traded on exchanges, so you’d need to talk to your broker to see if it supports them. 

The biggest problem: Futures contracts are usually bought with only a small fraction of the total contract cost. For example, an investor might only have to put down 20% of the full cost of the gold controlled by the contract. This creates leverage, which increases an investor’s potential gains — and losses. And since contracts have specific end dates, you can’t simply hold on to a losing position and hope it rebounds. Futures contracts are a complex and time-consuming investment that can materially amplify gains and losses. Although they are an option, they are high-risk and not recommended for beginners.

Gold mining stocks

One major issue with a direct investment in gold is that there’s no growth potential. An ounce of gold today will be the same ounce of gold 100 years from now. That’s one of the key reasons famed investor Warren Buffett doesn’t like gold — it is, essentially, an unproductive asset.

This is why some investors turn to mining stocks. Their prices tend to follow the prices of the commodities on which they focus; however, because miners are running businesses that can expand over time, investors can benefit from increasing production. This can provide upside that owning physical gold never will.

However, running a business also comes with the accompanying risks. Mines don’t always produce as much gold as expected, workers sometimes go on strike, and disasters like a mine collapse or deadly gas leak can halt production and even cost lives. All in all, gold miners can perform better or worse than gold — depending on what’s going on at that particular miner.

In addition, most gold miners produce more than just gold. That’s a function of the way gold is found in nature, as well as diversification decisions on the part of the mining company’s management. If you’re looking for a diversified investment in precious and semiprecious metals, then a miner that produces more than just gold could be seen as a net positive. However, if what you really want is pure gold exposure, every ounce of a different metal that a miner pulls from the ground simply dilutes your gold exposure.

Potential investors should pay close attention to a company’s mining costs, existing mine portfolio, and expansion opportunities at both existing and new assets when deciding on which gold mining stocks to buy.

Mining-focused ETFs

If you’re looking for a single investment that provides broadly diversified exposure to gold miners, then low-cost index-based ETFs like VanEck Vectors Gold Miners ETF and VanEck Vectors Junior Gold Miners ETF are a good option. Both also have exposure to other metals, but the latter focuses on smaller miners; their expense ratios are 0.53% and 0.54%, respectively.

As you research gold ETFs, look closely at the index being tracked, paying particular attention to how it is constructed, the weighting approach, and when and how it gets rebalanced. All are important pieces of information that are easy to overlook when you assume that a simple ETF name will translate into a simple investment approach.

Mutual funds

Investors who prefer the idea of owning mining stocks over direct gold exposure can effectively own a portfolio of miners by investing in a mutual fund. This saves the legwork of researching the various mining options and is a simple way to create a diversified portfolio of mining stocks with a single investment. There are a lot of options here, with most major mutual fund houses offering open-end funds that invest in gold miners, such as the Fidelity Select Gold Portfolio and Vanguard Precious Metals Fund

However, as the Vanguard fund’s name implies, you are likely to find a fund’s portfolio contains exposure to miners that deal with precious, semiprecious, and base metals other than gold. That’s not materially different from owning mining stocks directly, but you should keep this factor in mind, because not all fund names make this clear. (For example, the Fidelity Select Gold Portfolio also invests in companies that mine silver and other precious metals.)

Fees for actively managed funds, meanwhile, can be materially higher than those of index-based products. You’ll want to read a fund’s prospectus to get a better handle on its investing approach, whether it is actively managed or a passive index fund, and its cost structure. Note that expense ratios can vary greatly between funds.

Also, when you buy shares of an actively managed mutual fund, you are trusting that the fund managers can invest profitably on your behalf. That doesn’t always work out as planned.

Streaming and royalty companies

For most investors, buying stock in a streaming and royalty company is probably the best all-around option for investing in gold. These companies provide miners with cash up front for the right to buy gold and other metals from specific mines at reduced rates in the future. They are like specialty finance companies that get paid in gold, allowing them to avoid many of the headaches and risks associated with running a mine.

Benefits of such companies includes widely diversified portfolios, contractually built-in low prices that lead to wide margins in good years and bad, and exposure to gold price changes (since streaming companies make money by selling the gold they buy from the miners). That said, none of the major streaming companies has a pure gold portfolio, with silver the most common added exposure. (Franco-Nevada, the largest streaming and royalty company, also has exposure to oil and gas drilling.) So you’ll need to do a little homework to fully understand what commodity exposures you’ll get from your investment. And while streaming companies avoid many of the risks of running a mine, they don’t completely sidestep them: If a mine isn’t producing any gold, there’s nothing for a streaming company to buy.

The built-in wide margins that result from the streaming approach provide an important buffer for these businesses. That has allowed the profitability of streamers to hold up better than miners’ when gold prices are falling. This is the key factor that gives streaming companies an edge as an investment. They provide exposure to gold, they offer growth potential via the investment in new mines, and their wide margins through the cycle provide some downside protection when gold prices fall. That combination is hard to beat. 

What’s the best way for a beginner to invest in gold?

There’s no perfect way to own gold: Each option comes with trade-offs. That said, probably the best strategy for most people is to buy stock in streaming and royalty companies. However, what to invest in is just one piece of the puzzle: There are other factors that you need to consider.

How much should you invest in gold?

Gold can be a volatile investment, so you shouldn’t put a large amount of your assets into it — it’s best to keep it to less than 10% of your overall stock portfolio. The real benefit, for new and experienced investors alike, comes from the diversification that gold can offer. Once you’ve built your gold position, make sure to periodically balance your portfolio so that your relative exposure to it remains the same.

When should you buy gold?

It’s best to buy small amounts over time. When gold prices are high, the price of gold-related stocks rises as well. That can mean lackluster returns in the near term, but it doesn’t diminish the benefit over the long term of holding gold to diversify your portfolio. By buying a little at a time, you can dollar-cost average into the position.

As with any investment, there’s no one-size-fits-all answer for how you should invest in gold. But armed with the knowledge of how the gold industry works, what each type of investment entails, and what to consider when weighing your options, you can make the decision that’s right for you.

Something big just happened

I don’t know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations. Together, they’ve tripled the stock market’s return over the last 17 years.* And while timing isn’t everything, the history of Tom and David’s stock picks shows that it pays to get in early on their ideas.

By – Reuben Gregg Brewer(TMFReubenGBrewer)

Original

Purpose is Life-Changing. Find Your Why

Nothing gives a person inner wholeness and peace like a distinct understanding of where they are going.

Fulfilment is a right and not a privilege. Finding fulfilment in life starts with understanding exactly WHY you do what we do.

Simon Sinek, author of Find Your Why: A Practical Guide for Finding Purpose for You and Your Team, explains:

Once you understand your WHY, you’ll be able to clearly articulate what makes you feel fulfilled and to better understand what drives your behavior when you’re at your natural best. When you can do that, you’ll have a point of reference for everything you do going forward. You’ll be able to make more intentional choices for your business, your career and your life. You’ll be able to inspire others to buy from you, work with you and join your cause.

Robert Bryne once observed, “The purpose of life is a life of purpose.”

In order to get somewhere, you need to define your end goal. That is essential. And the sooner you define it, the clearer everything else will become. A life without a purpose is a life without a destination.

Finding the right direction in life is an existential problem for all of us.

What do you look forward to in life? Living without purpose is dangerous.

Fyodor Dostoyevsky once said, “The mystery of human existence lies not in just staying alive, but in finding something to live for.”

Finding the right direction in life is something you create. You make the decision to act. To try. To do something. No matter how small.

At some point in life, you’re going to have to stop thinking about taking action and act.

Your purpose in life is to find and do the things that make you smile, laugh and forget time. Even if you aren’t sure yet, move into the exploration and experimentation phase of your life and enjoy the journey.

In her book, The How of Happiness, A Scientific Approach to Getting the Life You WantPositive psychologist Sonja Lyubomirsky wrote that only 10% of happiness comes from extrinsic incentives like money, fame, and status.

Commit to a purposeful life.

Johann Wolfgang von Goethe sums up the idea and intention at its best: “Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness.”

When you commit to living your life with a purpose, amazing things can happen.

You can’t put time on it. You can’t force yourself to find your “why” tomorrow or next month, or even next year. But by all means, search for clarity and move closer to the life you crave.

In the 1940s, Viktor E. Frankl, was held prisoner in Nazi concentration camps. With all the agony and brutality, what kept Frankl from giving up his relentless fight for his life was purpose!

He found meaning in his struggle, and that’s what gave him the power to push forward through unimaginable pain.

A quote by Viktor nicely sums up his philosophy on how people were able to survive the camps, without losing the will to live.

In “Man’s Search for MeaningViktor says“Those who have a ‘why’ to live, can bear with almost any ‘how’.”

Once you have defined your aims and what you want, it is easier to deal with doubts. Easier not to get distracted from what is important, keep your focus, and keep moving.

Only sustained movement in one direction can bring tangible results.You have permission to change your goal, rethink, choose another, by all means.

It’s hard to maintain any momentum if your direction lacks definition.

In order to reach big goals, you need time, during which you must continue moving in your chosen direction, not veering off course.

Defining your direction as early as possible is the most important decision in sports. But, curiously enough, this is also the most important decision in life in general, but much fewer people realize it.

Living “on purpose” means you live intentionally.

Napoleon Hill once said “There is one quality that one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it.

In order to get what you want, you have to choose one direction and move towards it, constantly improving over a prolonged period of time.

Maximum speed and output requires a precise framework.

People who have made genuine changes in their lives and managed to attain difficult goals are not stronger, more intelligent or fearless than you. The only difference is the decision to act in the direction of their dreams.

A strong sense of purpose fuels your motivation.

Successful people have a definite sense of direction. They have a clear understanding of what success means to them.

Everything they do is consistent with their goals. They look forward and decide where they want to be. Their day to day actions helps them move closer to their vision.

Once you find your why, you will be more careful and selective about your daily actions.

In her book, “Brave: 50 Everyday Acts of Courage to Thrive in Work, Love and LifeMargie Warrell, writes: “Knowing your why is an important first step in figuring out how to achieve the goals that excite you and create a life you enjoy living (versus merely surviving!).

Margie continues “Indeed, only when you know your ‘why’ will you find the courage to take the risks needed to get ahead, stay motivated when the chips are down, and move your life onto an entirely new, more challenging, and more rewarding trajectory.”

William Cowper said “Existence is a strange bargain. Life owes us little; we owe it everything. The only true happiness comes from squandering ourselves for a purpose.”

There’s no better feeling than suddenly becoming clear on something that had previously been a road block in your life.

Those “aha!” moments are a real blessing when they come. “The only journey is the one within,” says Rainer Maria Rilke.

Clarity of purpose challenges you to do better and commit to actions that get you closer to the one thing you really want in life.

With clarity, you can pull together resources, ideas and people for a common cause. Without it, there is wasted effort and even chaos.

Bud Bilanich, an executive coach says to develop your personal clarity of purpose you need to do three things:

First, define what success means to you personally.

Second, create a vivid mental image of you as a success. This image should be as vivid as you can you make it.

Third, clarify your personal values.

Getting clear about what you want is a process of trial and error! Try something. Then ask yourself: Do I like this? Yes. No. Get a journal and start putting down your feelings, thoughts, actions, and behaviors.

Use what you write as a way to pinpoint areas you are constantly exploring. Evaluate your results constantly.

What actions, thoughts, beliefs, and behaviors are you attracted to the most?

The key is to do more of what you enjoy and brings out the very best in you and you will continually clarify what it is that you want to do, be and have in life.

Original by – Thomas Oppong

How to buy Gold at Spot Price?

New gold bullion buyers often begin by wondering how they might be able to buy gold at spot as well where can you buy gold bullion at the spot price.

We begin first and foremost, with a word of caution. Please be careful in your buying gold bullion at spot price endeavors.

Many offers for gold at spot price or even for gold under spot price are often the realm of conmen, counterfeits, and dishonesty.

Here we’ll teach you how to buy gold at or near spot safely via proper due diligence and knowing the counterparty is trusted and in fact, delivers on their word or promises.

Where can you buy gold at spot price?

Here at SD Bullion, we often offer customers the opportunity to buy 1 oz Gold Bullion Bars very close to the prevailing gold spot price.

To begin the 21st Century, we experienced about 10-years straight of consistently higher gold prices year after year (from 2001 until later 2011). The still standing nominal price record for fiat US dollar gold price’s was touched near $1,900 oz USD in August 2011.

Since that time, the price of gold has consolidated to as low as about $1,050 oz USD in late 2015 but has since rebounded to fiat USD prices over $1,500 oz in the past few months.

Below is an over 200-year chart of gold’s US dollar price.

Note in this long term gold price chart, the US dollar gold price per troy ounce started moving exponentially right after the 1971 Nixon Shock which severed the final underlying ties between gold bullion and now every government currency in circulation including the fully fiat US dollar.

Can I buy Gold at Spot Price? – Yes possibly, for Now

Due to lower price premiums currently in the gold bullion industry, various high volume gold bullion dealers (who work on razor-thin profit margins), have at times offered one time buy gold at spot price opportunities for new customers. The buy gold at spot price offer is done as a ‘loss leader’ mostly to encourage investors to become new customers and to get on their email list for future product promotions.

After all, there is no one easier to sell gold bullion to, then someone who has already bought gold bullion.

Others might even get some cheap debt-fueled sales subsidies by large corporations who may be trying to bolster their top-line revenues and perhaps further gain bullion trading market shares on their platforms.

Physical gold bullion dealers make little to no money in these gold at or next to spot price offers. Most often it is a loss in terms of overall costs associated with such transactions, yet some gold bullion dealers do so in the effort to gain new customers to market products to. They are ultimately hoping to bolster their bullion business growth for the long term.

We strongly suggest that on any gold bullion at spot price deal you may come across, that you perform proper gold buying due diligence on the gold-selling counterparty.

Stick with established high volume gold bullion selling businesses that get highly ranked on hard-to-rig gold dealer review websites.

Pay careful attention to rankings and review volumes. Any gold dealer with poor or mediocre reviews is not worth risking your hard-earned capital.

Also, pay special attention to the kinds of reviews that you read. It is certainly not out of the realm of possibilities that the reviews you find are fake or not genuine.

Can I buy Gold below Spot Price? – Unlikely & Be Very Careful, Scammery Chance is High Here

Typically the only individuals who buy physical gold bullion below spot price are gold scrap refineries, we buy gold stores, and gold bullion dealers who may bid or offer a price slightly lower than the fluctuating gold spot price. Often for gold bullion bars, the bid price given to purchase gold bars from customers is at or just below the gold spot price. Conversely, popular modern gold bullion coins typically yield bid prices at or even slightly above the gold spot price).

Currently, for new .999 fine physical gold bullion products, one should never accept a bid or offer price below 98% of the fluctuating gold spot price.

If an individual tries to buy gold below the spot price, the chances are high that you will run into counterfeit gold bars or coin conmen or con women on websites like Craigslist or unproven gold bullion sellers on eBay.

Be very careful as gold looking Chinese counterfeit products are a real issue in our industry and are used daily to try and take advantage of unknowing or ‘lowest price at all cost’ would be gold bullion buyers.

More often than not, these counterfeit gold frauds go undetected for years or even go unreported due to the embarrassment it may cause the person who fell for the scam.

For every “I tried to buy gold below spot price” victim and gold fraud story covered on the news or in the media. We could probably multiply that figure by 10X or more in the amounts of times this similar story has gone unreported.

Often those who get low or unbelievable gold price conned, don’t even tell their loved ones due to intense feelings of regret and humiliation.

Buying Gold at Spot or Buying Gold below Spot is not Normal

The reason for this is rather simple.

Physical gold bullion’s supply chain calls for physical gold bullion products to be sold above the gold spot price for various parts of this industry and value-added-chain, to remain solvent, and out of bankruptcy proceedings.

If selling gold bullion in large volumes at the gold spot price was a legitimate business model, people in business would have done so long ago.

Take a look at how gold bullion typically gets to the end-user below.

Gold Bullion’s Supply Chain from Origin to Sales Above Spot

Star explosions produce precious metal elements

Gold laced asteroids crossed the universe, formed and collided with Earth

We, humans, mine Gold + Recover Gold Scrap ( mostly below gold spot prices )

Gold Refiners purify physical gold (often selling .999 gold at the gold spot price to large gold mints/gold dealers)

Gold Bullion Mints create bullion products ( bars and coins then are sold above spot )

Gold Bullion Dealers like us here at SD Bullion, we trade gold bullion products

gold bought or gold sold online, then nondescriptly mailed fully insured, or done so locally)

Customers buy, own, sell, trade their physical gold (above, at, or slightly below the prevailing gold spot price)

Unless you own a physical gold bullion or gold scrap related business in this supply chain illustrated above, it will be risky and difficult ever to procure physical gold below fluctuating gold spot prices.

Paramount to any gold bullion purchasing is that you indeed get what you have paid to receive. There are decades of allegations and frauds which prove this is often not the case for some would-be gold buyers and or sellers.

Reputable high volume gold bullion businesses typically operate on super slim profit margins ranging between mere basis points (100ths of 1%) to low percentage points on various trades.

Gold dealers are not in business to go bankrupt. Many former gold dealers have gone bust over the years due to sheer incompetence or worse, avarice and rationalizations along the way to bankruptcy.

If you are attempting to buy gold at the gold spot price, please make well sure the counterparty is indeed trustworthy, solvent, and reliable.

If you found this content informative, be sure to pick up our 100% free SD Bullion Guide before you go.

Within that document, you will find many helpful tips and related information which may help you become a more successful long term bullion buyer and potential seller someday.

Thanks for visiting us here at SD Bullion.

James AndersonContent Director

Original Article

How to buy, sell and invest in gold

Learn more about gold and how you can start investing today.

Global stocks crashed in 2020 as a result of the unexpected coronavirus pandemic, and the historic volatility has led investors all over the world to seek safe places to put their money.

For centuries, gold has been a popular store of wealth. In turbulent times, you might notice people talking about gold as an investment. After the initial panic subsides, you often see the price of gold rising while other stocks are falling.

If you’re interested in investing in gold, there are three main routes to do so:

What’s in this guide?

  1. Buy gold mining stocks
  2. Gold ETFs
  3. Buy solid gold
  4. Compare providers for access to gold ETFs and more
  5. How much is gold worth now?
  6. Why is gold a “safe haven”?
  7. Bottom line

Buy gold mining stocks

One option is to invest in gold mining firms. You can find some of the largest firms listed on the S&P 500, including Newmont Mining (NEM) and Freeport McMoRan (FCX). Many other miners — the smaller firms are call junior miners — are also widely available through normal brokerage accounts. Through investing in mining stocks, you’re directly linking your capital to the success of these companies, and the changing value and price of gold.

While heavily correlated, the performance of gold mining stocks will not perfectly match the price of gold. Unlike the resource itself, companies are subject to a number of external factors such as employees going on strike, geo-political implications for the area, natural disasters and business decisions. In addition, because the cost of mining is often high, there’s usually a price point where increases in the gold price can influence the profit margins for gold miners exponentially rather than linearly. For instance, if the cost of mining is $1,000 per ounce, then a 13% increase in the price of gold from $1,150 to $1,300 actually represents a 100% jump in profits for the gold miner.

Pros

  • You can pick and choose a range of stocks individually in your brokerage account, and cash out when you want.

Cons

  • Like any investment, mining stocks are not immune to risk.

Gold ETFs

ETFs are another option worth considering. ETFs give access to a whole load of assets without having to put all of your money into one or two firms.

Simply, ETFs allow investors to minimize risk while taking advantage of the performance and general popularity of a particular sector — in this case, gold.

There are several gold-based ETFs to choose from, covering a whole host of different companies within the industry. There are mining companies, exploration companies, as well as the actual asset itself. Gold ETFs are a pretty good choice for those who are new to investing, as well as those looking to secure their portfolio.

Pros

  • ETFs allow for instant diversification across the whole gold industry, at a low price.

Cons

  • By placing your money in an ETF, you are trusting your gold portfolio to a preselected list of companies, so you naturally relinquish some control over the split of assets.

Buy solid gold

For some people, part of the appeal of gold is being able to hold it. If you’re one of those people, then the good news is that buying solid gold has never been easier. While you can buy gold directly from the US Mint, most investors do business with a local dealer or reputable online broker.

Gold is available in a variety of coins, ingots and bars as small as half an ounce and as large as 400 ounces. While the US Mint has produced numerous collectible gold coins in different themes, the standard gold bullion coin is called the Gold American Eagle. Other common gold coins include Canada’s Gold Maple Leaf, South Africa’s Gold Krugerrand, China’s Gold Panda and Australia’s Gold Kangaroo.

Pros

  • You have a tangible asset which is yours to hold, store or pass on to someone else.

Cons

  • You will need to factor in the cost of secure storage and insurance if you plan to build up a stockpile of gold. These costs will stack up over time, even if the value of your gold decreases.

Gold bars

Stack of gold bars Image: Getty

Gold bars generally range in size from 1/10 of an ounce to 1 kg (2.2 pounds), but there are also bars up to 500 ounces available. However, remember that precious metals use troy ounces and one troy ounce equals 31.1 grams.

There are two types of gold bars: cast bars and minted bars. Cast bars are produced by pouring molten gold into an ingot mold, while minted gold bars are manufactured via a minting or stamping process. Cast bars are cheaper to produce, but minted bars look better and are generally easier to sell.

Gold coins

Stacks of gold coins Image: Getty

Mints around the world also produce gold bullion coins. Typically smaller than bars and ingots, they’re generally considered to be a more convenient option for many investors. Not only are they cheaper to buy, but they also make it easier to liquidate a small portion of your investment when you need cash. Coins contain between 1/10 of an ounce and 1 ounce of pure gold.

These coins also have a nominal monetary value and can be accepted as legal tender in the country where they’re made.

How much is gold worth now?

How to safely store gold

Once you’ve purchased your gold, you’ll also need to find a safe place to store it. There are several options to consider, including the following:

  • Bullion dealers. Many gold dealers will also offer a storage service where you can keep your gold bars or coins for a fee, so ask about the storage options available when you make your purchase.
  • Safety deposit boxes. You can rent a safety deposit box at a bank to securely store your gold bullion.
  • Secure vault storage. For high-level security, you may want to research vault storage companies near you and the storage options they offer.
  • At home. You can also choose to store your gold at home. This obviously may not be as secure as some other options, so you may want to get a home safe installed. You’ll also need to update your homeowner’s insurance to make sure your precious metal is covered by your policy.

Why is gold a “safe haven”?

There are many reasons people view gold a safe haven for investors. For example:

  • Gold is a physical asset
  • It is not easily created or destroyed
  • It does not change (it is resistant to oxidation; gold looks the same hundreds of years from now)
  • It has cultural and historical value — gold predates modern currency and has always been seen as beautiful and special
  • Governments have turned to gold in times of financial crisis, which in itself adds to gold’s stability

What is a safe haven?

A safe haven investment is typically stable in times of market volatility. A safe haven is also useful for investors looking to diversify their portfolio, decreasing exposure to riskier assets or investments.

Bottom line

If you’re searching for ways to protect your wealth or diversify your investment portfolio, gold may be a practical solution.

But first do your research to make sure you know the costs of storage and security, as well as understand that returns may not match those provided by other investments. This will help you make an informed decision about whether buying gold is the right choice for you.

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Original – Charlie Barton