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Follow These Main Strategies for Investing in Gold

By: Dan Barett

 

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In 2020, the global pandemic has undeniably affected many aspects of life – economy included. Unemployment rates have risen, and the financial market faces a rocky climate, with fiat currencies fluctuating every now and then.

Although most of the consequences are negative, there’s one field that greatly benefited from the current situation – the gold investing market.

Why?

The spot price of gold recently skyrocketed and hit a record with $2,089. Since then, it has dropped back a bit, but I believe that it’s set to reach highs again over the next few years. That’s why now is the best time to start investing in gold. Investors always ask me. Where is gold headed? I can’t tell you where it’s headed tomorrow or even next week, but in the long term, unless there is a radical shift in all major central banks’ policies, its headed higher.

But how to invest? Where to begin? Here’s an expert’s guide for all the novice investors out there.

Different Strategies to Approach Gold Investment

In general, there are three main strategies to go about investing in gold:

Gold ETFs

You can purchase gold ETFs (Exchange Traded Funds) in the form of shares on a stock exchange. Traders who have some stock exchange history may prefer this way because they are already familiar with brokerage practices and rules.

Therefore, you’re not actually in possession of a physical form of gold, but you can still use it to invest and trade. As ETFs require an annual fund ratio fee, you will lose a percentage of your gold investment over time. Depending on a particular ETF gold fund, the percentage will vary. An additional expense is a commission that you will get when you buy and sell gold ETFs. The beauty of an ETF is that the spread between the buy and sell price is only a few pennies so if you trade in and out of the yellow metal a lot, this is a good way to get exposure.

Gold Mining Companies

Another way in which you can invest in gold is riskier, but some people decide to go for it.

Namely, you can invest in gold mining companies and thus expect a percentage of future earnings of the company in return for your shares. Generally speaking, the value of their stocks oftentimes correlates highly with the spot price of gold.

The main downside of going with gold mining shares is that you’re not actively participating in your growth as an investor, and you depend on the choices of a mining company. It’s not a direct method of investing in gold. Other factors, such as mine exploration, management, production, gold yield from the mine, etc., will affect the value of the stock and hence your wealth.

But if you find the right mining company that also “hits it big” with a mine along with a rising gold price, you will seriously outperform the price of gold. I don’t have the bandwidth to do the research on mining companies since I left Wall Street so I can’t recommend any specific stock that I personally like.

Acquiring Physical Gold Assets

While the former two methods do not put you in charge of your gold investing completely, this one does.

Purchasing gold physical access is sort of a private form of wealth that can be used for whatever purposes you want, including investment.

Because it allows you total control and decision making along the way, this is a preferred method of many gold investors. It also has the characteristic that I find is key to owning gold. That is: it eliminates counterparty risk. I’ll explain more what this means later.

But where to begin? What are the best forms of physical gold assets to get?

You have a couple of options:

  • Gold bullion bars. Bars are handy because you can buy them for some very low premiums and later sell for much more. Their manufacturing cost is lower than with other forms of gold, so you’ll find some quite affordable ones.
  • Gold bullion coins. Coins hold a certain numismatic value to them in addition to the precious metal content, which makes them more expensive than other forms of gold. If you buy a rare and popular coin, you can make a fortune solely by selling it to a reputable gold buyer.
  • Gold bullion rounds. Rounds look similar to gold coins, but they differ in one aspect – coins are issued by national sovereign mints, whereas private mints produce rounds. Their value is primarily determined by the spot price of gold and weight, but some remarkable designs from reputable mints will bring up the value.

Of course, as you grow as an investor, you can diversify the gold items you’ll trade. But in the beginning, it’s better to stick to one form that works the best for you. Regardless of whether you buy gold bars, gold coins, or gold rounds you own gold. And one of the real benefits of owning physical gold is the elimination of counterparty risk. What that means is that you are in possession of your gold. You are not reliant on any third party.

For example, the stocks you have with your broker. Your counterparty is the brokerage house. What happens if they have financial problems. How do you get your “In Street” name stock? Good luck with that. How about the money you have in the bank. Actually a few years ago, you are actually considered a creditor of the bank. It’s not even your money. Good luck getting cash out in a real crisis.

Final Words

Now you’re equipped with the knowledge to start investing in gold.

Gold is money – but not vulnerable as paper money or any currency. Its value is timeless, unlike that of some other forms of investment, and it is highly liquid. Therefore, you can expect to protect your wealth in the forthcoming years.

Good luck in becoming a gold investor!

Published: September 18, 2020
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Dan Barett

Dan Barett is an investor and technology developer currently employed at Pacific Precious Metals, an authorized bullion dealer supply. He helps future investors build their precious metal portfolio with his wisdom and experience gained on a thirteen-year-long bullion market journey. Follow him on LinkedIn.

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