The Four Main Ways To Invest In Gold

If you are seriously considering investing in gold, here are a few things you should know. There are four main ways a person can invest in gold. These four gold investing options are: gold bullion, gold stocks, gold mutual funds, and gold ETFs (gold exchange traded funds). I will touch on each of these options briefly for you. As you determine whether gold mutual funds, gold stocks, or any other investments are right for you, please consider consulting with qualified financial professionals before you make any investment decisions.

Gold bullion is physical gold. That’s right; you can invest in gold bullion and actually hold it in your hands. Gold bullion is available in a variety of coins and bullion bars. When purchasing coins, be sure to differentiate between coins being sold for the price of the weight of gold in the coin, and numismatic gold, which is usually priced higher because of its rarity, and not its gold weight value. Producers provide gold bullion bars in weights from 1 gram to 400 ounces. The most popular are one oz coins such as the American Eagle, Canadian Maple Leaf, the South African Krugerrand, and the Austrian Vienna Philharmonic. It is fun to own a few pieces of physical gold for the pleasure of it; however, you might soon become concerned with the safety of your gold. Do you have a place to safely store your gold bullion and still be able to sleep soundly at night? If you chose a bank or a safety deposit box institution, be sure to check their cost, and insurance coverage on your valuables. It’s a fine line. Gold bullion can be both fun and a safe way to invest with physical gold that you can keep on or close to you and also be profitable. Just be sure to determine if it is the right way to invest in gold for you.

Gold mining stocks are a way to invest in gold based on one’s opinion of the prospects of individual mining companies. This includes their management and their mine holdings. Unlike mutual funds or ETFs, gold stocks don’t offer broad diversification. Gold stocks do offer greater leverage on the price of gold, both up and down. Gold stocks also offer healthy dividend income unlike most gold funds and ETFs. Gold stocks are like most stocks, you need to do a lot of research and there is always a chance things may not turn out how you hope. On the bright side, if one does their research well, it is possible to uncover a “golden” gold mining company and avoid others that could turn out to be fool’s gold. Gold stocks capability of precisely targeting investments differentiates it from a gold mutual fund or ETFs.

Morningstar, a leading fund rating and research company is a great place to learn more about gold investing and gold mutual funds. Morningstar star defines gold mutual funds as “a fund that pursues capital appreciation by investing primarily in equity securities of companies engaged in mining, distribution, or processing of precious metals (ie. gold stocks)” under the classification of “precious metals mutual funds”. Gold mutual funds, like gold stocks, are considered a leveraged play on gold because the mining companies have fixed costs and any increase in the price of gold can increase the percentage of profit quite dramatically. Unfortunately, the same is true if gold prices drop. Serious operational failures in mining companies can also negatively affect gold mutual funds. This being said, gold mutual funds might be your best investment opportunity if you think the gold market is going to be in a sustained bull run market as it was in the 1970’s. Some analysts believe our current gold market might be entering that same bull market.

Gold ETFs or gold exchanged traded funds, trade like stocks and have prices that are closely correlated to the price of gold at any given time. Like common stocks, gold ETFs can be bought and sold anytime during regular market trading hours. If you are unsure on what the price of gold will be going forward, but want a hedge against market movements and would like to diversify an investment portfolio that includes non-gold stocks and bonds, gold ETFs could be a better fit for you than gold mutual funds. Whatever your decision, the best of luck to you in your gold investing!

Updated: May 7, 2011 — 3:02 am

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