For decades, physical assets like bullion and coins have been traditional gold investments valued for their purity and easy storage. These investments have provided a means for investors to safeguard their finances, particularly during periods when the value of paper money declines.
But is it the only investment option in the gold industry? Certainly not! As times advanced, new investment opportunities in the gold market were introduced, enabling investors to diversify their portfolios with multiple assets like gold ETFs, gold mining stocks, digital gold, and more.
After spending over two decades investing in gold, I have realized how portfolio diversification significantly limits overall losses when a certain asset’s market value decreases. Not to mention the added benefits that come along when you add different gold investment options to your portfolio.
To help you explore the same, this blog will uncover the different gold investment options that are an ideal alternative to gold IRA investments.
Why Invest in Gold?
The price of gold has always remained steady for longer periods of time. To illustrate, when Sir Isaac Newton, the head of the United Kingdom Mint in 1717, established the gold price at L3.17s.10d. per troy ounce, it remained relatively unchanged for nearly two centuries, until 1914.
The sole exception to this stability occurred during the Napoleonic Wars, spanning from 1797 to 1821. Nevertheless, from 1792 to the present day, the official US Government gold price has undergone just four significant changes. It began at $19.75 per troy ounce, was increased to $20.67 in 1834, then to $35 in 1934. Subsequently, there were two further adjustments, with the price being raised to $38 in 1972 and then to $42.22 in 1973.
This limited price fluctuation over the centuries proves that gold has always been — and continues to be — a stable asset. However, that’s not the only reason I believe one should invest in gold. In fact, with the economic condition worsening globally, it is clear that gold offers a hedge against inflation, with its value gradually increasing as the value of the dollar decreases.
Moreover, after investing in gold over the years, I have also witnessed this precious metal help diversify my portfolio and keep my losses limited. Especially when my other assets, including cryptocurrencies, witnessed a decline.
Traditional Gold Investments
As mentioned earlier, the gold investment industry has seen significant advancements. However, a considerable portion of the population still prefers traditional gold assets such as coins, bars, and jewelry. This preference persists because physical gold assets offer a range of sizes and forms — accommodating investors with varying budgets.
Additionally, many traditional gold coins — like the Canadian Maple Leaf and American Eagle — hold historical and cultural importance and have remained stable for decades. Adding to this, gold jewelry serves as a time-tested investment, particularly favored by women, who can enjoy them as ornaments until they decide to liquidate the jewelry when necessary.
While traditional gold assets remain popular today, they do have limitations for investors. These include challenges like selling gold at the right market price, preventing damage, securing insurance, and maintaining safe storage.
The best way to avoid these limitations is by considering diverse gold investment options. What are they? Let’s explore!
Gold ETFs (Exchange-Traded Funds)
A physically backed gold ETF was one of the first gold investment options I considered when beginning my investment journey. These ETFs, also known as exchange-traded funds, allow you to invest in different types/sizes of gold bullion, like gold bars, coins, etc., in a single ETF. Simply put, a physical gold ETF will have multiple types of gold assets inside it. Hence, buying a single share of an ETF means buying tiny pieces of each gold bullion inside the ETF.
Pros
Cons
How to Invest?
Investing in physically-backed gold ETFs is simple and can be done through a brokerage account on online trading platforms. On the chosen platform, pick an ETF that best matches your investing needs, and invest in it. Here, I recommend consulting a financial expert to make the best physically-backed gold ETF investment.
Gold Mining Stocks
Another notable gold investment option I've looked into is investing in gold mining stocks. Essentially, this involves buying shares in gold mining companies, and these shares are traded on stock markets just like any other stocks. By investing in these shares, you have the opportunity to claim a portion of the profits when the company experiences growth and generates substantial earnings.
Pros
Cons
How to Invest?
Like gold ETFs, investing in gold mining stocks is quite straightforward. You can purchase these stocks directly from gold mining companies. It goes without saying that it’s crucial to examine a company’s financial history before you decide to invest in it. You can also consider investment platforms that provide physically backed gold ETFs and mutual funds as alternatives to investing in gold mining stocks.
Gold Mutual Funds
Gold mutual funds involve investment in ownership shares of gold mining companies. So, like buying shares in gold mining companies, you can seek profits for the gold mutual funds you hold as the company progresses.
Pros
Cons
How to Invest?
You can invest in gold mutual funds directly through gold mining and processing companies or online platforms that support such investment options. Once you have decided on the medium, you can choose the amount and method of investment and proceed accordingly.
Notably, this investment approach offers two funding options: Flat payments or a systematic investment plan (SIP), in which you invest a certain amount each month. You can choose between the two based on your investment budget.
Gold Futures and Options
Another popular option to invest in gold is through gold futures and options trading. Similar to basic trading, a gold future is a binding promise to provide or take delivery of a certain amount of gold at a specific price on a specific date. Likewise, gold options trading allows you to deliver or receive delivery of a specified quantity of gold on a specific date and at a specific price.
Pros
Cons
How to Invest?
To invest in gold futures or options, you must make an initial deposit equal to a portion of the underlying gold's price on a trading platform. This way, instead of delivering or taking delivery of the gold, you sell the contract for a profit after investing.
Digital Gold
Another gold investment option I explored over the past few years is digital gold. As the name suggests, this is a virtual investment where you buy gold without physical ownership, similar to the alternative gold investment options I mentioned earlier. However, digital gold can be accessed physically since it is stored in an insured vault by the seller, similar to how a gold IRA is stored.
Pros
Cons
How to Invest?
To invest in digital gold, start by selecting a platform that provides this investment option. Afterward, you can buy digital gold based on its weight and value at a fixed or current market price. Once you've acquired digital gold, monitor your account for security and have the flexibility to sell it at your convenience.
Diversifying Within Gold Investments
Considering the various gold investment options available today, the possibilities of diversifying your portfolio in the gold market are endless. But, at the same time, you might wonder, ‘Why should you not put all your eggs in one basket?’
I thought the same during my early investment years in the gold market. However, spreading your investments across several asset classes reduces the risk of a single investment negatively damaging your overall portfolio. This was a lesson I learned early in my investing journey.
Now comes the real question, ‘How to mix different types of gold investments?’ The answer is straightforward: assess your short-term and long-term investment objectives and then explore gold investment options that align with your financial constraints and goals. This way, you won’t invest in every available option but will diversify your portfolio with gold investments that suit your specific financial needs and objectives.
Risks and Considerations
In addition to the benefits of investing in gold, it is also important to be well aware of the drawbacks of such investments. Besides, gold investments also come with different risks that should be considered beforehand. These include:
- Market Volatility: Like any other asset, the gold price can fall while you’re holding it, lowering your potential returns.
- No Returns: Because gold does not create income or dividends, owning it means foregoing other potential sources of income or growth.
- Regulatory Changes: Regulatory changes are another potential risk to consider when investing in gold. This means that changes in any law related to gold ownership or investment impacts the price, supply, and demand for gold in the market. This, as a result, makes gold investment or ownership risky.
Frequently Asked Questions (FAQs)
Considering the gold investment options in this article, the cheapest method is digital gold. However, a gold mutual fund is also considered a popular investment option that small-budget investors can explore.
While both are good investment options, the best way to pick between physical gold or physically backed gold ETFs is by considering your current investment portfolio, budget, investment goals, and risk tolerance.
From what I have explored, most beginners are unaware of the different gold investments. Newbies are better off starting with more straightforward options like gold coins or small bars from reputable dealers. These options don’t require much knowledge about gold investment and therefore can be a good starting point.
Conclusion
There are plenty of options for investing in the gold market, from gold mining stocks to mutual funds and digital gold. While some are simpler and more popular, others are ideal for investors willing to invest more money into the gold industry.
Either way, it is important to diversify your portfolio with a variety of assets that not only cater to your investment needs but also help prevent loss if one asset loses its market value.
I hope this detailed guide on gold investment will help you make a more informed decision.