Gold is one of the most sought-after commodities in the world and it’s not difficult to see why. In times of economic, political, and social turmoil, it becomes people’s asset of choice because, unlike most fiat currencies, gold retains its value when everything goes south. Many people buy gold particularly because it can serve as a hedge against inflation, owing to its ability to hold value even when the prices of goods and services skyrocket.
As you might already know, there are actually different ways to buy gold. Your choice should ultimately boil down to what your asset management strategy calls for. This short guide will introduce you to the most popular options in order to help you get started with your search for the right products or instruments.
Gold bullion coins and bars – For people who want to rest easy at night knowing that they are buying their gold in tangible or physical form, there are a variety of gold bullion coins and bars that they can choose from. Bullion bars and coins are very straight-forward forms of physical gold because it’s very easy to determine their value. Their prices are based on their gold content.
For modest buyers, bullion coins are preferable over bars since coins come in sizes and weight classes that cost much less than bullion bars. This characteristic makes them easier to sell or to liquidate because more people can buy gold in smaller quantities.
Numismatic gold coins – Another type of gold coins that you can purchase are numismatic gold coins. Take note, however, that for a lot of these coins, the monetary value can be a bit of a challenge to determine. This is because numismatic coins are priced based on other factors aside from their gold content. The criteria for this “numismatic value” can include the coin’s history, its provenance, and even its rarity.
Gold certificates – What about if you are concerned about being robbed or your gold being stolen? One solution is to arrange safe storage with a trusted third party. Another is to buy gold certificates instead of actual bullion coins or bars.
Gold certificates are basically certificates of ownership that you can hold without actually storing the physical gold. Instead, the theory is that the issuing bank takes care of keeping the gold bullion coins or bars for you.
Gold Futures – Gold futures bring gold buying to a higher level of complexity. It is also considered a high-risk endeavor. With a gold futures contract, you’ll be able to purchase gold at a price determined today (called futures price), with the payment of the predetermined amount of gold occurring on an agreed upon date in the future.
You should only buy gold futures if you are confident enough that you can use them to your advantage, specifically as a strategy to mitigate the risks brought about by gold price movements.
Shares in mining companies – You also have the option of buying shares of stocks from mining companies. You should be aware, however, that there are various factors that can affect the share prices aside from the price of gold itself. For instance, natural disasters, mining accidents, shifting production costs, and internal corporate issues can all directly affect the share prices.
Gold mutual funds – Aside from individual equities or stocks, you can also purchase gold mining stocks through professionally managed mutual funds.
Mutual funds are essentially pools of funds comprising funds collected from numerous people. These funds are used by the fund managers to buy mostly shares of stocks from different mining companies, although the portfolios may also include certain amounts of gold bullion.
Because of the diversified nature of mutual funds, they may be a safer bet compared to buying stocks from just one company.
Exchange-traded funds – Gold exchange traded funds (ETFs) are like index funds in that they track the price changes of gold. Gold ETFs also trade like common stocks on stock exchanges.
The financial institutions that back such funds are responsible for storing the gold, and they divide the ownership of the gold into shares. The buyers don’t own the physical gold directly, but the shares can be bought, sold, and reassigned in the same manner as shares of stocks. Remember that like stocks, ETFs are also traded on public stock exchanges.
The benefit of ETFs is that shareholders can gain exposure to the gold without being exposed to associated issues like storage and insurance fees. However, ETFs are essentially paper-based assets, which do not appeal to everyone.
Buying gold can be very beneficial to your asset management strategy. However, before proceeding with any purchase, exercise due diligence in researching which products or instruments might work best for you. Also look for companies or financial institutions that can be your trusted partner in your gold buying journey.