What Is The Best Way To Invest In Gold

With the uncertainty in the world economy these days and peoples growing lack of confidence in traditional investments like mutual funds and the stock market more and more people are looking to gold as an investment vehicle.  Gold has been a steed fast go to haven the last few years but what is the best way to invest in gold?

There are a few different ways you can invest in gold, the answer to questions such as ‘should I invest in gold?’ or ‘why invest in gold?’ depend mostly on your familiarity with the pros and cons of the different choices of gold investments.  If you are tired of the same old results from under performing investments or are just looking for a safer way to retain your wealth it will be worth your time learning about some different ways to invest in gold.

We will look at purchasing physical gold both bars and coins, using a pool account to buy gold, buying gold etfs, as well as an overview of investing in gold stocks, futures and gold OTC’s.

Investing In Physical Gold

You can purchase gold bars and coins relatively easily.  Gold bars come in a variety of sizes, from 1 gram all the way up to 400 ounces.  Finding a a reputable dealer is the key, when you purchase bars you will be charged the days spot price plus the dealers premium or bar charge, this charge represents the dealers profit. Click here more detailed information on gold bar prices.

Gold bars or biscuits from recognized refineries such as Johnson Matthey, Englehart, Canadian Mint, Perth Mint to name 4, there are 130 accredited gold refiners throughout the world.  Investment grade gold bars and biscuits are at least .999 fine or 999/1000 parts actual gold content which is the same as 24 karat gold.  You can also purchase bars .9999 and recently the Royal Canadian mint brought out a .99999 fine gold bar, the .9999 and .99999 offer a heavier price tag one which I personally do not think is worth the extra money but to each their own.

You can also invest in gold coins in two different ways, you can purchase gold bullion coins.  Gold bullion coins again are at least .999 fine, you can also find some gold Maples that are .9999 fine for an extra premium.  The other type of gold coin are numismatic or collectible gold coins, these are not necessarily .999 fine gold and are often less such as .900 or .916. There is much to learn about buying the right kinds of numismatic gold coins, click here for more information on the best gold coins to buy.

Storing Your Gold

Another consideration you will have if you chose to purchase physical gold is storing it, if you are only going to have 1 or 2 ounces you may be comfortable keeping it at home but the once you start getting a little more you would best off keeping it in a safety deposit box.  As the economy worsens, more and more people talk about the gold confiscation act reoccurring but to my opinion this would quite unlikely.

Gold Pool Accounts

A gold pool account is when you purchase gold through a company but you do not have ownership to a specific bar or coin, you own part of the pool.  I liken it to you owning a piece of the pie, with most pool accounts you can choose to take ownership of your metal and have it delivered to you at a later date if you wish, they will charge your for delivery.  Pool accounts are an good way to invest in gold without having to have it in your physical possession.

You will pay a spread when purchasing gold in a pool account, for example the spot price of gold today is $1,645.00, to purchase 1 ounce of gold in Kitco’s gold pool account you would pay $1,677.00 per ounce, this is a good rate and less than you would pay as a bar charge.

You can also purchase allocated bars which means you have ownership of a specific bar, this would be recorded and registered by a serial number on the bar, the fees are slightly higher for this service and in my opinion unnecessary unless you are a stickler for detail and are sure you want to take physical ownership of the bar in the future.

Gold Etfs

Gold Etfs or exchange traded funds are certificates of ownership of gold that are backed by physical gold bullion.  These certificates are traded much the same as regular stocks and bonds.  The most well known gold etf in the US is SPDR Gold Shares, known just as well by it’s ticker symbol ‘GLD’. GLD is backed by physical bullion but it’s investors are not permitted to take possession of the bullion.

The price of GLD mimics the spot price of gold in pluses and minuses.  For a more detailed explanation on etfs visit our post on the best gold etfs for novice investors.

Gold Stocks

Investing in gold or mining stocks or equities is a standard investment channel that is no different from investing in other publicly traded company. The value of this type of investment can vary widely compared to gold prices. Generally, this type of investment can net positive gains if the price of gold continually increases or remains stable at an elevated price for a relatively long period of time.

Gold stocks are subject to the same uncertainties as other traditional stocks and bonds, uncertainties which arise from variations in factors such as the quality of management, the quality and quantity of the ore (always an unsure estimate), the cost of mining and processing the ore, etc.

Gold Futures And Options

Gold futures and options are very similar to futures and options contracts for commodity-type goods such as base metals, grain, vegetable oil, etc. With a gold futures contract, one party is bound by the contract to either deliver or purchase a certain amount of gold at a certain price at a certain future date. The counter party is then bound to purchase (or deliver) that said amount of gold.

Each contract usually involves gold lots of 100 ounces (per contract). An option on a gold futures contract allows either party to buy (or “call”) or sell (“put”) the specified amount of gold at the specified time and price without being obligated to actually carry out the transaction. As with similar futures and options contracts on commodities, gold futures and options contracts can be traded at established commodities markets or exchanges.

OTC Gold Contracts

Over-the-counter (OTC) gold contracts are custom-made spot or forward contracts that are made between institutional dealers or companies that represent very wealthy individuals and that involve large quantities of gold. These are private contracts whose details are usually not made public, except maybe for majority share holders of public companies and other such people.

These contracts can be drawn up and acted upon all over the world, 24 hours a day, seven days a week. Many OTC spot or forward contracts are similar to futures contracts, but unlike futures contracts, OTC contracts are made between two parties without the purview of an exchange middle party or clearing house. OTC transactions are inherently riskier than futures and options transactions. OTC trading accounts for the majority portion of the world trade in gold.

The Best Ways To Invest In Gold

As you can see there are a variety of ways to invest in the gold. Which is the best way to invest in gold?  That is up to you, it depends on how much knowledge you currently have or how much time you are willing to take to educate yourself.  The easiest way to start investing in gold is by purchasing a small bar or coin, as you gain more confidences you may chose to buy larger amounts.

Pool accounts are another fairly straight forward option to enter the gold market, the main thing you would need to do is find a well known and respected company with a good track record such as Kitco.  Getting started is quite easy but your minimum buy in would be 1 ounce, once your account is set up and funded it is easy to buy and sell.

Etf’s are also in the beginner to mid knowledge range, with etf’s you want to make sure you have the flexibility of buying and selling small amounts the etf, I have heard that some require you to buy and sell in certain amounts.  Stocks, Options and Otc’s are vehicles that will requite quite a bit more knowledge and expertise and you may encounter price manipulations beyond your control.

In the end investing in precious metals is a fun and interesting way keep hold of wealth and prosper, myself, I like to keep it simple and stick to regular old fashioned bars and bullion coins.  The only thing I need to monitor is the price of the metal and find the best premiums I can when buying.  Good luck in your choice!