How to Invest in Gold for Beginners

GOLD JEWELLERY

Gold jewellery accounts for around 50% of global gold production, making it the most frequently purchased form of gold. Generally, jewellery rated 14 karats or higher is considered an “investment.” While buying jewellery is relatively simple, you may struggle to flip rings and necklaces for a profit later. You’ll also pay a markup relative to the value of the metal itself to cover labour costs and retail margins. If you decide that gold jewellery is the way to go, be sure to keep your receipt and accompanying paperwork to make evaluation and resale easier down the road.

GOLD BULLION AND GOLD COINS

Gold bullion refers to any “pure” gold, such as gold bars. These items vary in size and must be certified for weight and purity. Many also come stamped with a serial number for security purposes. Some investors consider gold bullion the “gold” standard of gold investing. However, it can be difficult to find a safe storage location, and trading bullion can be more difficult than other gold-based investments. Gold coins typically contain less gold than bullion but may be more convenient to trade. You can often purchase coins from collectors, private dealers, and coin shops and flip them for profit when prices rise. That said, many coins come with a markup to account for manufacturing costs. Some, like the American buffalo and Canadian maple leaf coins, have even higher markups due to their collector status. These added costs can hike prices higher than the value of the metal itself.

GOLD ETFs, MUTUAL FUNDS, FUTURES AND OPTIONS

Gold ETFs and mutual funds are accounts that buy gold on investors’ behalf and trade like stocks. Gold-based funds make investing in gold easy, as you can benefit from gold price fluctuations without worrying about the costs of physical ownership. That said, you’ll still pay some fees for trading ETFs and mutual funds. Many gold-based funds trade in other commodities too. While this provides automatic diversification, it may remove your ability to invest purely in gold assets.

A future is a contract to buy and sell a commodity, like gold, at a set point in time. Each contract represents a set amount of gold and may pay out in physical bullion or the relevant dollar amount. Options on gold futures provide another derivative-based investment avenue. Options provide the right, but not the obligation, to buy gold futures contracts at a set price and time. While you can use options to leverage your investments, you’re generally required to pay the full underlying value to own the option. Both gold futures and options can come with high price tags and increased volatility, and they require a deeper understanding of investment markets. As such, they’re generally best suited for advanced investors who can afford the financial risk.

GOLD MINING COMPANIES

Another way to invest in gold for beginners is to combine physical assets with traditional stocks. By purchasing shares in companies that work with gold, you can profit off the metal without having to store the physical asset. Mining investments can mitigate some of the risks of buying gold, such as the possibility of flat prices. They may also pay high dividends to boost your long-term returns. On the other hand, investing in mining companies requires doing due diligence to ensure you’re making a wise choice. The mining industry comes with unique risks that may interfere with gold production, profits, or human and environmental rights.

KRUGERRANDS AS INVESTMENTS

Gold is reliable. While political and economic uncertainty almost always results in the fluctuating value of fiat paper money, the value of gold is far more stable and is therefore a safer investment alternative. Gold is a particularly reliable form of investment during bull market periods, which generally last for about 10 to 20 years. During periods of accelerated value – such as the one we’re currently in – the interest in gold bullion coins increases exponentially.

Krugerrands are liquid. Because a Krugerrand is gold bullion, Krugerrands can be easily exchanged for cash at the ruling spot dollar gold price. The price of a Krugerrand is directly linked to the ruling international spot gold price. Krugerrands are simple to buy and sell as you know exactly what price you should pay or get paid. You can verify the resale price of a Krugerrand by checking the current gold price. The spot gold price is quoted in US Dollars and is then converted at the current ruling Rand/Dollar exchange rate.

The Krugerrand is universal. It is the most popular and widely traded bullion coin in the international market. This means that wherever you are in the world, you can cash in on your investment within minutes. One ounce Krugerrand weighs 33.930 grams, with a gold content of 1.0 ounce or 31.103 grams.