The Many Different Ways to Invest in Gold
By now many investors are aware that stock markets aren’t going to continue rising above their all-time highs. The meteoric rise of the past few years is unsustainable, which is why markets continue to push towards but never break through their previous records. The only way from here is down, with a massive correction on the horizon before markets can recover and make another bull run.
Given the underlying weakness of the economy, which will only be exacerbated by continued trade tension, tariffs, and geopolitical conflict, the next few years will likely be rough ones for both businesses and investors. Investors who understand that and who have the foresight to diversify their investment portfolios accordingly are moving more and more of their assets into gold.
They aren’t the only ones either, as central banks around the world are also purchasing gold in near-record amounts. The race is on to shore up their financial positions before the next crisis occurs.
But even if you understand that gold plays a valuable role in a sound investment portfolio, unless you’re already a gold investor it can be daunting to figure out what the best way is to invest in gold. Thankfully it doesn’t have to be too complicated. Here are a few methods that investors can invest in gold, along with their advantages and disadvantages.
Physical Gold – The Traditional Way
For decades the only way to invest in gold was to hold physical gold. For most people that meant owning gold coins. In recent years high quality gold bullion bars have become available for individual investors in a variety of different sizes.
The advantage of holding physical gold is that it is available when you need it. If you find yourself with a sudden need for cash you can take your coins to the nearest coin dealer, metal broker, or pawn shop and get the money you need. Or in this day and age you can take to eBay or other online marketplaces to sell your coins.
The major disadvantages to owning physical gold are storage and insurance. You could store your gold at home, which would generally require purchasing some sort of safe. Or you could store the gold in a safe deposit box in a bank.
But that would mean that your access to your gold is dependent on your bank being open. Outside banking hours you can forget about being able to get to your gold. And in the event of a bank holiday, a bank failure, or a government-mandated search of bank deposit box assets, you’re at risk of losing your gold.
Then there’s the problem of insurance. Theft of your gold from your home or destruction in a fire are real possibilities. You would need to be responsible for any insurance to make yourself whole in the event of such a scenario.
Exchange-Traded Funds (ETFs) – An Increasingly Popular Choice
ETFs have become an incredibly popular investing method over the past decade. They offer investors the opportunity to gain exposure to a wide variety of investment assets, especially commodities, without having to purchase the assets themselves.
In the case of gold ETFs, the fund holds gold and issues shares in that gold to investors. The value of the shares is supposed to track the value of gold. The major advantage to ETFs is that the shares are highly liquid and are able to be bought and sold on a variety of different exchanges.
The disadvantage to ETFs is that investors don’t actually know if the fund owns as much gold as it says it does, nor do they know the exact relationship between the number of outstanding shares and the amount of gold held. What’s to keep the fund from continuing to issue a larger number of shares for the same amount of gold? That’s the major question when it comes to “paper gold.”
Gold ETFs also don’t allow investors to take physical possession or ownership of any underlying gold. So if there ever comes a time when you want to take physical possession of gold, you’re out of luck.
Gold IRAs – The Long-Term Investor’s Choice
Finally there are gold IRAs. Like conventional IRAs, gold IRAs allow investors to purchase gold with pre-tax dollars and hold that gold tax-free until it comes time for distribution. When investors choose to take a distribution they can either take it in cash or in gold.
Owning gold in a gold IRA means that investors actually own physical gold that is held by a certified custodian in a vault, and that gold is insured. Investors choose which coins or bars they want to own, and they own exactly those coins or bars, not just shares in a pool of gold.
Because of the tax advantages of a gold IRA, the security of storing gold with an insured custodian, and the ability to take physical delivery if the investor desires, a gold IRA offers the best of all possible worlds.
While the decision on how to invest in gold is ultimately a personal choice that investors will have to decide on their own, the important thing is to start investing in gold now before gold prices rise and stock markets crash. Investors who held gold during the last financial crisis came out ahead, and handsomely so. Investors who diversify into gold before the next financial crisis will find the same protection.