4/24/2023
Gold has always been an investment that protects us from rising prices because its price always rises equal to or more than inflation itself. That is why gold increases in demand and price in times of crisis.
In the current crisis the demand for gold began to rise after the appearance of Covid-19 in March 2020, and now with the crisis and the war in Ukraine the price has continued to rise. The great instability of the stock exchanges and markets is the reason why many investors are interested in gold and its price continues to rise.
Traditional investors trust gold because of its stability and durability, because you can buy physical gold or invest in companies, funds or ETFs that are dedicated to gold, but the fact that you can see it and touch it is an extra attraction, which for example cryptocurrencies do not have.
Investing in physical gold
To invest in physical gold you can buy gold bullion, coins or jewelry. Buying physical gold allows us to have it in our hands, it is a recommendable option to buy gold and have a small amount at home.
For large investments it is not advisable to store physical gold in our homes because of the risk involved. If we have a good amount of gold we will have to pay somewhere to keep it, and that in the end reduces our profitability.
To buy physical gold we can buy from pawnshops and online stores such as APMEX o JM Bullion, or approach those stores specialized in selling physical gold for investment.
Contrary to what many people may think, the gold bars we see in the movies are not the usual purchase, it is normal to buy small bars or coins.
Gold bars come in bars ranging from a few grams to 400 ounces, but are generally available in 1, 5 and 10 ounce bars. Given that the current price of gold is around $2000 per ounce, this makes investing in gold bullion an expensive proposition.
If we want to buy gold coins the most common coins weigh one ounce, although we can easily find coins of 2 ounces, ½ ounce, ¼ ounce and other sizes.
Each country issues its own gold coins that are very recognizable by the image, the most popular are the South African Krugerrands featuring a kangaroo, the Canadian coins with their maple leaf or the United States coins with the image of an eagle.
In the end, although beautiful and different they all have a similar value because they have the same amount of gold.
Gold coins usually have a value a little above the price of the gold they contain, so a 1 ounce gold coin may cost between 3% and 5% more than the market price of an ounce of gold because of the numismatic value and the profit of the companies that sell them.
One of the attractions of buying gold is being able to have it at home, to see it and touch it, something that many savers like to do.
The last way to invest in physical gold is through gold jewelry, but if we want to invest in gold it is the least recommended option, since many times it is not possible to verify the origin and purity, besides its price is higher because you have to pay the designers and craftsmen who created the jewel.
If at some point you need to sell physical gold, it is very easy to transform the gold you have into money in gold buying and selling houses, pawnshops and specialized stores. Nowadays, on any specialized company's website you can see the price at which they buy it in real time.
Investing in shares of mining companies
One of the ways to invest indirectly in gold is to buy shares of companies engaged in gold mining. Generally, when gold rises, so do the shares of these companies.
Investing in shares of companies that mine, refine and trade gold is a much simpler proposition than buying physical gold. Since this means buying shares of gold mining companies, you can invest using their brokerage account and buy shares of those companies through tsu broker.
Some of the most popular companies in this sector are:
- Newmont Corporation (NEM): Newmont is the world's largest gold mining company, headquartered in Colorado. It operates mines in North and South America, as well as in Africa.
- Barrick Gold Corp. (GOLD): This gold mining giant is headquartered in Toronto and operates in 13 countries around the world.
- Franco-Nevada Corp. (FNV): Franco-Nevada does not own any gold mines. Instead, it buys the rights of other gold miners.
Keep in mind that gold company stocks are correlated to gold prices, but are also based on fundamentals related to each company's current profitability and expenses. This means that investing in individual gold companies carries risks similar to investing in any other stock. Individual stocks may experience a certain level of volatility.
Investing in gold ETFs or gold funds
A good way to invest in gold without taking the risks of storing physical gold at home is to invest in ETFs or funds that replicate the price of gold, that is a great alternative to investing in gold.
The three largest ETFs in the world include the SPDR Gold Trust, the iShares Gold Trust and the Aberdeen Standard Physical Swiss Gold Shares ETF. The goal of ETFs like these is to make a calculation that takes into account gold's market performance minus the annual expense ratio.
The SPDR Gold Shares ETF (GLD), for example, holds physical gold and depositary receipts, and its price tracks the price of physical bullion. VanEck Vectors Gold Miners ETF (GDX), on the other hand, is a passively managed fund that tracks a basket of gold mining and refining company stocks.
Gold funds, such as Franklin Templeton's gold and precious metals fund, are actively managed by professional investors. These funds aim to outperform passively managed index funds. In return, they charge relatively high expense fees.
Investing in gold futures and options
It is possible to invest in gold through futures and options contracts, the most complex and risky way to invest in gold. With gold futures, the investor speculates on the rise or fall of the price of gold.
In this type of operations the risk is high, but the possible profits are also multiplied because there is the possibility of investing with large amounts of leverage, which is why it is the favorite tool of speculators.
Non-expert investors should not use these forms of investment, especially if they do not understand how futures contracts work and the risks of leveraged investing.
Investing in options and futures requires advanced knowledge, risks are high if you do not understand these types of contracts.
A futures contract is an agreement to buy or sell a security for a fixed price on a specific date, regardless of current market conditions. Meanwhile, an options contract is an agreement that gives you the option to buy or sell a security if it reaches a certain price on or before a certain date.
To invest in futures or options, you need an account with an online broker that offers these vehicles. Many online brokerages allow trading in these securities, but may require account holders to sign additional forms acknowledging the risk of investing in these derivatives.
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