Gold has always been a currency of choice from ancient times till the modern era. Gold is known to be a hedge against any political or economical mishap, be it inflation, economic turmoil or currency fluctuations. Experts have advised that investing in gold aids in lowering the overall portfolio risk. The most convenient way people choose to invest in gold is physical gold i.e. coins, jewellery, bullion. But the investment pattern has evolved over time and now there are various options available for investors to invest in gold like ETFs, Mutual Funds, purchasing stocks in gold mining companies, gold futures and options. These modern ways of investing in gold are well known as Digital Gold.
If you are planning to invest in gold, don’t restrict yourself to buying physical gold only. There are various other ways to invest in gold. These are discussed in detail below :
1. Gold Bullion
The most direct way to own gold is gold bullion. Gold Bullions are basically the bars of gold weighing from a few grams to ounces. Considering the rising gold prices, investing in gold bullion can be an expensive affair. If you own a large gold bar weighing in ounces, you won’t be able to sell a part of it. Rather, it will be more feasible to sell smaller sized bars, they are more commonly owned by investors and provide more liquidity as well. The risk factor involved in owning gold bullion is of storage.
If you are planning to invest in gold bullion, it is advisable to have an eye on the gold prices and choose a suitable time to make the purchases.
2. Gold Jewellery
You can also buy gold in the form you can wear. Investing in gold jewellery is the most expensive yet the most popular strategy people generally opt for investment. It involves huge making charges which got sunk at the time of sale. Investing in gold jewellery involves more of an emotional element rather than an objective approach. Investing in gold jewellery follows these risks as well:
The most crucial element that should be considered while investing in gold jewellery is authenticity. Make sure to purchase the jewellery from a reputable dealer and get the most documentation for the same.
- Be aware of the purity of jewellery in terms of the percentage of gold that is measured in karats. For instance, 24 karats depict 100% purity.
- Be informed about the markup price which you are paying to the company for the design and manufacturing of the jewellery.
3. Gold ETFs
Invest in Gold based exchange-traded funds (ETFs) for greater liquidity as compared to physical gold. ETFs can be purchased and sold like a stock on the stock market in any brokerage account. This is the easiest and most cost-effective way to invest in gold for small investors. SPDR Gold Shares (GLD), iShares Gold Trust (IAU) and Aberdeen Standard Physical Gold Shares ETF (SGOL) are the largest ETFs. The benefits of owning ETFs include:
- They are exchangeable for cash at any time at the market price.
- They offer more diversification as compared to individual gold stock.
- You can trade them anytime in the comfort of your home.
4. Gold Mutual Funds
Investing in gold Mutual Funds offer you longer-term stability. Professional investors often manage gold mutual funds intending to beat the returns of passively managed index funds. Similar to gold stocks, gold mutual funds don’t involve buying gold, just a paper backed by debt or equity of mining companies or futures and options contracts for physical bullion. Investment in gold mutual funds will differ from physical gold investment in the following manner:
- The value of gold mutual funds might not entirely match with the market price of physical gold.
- This investment won’t give the same results as a physical gold investment.
- It involves low-cost and you can invest with the minimum
5. Gold Futures and Options
Gold futures and options are a speculative form of investment in gold and involve the maximum risk. In a future contract, an agreement is made for buying or selling a security on a certain date at a set price irrespective of the prevailing market price. While an options contract is an agreement that gives you an option to buy or sell a security on or before a certain date if it reaches a certain price. To invest in futures or options, you need a brokerage account and need to continuously monitor your holdings to sell, rollover or exercise the options before expiry. Futures contracts are more suitable for experienced investors and require commission and margin requirements are also very low. While the options contracts leverage your original investment and limits losses to the price paid.
Investing in futures and options might be unsuitable for investors because of its volatile nature. But this is the cheapest way of investing large sums in gold.
6. Gold Mining Companies
Investing in companies that specialize in mining and refining is a safe way of investing in gold as it involves less risk as compared to other investment modes. By investing in gold mining companies, investors can generate profits in two ways:
- With the rise in gold’s prices, the profits of miner companies rise too.
- Mining companies can raise production over time and boost profits.
Several risk factors are involved when you choose to invest in mining companies. So, it is advised to carefully understand and select the proven players in the industry.
Takeaway
Considering the inflation and the political and economic unrest, investing in gold is a safe haven. Though it can be volatile in the short term but holds a remarkable value in the long-term. Since all the above-mentioned modes of investment involve risk, you can choose to invest in physical gold or digital gold based on your preference and aptitude for risk. Large investors having direct exposure to gold may choose to invest in gold bullion. While aggressive investors opt for futures and options. The average gold investor may consider gold mutual funds and ETFs, as they are the easiest and safest way of investment. Gold is the only security offering positive returns when invested for long-term.
