Ah, gold. It's rare and accepted everywhere. As one of the most popular and reliable commodities, gold represents the "purest" way to invest.
Some folks — fondly known as "gold bugs" — have always invested heavily in the honey-hued metal. And in times of financial chaos, they're not the only ones.
Not only is gold largely immune to inflation, but it also serves as a hedge against economic disaster. When the rest of the stock market falls, gold often goes the other way, appreciating and protecting the canny investor against major losses in other financial assets.
"History has shown that during economic slowdowns, from the Great Depression to the COVID-19 pandemic, gold appreciates in value," says financial analyst James Jason of Mitrade.
Investing in gold can be a smart way to diversify a portfolio. No matter the economy's state, gold offers a good way to diversify your assets, including your retirement savings, with one of the best gold IRAs.
Besides directly purchasing gold, you can also invest in gold ETFs, mining stocks, and other gold-backed securities.
Let's dig into buying and investing in physical gold.
Pros and cons of investing in gold
Pros of investing in gold
- Hedge against inflation: As a tangible asset, gold maintains an intrinsic value that reflects the general cost of living. It is also not directly connected to the performance of the stock market.
- Counterweight to stocks: Like other commodities, gold acts as a counterfoil to equities, usually moving in the opposite direction of the stock market. Case in point: When the subprime mortgage meltdown began in 2008, gold—trading in the $400-600 range—shot up to $1,000 per ounce and continued for three years.
- Safe-haven asset: Gold is seen as a haven in uncertain times or socio-political turmoil. For example, after the 2016 Brexit vote, its price rose over 10% in one month. "Owning gold," says Dennis Notchick, a certified financial planner at Stratos Wealth Advisors, "appeals to individuals concerned about the collapse of global markets or other threats to a government's ability to back its currency."
- Physical durability: "Physical gold cannot be hacked or erased," says Charles Stevens, COO of Bullion Box Subscriptions. (Remember, we're thinking in catastrophic terms here.) "A natural disaster cannot destroy gold and will not get worn down in time."
Cons of investing in gold
- Expensive to hold: Storing gold at home carries enormous risks of theft or loss. Keeping it in a commercial facility incurs storage costs, often based on the size and value of the holdings (anywhere from 0.5% to 2%). If you're not using a professional storage facility, you'll want to insure your gold, too — another ongoing charge.
- Illiquid: Physical gold can't be sold with a press of a button or a call to a broker. Even with dealers acting for you, a sale can take days or weeks to settle, plus you must arrange shipping.
- Doesn't earn interest or dividends: A $1,000 investment in bullion buys $1,000. Physical gold doesn't generate interest or dividends. The only potential for appreciation is if there's a jump in prices that lets you sell at a profit (and even that can be compromised by the time, effort, and various assessment costs that accompany selling).
Ways to invest in gold
Individuals can invest in gold in two main ways: physical gold (aka bullion) or gold securities (stocks, funds, and futures). Advisors generally recommend holding 5-10% of your portfolio in gold.
Physical gold
Physical gold comes in a few forms:
- Gold bullion: Bullion often refers to gold in bulk form, usually bars or ingots. Typically, gold bars are poured, and ingots are pressed (a cheaper production method).
- Gold minted coins: Gold-minted coins are new, minted by governments for investors. The prices they fetch are based on their gold content —aka their "melt value"— plus a 1%-5% premium.
Gold bullion ranges in size from quarter-oz. wafer to a 430-oz. brick, bars. Ingots are stamped with purity, origin, weight, and where the bullion was minted.
Not all gold is equal, especially regarding purity and weight. Investment-grade gold is at least 99.5% pure.
Gold ETFs and mutual funds
Given the hassles and limits of bullion, gold securities — in the form of stocks, funds, or options — can be a more convenient and practical choice, especially for novice investors.
More conservative investors can buy shares in gold-oriented mutual funds or exchange-traded funds (ETFs). These funds have varying investment approaches: Gold-backed ETFs tend to invest directly in physical gold, while mutual funds favor gold mining stocks.
Some funds invest in both. But all offer a liquid, low-cost entry into the gold market that is more diversified and, therefore, lower-risk than buying equities outright.
Gold mining stocks
One way to play is to buy shares of companies in the mining, refining, or other aspects of the gold production business. About 300 companies, aka "miners," are listed on major stock exchanges. Their share prices generally reflect the movement of the metal itself.
However, the World Gold Council, an industry trade group, notes that "the growth and return in the stock depend on the company's expected future earnings, not just on the value of gold. "
Gold options and futures contract
More seasoned investors might consider an option on a gold futures contract. Like any financial option, these represent the right — but not the obligation — to buy or sell an asset (gold, in this case) at a specific price during a specified time window.
You can buy an option to bet on whether gold's going up or down; if the market moves the opposite way, all you've lost is the small amount you've paid for the option.
Gold options trade on a Chicago Mercantile Exchange (CME) division known as COMEX. Gold options can be bought on gold bullion or gold ETFs.
Where to buy gold
Here's where you can buy gold and gold-backed security.
Bullion dealers
Bullion dealers, or precious metal dealers, are businesses that specialize in trading, selling, and appraising physical gold and other valuable metals in the form of bars, coins, or jewelry.
Popular precious metal dealers are:
- American Hartford Gold
- Birch Gold Group
- Goldco
- Lear Capital
Banks
Banks often offer physical gold at a lower markup than dealers, but finding a branch that provides gold can be hard to come by as most banks in the U.S. don't sell physical gold or other precious metals.
Banks that sell gold or offer gold investments include:
Brokerage firms
Brokerage firms are best for purchasing gold securities like stocks, funds, futures, and options. Some online brokerages that offer gold-backed assets include:
Pawn shops
Banks won't always have the exact coins or size bars you're looking for, in which case you can turn to a pawn shop. Pawn shops generally sell gold bars, coins, jewelry, and watches.
However make sure to do your research to find someone reputable. That means looking closely at online ratings in trade journals and sites and checking the shop for complaints.
Also, inspect your items thoroughly, ask for a guarantee, and understand the value of gold to negotiate a fair price with the seller.
Factors to consider before buying gold
Before purchasing gold, consider the following:
- Investment goals: What is your objective with purchasing gold? A clear understanding of your investment goals can help you determine the best kind of gold asset to buy (physical or security) and how it fits into your long-term financial plan.
- Risk tolerance: Different risks are associated with different gold investments. Gold securities are susceptible to systematic risks, whereas physical gold lacks liquidity.
- Storage and security: Stashing large amounts of gold in your home leaves you vulnerable to theft, so insure it and locate an off-site storage location where you can rest assured it's protected. If you want to hold gold in an IRA account, the IRS mandates that gold can be stored with a metals-specialist custodian through a gold IRA.
- Premiums and fees: When you purchase gold, you'll pay for the asset itself plus a premium of 1% to 5%, so make sure you budget for the full amount. Additionally, gold securities may also come with additional trading fees.
Start Buying Gold
Free Gold Investing Guide, $246 per year, flat rate fee for Gold IRAs.
- All American Assets lists its inventory and pricing online without having to speak to a specialist
- Annual subscription fee
- Offers free shipping and insurance
- Ability to roll over a 401k, IRA, or Annuity into Physical Gold & Silver
- Offers 24/7 customer service
- $246 flat rate yearly fee
$5,000
$230 application fee and $200 annual fee for storage, insurance, and custodian services
- Invest in gold, silver, platinum, and palladium coins and bars
- Competitive gold selection
- Supports rollovers from traditional IRAs, Roth IRAs, thrift savings plans, 401(k)s, 403(b)s, and 457 plans
- Buyback commitment with no liquidation fee
- Free consultations are available
- Some fees can be waived with larger opening deposits
- Fees are not easily found on the website
- High minimums to make purchases: $5,000 in a cash account and $10,000 in a gold IRA
- You might be able to waive fees with a large opening deposit, but you must talk to a rep about your situation to find out
American Hartford Gold is perhaps best for investors who want to convert significant portions of their retirement assets to gold or other metals, as larger sums can qualify for certain fee waivers with AHG. For those who may be on the fence about investing in gold, want to find more educational resources, or prefer a more digital and automated experience, there are better options available.
American Hartford Gold- Open a cash account or gold IRA with American Hartford Gold
- Hold precious metals in your IRA and hold them in a storage facility; precious metals are shipped to your home with a cash account
- With the buyback commitment, AHG doesn't guarantee it will buy back your metals — but if it does, it will arrange payment/shipping and not charge any transaction fees
- Call AHG to open an account, or use an online form to open a gold IRA
$25,000
Call company representative for more information
- Gold and silver IRAs
- Supports rollovers for 403(b)s, thrift savings plans, savings accounts, and IRAs
- You can request to have gold directly delivered to you
- You can either receive distributions as physical gold, or have Goldco convert the gold into cash for you
- $25,000 minimum to purchase gold
- No mobile app
Goldco is the best overall gold IRA. It offers gold self-directed IRAs, as well as silver IRAs.
GoldcoFAQs
You can buy gold directly through gold dealers and companies selling physical gold coins and bars. Gold can be purchased indirectly through a gold IRA or gold stocks.
Gold is a good investment for portfolio diversification. Gold also acts as a hedge against inflation, and a counterweight to other equities more susceptible to the economy.
The cost of gold is determined by the troy ounce, a special unit 2.75 grams higher than a traditional ounce. The amount it's fetching on the open market is known as the "spot price." Otherwise, the price is determined by the supply and demand cycle.
The best way to invest in gold is through a diversified portfolio over the long term. Whether physical gold or gold-backed security, gold investments offer greater long-term returns.
Beginners can buy gold directly through an online gold dealer like Rosland Capital or Goldco. Through a precious metal IRA, beginners can also buy gold stocks, funds, and retirement-eligible bullion.
