A Simple Guide to Investing in Gold
In movies and pop culture, gold has a very theatrical meaning: inordinate wealth. It’s rare to see a treasure chest burst open in a scene without golden accessories piling out of its cavity. It is safe to say that gold’s connotation is one of value, utility, and worth. But you don’t have to rob a bank or search for buried treasure to own it – not at all. In today’s world of stock markets, exchanges, futures, speculations, and diverse investment strategies, gold can be yours without even driving to the bank. It’s called investing in gold, and it could very well make you a lot of money.
For those familiar with standard investments, gold is really no different than an index fund, mutual fund, or common stock. You buy it through a broker, its price fluctuates, and if it ends up costing more in the future then it did when you bought it, you make a profit by selling it to someone else! But gold is a commodity, like sugar and oil, which means its value is not tied to the success of a particular company, but rather the value of the resource.
For novice gold investors, the overwhelming variety of options may seem daunting. For instance, do you invest in the actual physical gold assets or rather in an Exchange-Traded Fund (ETF)? While the former is simple and seemingly more tangible, the latter is more convenient, necessitates no physical space, and often provides a more diversified solution. The problem, many gold enthusiasts believe, with owning an ETF, is that it’s like owning a stock—you have little to no actual control over the commodity. If you want to see the gold, feel the gold, and stock the gold, then invest in golden bars, coins, or any other sort of physical manifestation. These are incredibly easy to find. If you haven’t seen various commercials advertising gold assets, then do a simple online search. You can have gold coins, bars, or similar assets delivered straight to your house. Many malls and commercial centers also provide vending machine like structures that sell gold instantly to interested parties.
Another disadvantage of an ETF is that you often have to pay trading commissions. Brokers will often charge small fees for executing your buy and sell trades. Also, all profits procured from the trading of Exchange-traded funds will be reported and taxed by the IRS.
A third option, gold futures, is a tad more complex but could result in similar profits. By opening a futures trading account at a commodity-allowing firm, you can begin buying some gold futures contracts. The agreement goes like this: you pay for the gold today and it is delivered/paid for in the future, on a settlement date. This allows traders to acquire more value than perhaps they could otherwise afford. This method, however, is risky, could result in loss of principal if not more, and also comes with brokerage commission fees.
If you’re unsure which option to choose, weigh the pros and cons relative to your personal preferences and situation. Owning assets may be the most simple, straightforward option, but it does come with obstacles. If you find it easy to shop for gold at flea markets, through online services, or physical vendors, stock the gold in your household or safe deposit box, and sell the gold back to “Cash for Gold” firms, assets may very well be for you. If you’re too busy to spend any time maintaining the investment literally, perhaps an ETF is an easy option. It provides you the investment of gold without having to obtain and store it. It’s as easy as buying a stock, but just as expensive in fees and taxes. If you’re well versed in trading, securities, and markets, perhaps highly profitable gold futures are right for you. Just make sure you know what you’re doing, they can be risky and sometimes a bit confusing.
But gold is a great investment, and the variety of options makes it easy to enter the game. Remember to trade responsible and of course, good luck with all of your gold endeavors!