Of all the precious metals currently on the market, gold is perhaps the most widely-used as an investing instrument. Most investors typically invest in gold as a means of diversifying their risk, particularly through the usage of gold derivatives and future contracts. The gold market itself is highly volatile and susceptible to speculation as are all other financial markets. The value of gold itself also fluctuates quite substantially on various financial and economic factors.
It’s fairly straightforward to invest in gold; there are many ways to do it, depending on your investing goals and preferences. One popular method of investing in gold these days is through buying and trading futures contracts. Futures contracts are put into place when you buy a commodity and then hold that asset until a specific date. For example, you can purchase stock in a company for a certain price in four years. You can then hold that stock, keeping it in your mattress until your contract expires.
Options contracts are also quite popular, though they’re less straightforward than futures contracts. If you purchase options contracts, you agree to purchase a certain amount of time from the expiration date. If, for whatever reason, the marketplace or situation isn’t propitious, you don’t have to exercise your option. These are much more risky than futures trading because if the market doesn’t behave according to your expectation, you don’t get your invested money back.
Another popular method of investing in gold is through gold miners and refiners. As previously mentioned, gold miners buy precious metals and then sell them for delivery to refineries who process and distribute the metal to customers. This is a good method of investing in metals that’s not subject to the erratic market movements of equities. However, as with all investments, there are risks involved. For instance, when a mine closes, so does most of the production of gold miners.
Another popular option for investors looking to invest in gold these days is through exchange-traded funds. Exchange-traded funds are pools of securities held in a depository by an exchange company. Each stock in the fund is listed with a unique tag, which allows investors to quickly look up the performance of the fund. For example, when the gold ETF (exchange-traded fund) named “GLD” began trading in November 2021, it was comprised of nine different stocks from different gold mining companies.
Another popular method of investing in gold these days is through direct investments, such as buying bars of gold from refiners. This type of investment comes with its own set of risks and benefits. For instance, when you invest in physical gold, you don’t have to deal with the vagaries of the market and exchange rates. But when you buy refiner shares, you are buying indirectly from a company that is buying and selling physical gold and that can cause fluctuations in the cost of gold, although it typically stays fairly stable.
The rising popularity of investing directly in gold bullion, however, means that investors can buy more shares of bullion than ever before, opening the way up to investing in even greater quantities of gold bullion than would previously have been possible. By investing directly in gold bars, on the other hand, you get the convenience of investing in as little as one ounce of gold per transaction, although the transaction costs go up since you are paying a distributor instead of an exchange-traded fund. You will pay more for gold bullion than you would for standard bullion, but the overall return is higher since the cost of the metal is lower. And due to the high price of gold bullion these days, it’s also quite convenient to use gold bullion for gifts, retirement funds, or any investment you might be thinking about doing.
Investing in gold bullion has some advantages that are similar to investing in actively managed funds. One of those advantages is low expense ratios. Since companies buying the gold mine your gold, they pay a very low expense ratio. If the gold mines are located around the world, the cost of operating the mine is also much lower. This makes investing in gold bullion a very attractive option for investors who want to maximize their profit without investing a great deal of money. Just like actively managed funds, you can choose a variety of investments from publicly traded companies, as well as from gold mine producers.