May 10, 2024
How to invest in gold
![Row of gold bars](https://stashlearn.wpengine.com/wp-content/uploads/2024/05/how-to-invest-in-gold.png)
Investing in gold has historically been a symbol of wealth and security; people have been acquiring and trading it for thousands of years. This precious metal has long been a popular asset for investors who want to protect against inflation and economic ups and downs because many people believe gold’s value will remain relatively stable long-term, regardless of the economy. While the days of burying physical gold in the backyard may be long gone, modern investors have a whole toolbox of savvy investment options. From gold bullion and coins to gold futures and stocks, today’s market landscape offers diverse ways to include this precious metal in your investment portfolio.
Here’s what we’ll cover:
- The basics of investing in gold
- 4 ways to invest in gold
- Benefits of investing in gold
- Downsides of investing in gold
How to invest in gold: the basics
When you think of investing, the first things that come to mind are likely financial securities like stocks, bonds, and mutual funds. But you can also invest in physical assets, known as commodities: things like oil, steel, food, and, yes, gold. Commodities are part of the materials sector, which encompasses the production and distribution of physical materials that the rest of the economy relies on to function.
Gold is a commodity, and its value fluctuates over time, just like any asset. While it’s impossible to predict what gold will be worth in 10 or 20 years, it’s historically increased in value over the long term, though gold prices can be unpredictable and fluctuate quite a bit in the short term. Many investors see gold as a useful part of an overall diversified investing strategy since its performance in the face of market changes can be very different from stocks and bonds.
Investing in gold might bring to mind images of diving into a mountain of gold coins, but you have lots of options, from actual physical gold to securities like stocks, funds, gold ETCs (exchange-traded commodities), and more. Let’s explore four ways you can add gold to your investment holdings in 2024.
4 ways to invest in gold
If you want to start investing in gold, you’ll find many pathways. From buying physical gold bars and coins to putting your money into gold mining companies or gold-focused funds, there’s likely something to suit nearly everyone. The path you choose depends on your investment style, risk tolerance, and how you envision gold fitting into your broader portfolio.
#1: Investing in physical gold
Investing in physical gold means you’re buying gold in a tangible form that you can touch and hold. Gold bullion is gold in bulk form, usually made into gold bars or ingots valued by weight and purity rather than coinage or artistic value. Gold coins are a particularly popular form of bullion due to their collectibility, ease of storage, and legal tender status in many countries.
Holding physical gold can give many investors a sense of security, knowing they have a valuable asset in hand. Physical gold is less liquid than other investments, however, because you generally have to find a buyer if you want to convert your asset into cash. Physical gold can also have a higher bar of entry, as the per-ounce cost of gold is often in the thousands. If you have $1,000 or more to invest in gold, bullion or coins may work for you, but this route may not be accessible if you’re starting with a smaller investment.
To buy physical gold, you’ll need to take a few steps to obtain, store, and secure it:
- Find a reputable dealer: Seek out dealers with strong reviews and credentials to ensure you’re buying genuine gold at a fair price. Licensing requirements for precious metals sellers vary from state to state, so do your research when looking for a dealer.
- Get secure storage: Unlike intangible investments, physical gold can be stolen, so you’ll need to store it securely, such as in a safe deposit box at a bank or a high-security home safe. Alternatively, gold certificates allow you to own gold that’s securely stored off-site, giving you some peace of mind.
- Insure your investment: If your physical gold is lost or stolen, insurance can help you recoup some of your loss. Just like you insure your car, house, and other high-value assets, it’s wise to ensure precious metals are covered by an insurance policy.
#2: Investing in gold stocks
Investing in gold doesn’t always mean holding the actual precious metal itself. You can buy stock in gold mining companies and other businesses that refine and trade gold. Investing in mining stock like Newmont Corporation, Barrick Gold,or Wheaton Precious Metals Corp, for example, is just like buying shares of any other type of company on the stock market. But bear in mind that the value of gold mining stock doesn’t necessarily correlate to gold prices; the performance of each company depends on how effectively they operate and generate profits.
Top pros of gold stocks:
- Liquidity: Stocks are much more liquid than physical gold, so you can convert them to cash quickly and easily.
- Direct market exposure: You get direct exposure to the gold market without the fuss of storing and insuring physical gold.
Top cons of gold stocks:
- Volatility: Gold stocks are subject to the risk of volatility that comes with any stock market investment.
- Operational risk: The gold mining industry comes with some unique challenges, which can impact stock values unpredictably.
#3: Investing in gold funds
Exchange-traded funds (ETFs) and mutual funds are baskets of securities. When you invest in the fund, you get a stake in the entire collection of securities it holds. Investing in gold funds can come with some built-in diversification, as gold mutual funds and ETFs typically hold shares of multiple assets. Some funds hold stock in various gold mining companies, some invest in physical gold itself, and some aim to reflect the price of gold itself.
Top pros of gold funds:
- Diversification: Because a fund owns multiple securities, risk is spread among all those assets, which can reduce overall risk. That said, a gold mutual fund or ETF is narrowly focused on a single industry, which reduces the amount of diversification inherent in the fund.
- Accessibility: Buying shares of a fund can be one of the easiest ways to start investing in gold, especially if the fund offers fractional shares, which can be more affordable than other gold investing vehicles.
Top cons of gold funds:
- Fees: Funds usually come with fees for things like management and trading. EFTs generally have lower fees than mutual funds.
- Performance: Just like investing in gold stocks, buying shares of a gold fund isn’t the same as buying physical gold. So if you’re looking for the benefits of owning a tangible asset, funds aren’t likely to give you the same performance.
At Stash, you can invest in ETFs that offer exposure to gold like Gold Diggers (GDX), In Gold We Trust (IAU), and All That Glitters (GLTR). |
#4: Investing in gold futures and options
Gold futures and options are more advanced ways to engage with the gold market. A futures contract is an agreement to buy or sell gold at a predetermined price on a specific date in the future, allowing investors to speculate on price movements. Options contracts, on the other hand, give the buyer the right, but not the obligation, to buy or sell gold at an agreed-upon price before the contract expires.
While investing in gold futures and options can be lucrative, these investment methods require a deep understanding of the market, and they’re considered quite risky.
Top pros of gold futures and options:
- Leverage: Both futures and options can offer significant leverage, potentially leading to high returns on investment.
- Hedging: They can be used as a hedging tool against price fluctuations in your physical gold or gold stocks investments.
Top cons of gold futures and options:
- Complexity: Futures and options trading is complex and can be challenging for beginners as well as seasoned investors.
- High risk: High leverage also means high risk, including the possibility of losing more than the initial investment if the market moves unfavorably.
Is investing in gold a good idea?
Gold investing isn’t for everyone, but it has some appealing advantages. Adding commodities to your investment portfolio can provide additional diversity, and gold tends to perform quite differently than stocks and bonds, which may at times offset the impacts of inflation and stock market downturns.
Key benefits of investing in gold include:
- Diversifying your portfolio: Diversification ensures you’re not putting all your eggs in one basket, so if one investment loses money, it may be balanced out by gains in other assets. Adding gold to your mix of investments can help diversify your assets and spread your risk across a variety of holdings.
- Combat against high inflation: With its value typically rising in times of high inflation, a commodity like gold can be a tool to protect against the impact of inflation on your wealth. While the purchasing power of the money in your savings account is diminished by inflation, the value of the gold you own may hold steady or increase. Investing in gold could even be a strategic move to profit from inflation.
- Protecting against economic uncertainty: Gold has historically kept its value long-term even as stock markets fluctuate, so some investors see it as a safe haven when the financial world feels like a roller coaster. Its tendency to move inversely to stock markets might provide a safety net when other investments falter, especially during major market downturns.
What are the downsides of investing in gold?
Investing in gold has unique advantages, but it also demands considerable research, effort, and a solid tolerance for risk. As a speculative investment, gold’s price tends to be influenced by market perceptions and demand rather than its intrinsic value, making its performance unpredictable at times. Because of these complexities, gold investing might be better suited to the more experienced investor.
Before you move ahead with how to invest in gold, keep these potential concerns in mind:
- Storage and security: Physical gold in the form of coins or bullion needs safekeeping, which may come with costs.
- Risk of theft or loss: Physical gold’s tangible nature means that you could lose your assets if your gold is stolen or destroyed in an accident.
- Volatility and complexity: The gold market is complicated and idiosyncratic. Gold stocks are subject to volatility risk as well as industry-specific operational risks, and gold futures and options come with even higher complexity and risk.
- Unpredictable returns: The uncertainty in gold prices and mining operations makes returns from gold investments more variable and hard to predict compared to other assets.
How to invest in gold for beginners
Investing in gold requires a blend of knowledge, strategy, and a bit of caution. Whether you do it through tangible assets or the stock market, this type of investing calls for a solid understanding of the risks and unique considerations. If you’re uncertain, you might want to talk with a financial advisor to see if investing in gold is right for you.
That said, even beginners can invest in gold. A gold ETF may be the right choice if you’re new to gold investing. These funds give you exposure to the gold market while also providing some diversification, they’re highly liquid, and they’re simpler to manage than physical gold.
Ready to get started? Stash can help. And because Stash offers fractional shares, you can start investing in gold with any amount of money.
![mountains](https://stashlearn.wpengine.com/wp-content/themes/learn.stash/images/background_mountains.jpg)
Investing made easy.
Start today with any dollar amount.
Nothing in this material should be considered an offer, recommendation, or solicitation to buy or sell any security. All investments are subject to risk and may lose value.
Related Articles
![](https://stashlearn.wpengine.com/wp-content/uploads/2024/08/How-to-start_1376x774_Desktop-600x338.webp)
How to Get Started With Stash
![](https://stashlearn.wpengine.com/wp-content/uploads/2024/08/image-representing-financial-planning-for-new-coll-600x338.webp)
Financial Planning for New College Graduates: Budgeting, Student Loans, and Beyond
![](https://stashlearn.wpengine.com/wp-content/uploads/2024/08/military-financial-planning_1100x450-1-600x338.jpg)
Financial Planning Tips for Members of the Military
![](https://stashlearn.wpengine.com/wp-content/uploads/2022/08/Header-Image-size_Desktop-600x338.png)
How election years affect the stock market (a look through time)
![](https://stashlearn.wpengine.com/wp-content/uploads/2023/01/Largest-Cannabis-Companies-600x338.png)
The 12 largest cannabis companies in 2024
![illustrated brain on a digital board](https://stashlearn.wpengine.com/wp-content/uploads/2023/05/top-AI-companies-1-600x338.png)
15 Largest AI companies in 2024