How to Buy Gold: Ways to Invest in 2024
There are many different ways to invest in gold, each with its advantages and disadvantages. In this article, we will explore the different options available to investors looking to add gold to their portfolios. We will compare the different types of investments and discuss what factors investors should consider when making their decision.
Why Invest in Gold?
The price of gold has risen by around 12% since the start of 2024. At the beginning of January, it was still trading at just under $2050 per troy ounce, while in April it reached a new all-time high of $2304. No wonder that people show more and more interest in this asset. Certainly, it seems that now is the best time to buy this precious metal, especially if you are looking to diversify your portfolio and protect money from inflation.
Why is gold good again? The experts name several reasons. For one, speculation on falling interest rates gives a real boost to the precious metal. Market participants also point out that the central banks themselves have been buying more gold. The central bank of China in particular has significantly increased its holdings in recent months, which has ensured stronger demand on the global market.
Gold is one of the oldest means of payment. For centuries, it has had a consistent reputation worldwide as the perfect investment in times of crisis. When key interest rates are high, the market tends to invest in safe but interest-providing assets instead of buying metals, on which there is no interest. However, it is not only the approaching interest rate cuts and purchases by central banks that are causing the price to rise, but also the demand for safe investments amid political uncertainty.
Types of Gold Investments
If you decide to invest part of your long-term assets in gold, there are various options available:
Bars and coins. Physical gold is the obvious choice for many people. After all, it offers the opportunity to hold the gold in your own hands.
Gold funds, ETFs, and certificates. With so-called funds, you invest in gold or security whose share value follows the gold price. Do not confuse funds with the riskier share funds, with which you invest in companies that mine gold.
Gold savings plans. Investing a large amount in physical gold at once is not always possible or sensible. Gold savings plans are touted as an alternative to a one-off investment. A certain amount, for example, $100, is paid into a savings plan every month. This allows you to gradually acquire ownership of gold, which the provider then stores for you.
Stocks and equity funds. You can invest in companies that mine gold through stocks and stock funds. However, their prices can change completely differently than the price of gold.
All of the above options are suitable for a long-term investment strategy, and give investors the ability to profit from gold in one way or another.
Easy Ways to Invest in Gold
In the previous part of the article, we looked at the types of gold investments. Now, let’s go through them one by one and figure out the advantages and disadvantages of each so that you can decide which suits your investment strategy better.
Buying Physical Gold
You can buy bars or coins from a bank or precious metal dealer and store them yourself, usually in a rented safe deposit box or their vault. The advantage of this form of investment is that you put your money directly in physical gold and can hold it in your hands.
However, there are disadvantages:
- Banks and coin dealers usually charge high fees for buying and selling, as high costs are incurred for processing and transportation;
- The margin is also often very high, especially with dubious dealers;
- Selling gold is often time-consuming, as the potential buyer has to carry out an inspection;
- Coins and bars are exposed to the risk of theft. Safe storage in a vault and adequate insurance can be very expensive and still do not offer absolute protection.
Due to security concerns, high costs for reasonably secure storage, and a lack of liquidity – i.e. the ability to buy or sell gold quickly – most private investors shouldn’t store gold coins or bars themselves.
Investing in Gold ETFs
If you are looking for easy tradability via a stock exchange, transparent prices, and simple settlement via the personal securities account, gold ETF investment is the best choice. Investors also do not run into the problem of having to store the securities.
However, there is one thing to keep in mind. From a legal point of view, ETFs are bonds issued by the provider. If they are backed by gold, the investor has a claim to gold even in the event of the provider’s collapse. In practice, however, enforcing this claim could prove difficult or even impossible. The deposit protection programs of international banks generally do not cover investments in securities.
Trading Gold Futures
For sophisticated investors willing to navigate the difficult futures markets, trading gold futures contracts presents an opportunity for quite large profits. Futures contracts enable investors to buy or sell gold at a predetermined price on a future date, providing leverage and potential for profit. However, this requires a thorough understanding of market dynamics and entails significant risks, including the potential for losses.
Investing in Gold Mining Stocks
Investing in gold mining companies offers exposure to the precious metal industry while leveraging the expertise and operational capabilities of established firms. Unlike direct gold ownership, investing in mining stocks allows investors to capitalize on potential dividends and capital appreciation driven by company performance and exploration success. Just remember that mining stocks are subject to various factors beyond gold prices, such as production costs, geopolitical risks, and operational challenges.
Factors to Consider Before Investing in Gold
When deciding to invest in gold, you should consider your investment objectives and the risks associated with each type of investment. It is also critical to do a thorough market analysis to make sure that it is a good time to buy precious metals.
Market Analysis
When analyzing the gold market, keep in mind that various factors can influence the value of this metal. Economic indicators such as inflation, interest rates, and currency strength play an important role in determining the price of gold. In addition, geopolitical tensions and global economic uncertainties can increase the demand for gold as a safe haven.
Incorporating fundamental analysis by examining supply and demand dynamics, central bank policy and the industrial use of gold is essential for a comprehensive price forecast. Understanding the impact of mining production, jewelry consumption and central bank purchases on the gold market is key to accurate predictions.
In addition, being aware of macroeconomic events such as changes in monetary policy and trade agreements is crucial to predicting gold price fluctuations. It is also important to monitor the performance of other asset classes such as equities, bonds, and commodities as they can influence investor allocation and have an impact on the price of gold.
In summary, analyzing the market of gold requires a multi-layered approach that takes into account economic indicators, technical analysis, market sentiment, fundamental factors, and macroeconomic events.
Risk Management
If you want to invest in gold, one of the biggest risks is that it does not yield a return. Unlike dividend stocks or bonds, it does not generate any income. This means that investors rely solely on the price of metal to make a profit. Despite this, it can be a good addition to the portfolio and it can therefore be worth it. Additionally, investors can reduce the risks by investing indirectly via investment funds or ETFs.
Final Thoughts
When investing in gold, and selecting the assets to add to a portfolio, investors should consider their objectives and the risks associated with different kinds of investment. Funds and ETFs offer diversification and professional management, which can attenuate the risk of investing. However, they are still vulnerable to the fluctuations of the stock market. Coins and bars offer a way to own gold more directly, but they include the risk of storage and theft. Ultimately, the best way to invest would be the way that best suits the goals.
While gold is considered to be a good investment most of the time, that does not mean it has to be in your portfolio. There is nothing bad about taking into consideration other precious metals, like silver or platinum. Especially, when their unique characteristics seem to fit your strategy and risk tolerance better.