Investors can invest in gold through exchange-traded funds (ETFs), buy shares in gold miners and partner companies, and buy a physical product. These investors have as many reasons to invest in metal as there are methods to make those investments. When thinking about investing in gold, don't just buy physical gold, such as coins or bars. Alternatives to investing in gold include buying shares in gold mining companies or gold exchange-traded funds (ETFs).
You can also invest in gold by trading options and futures contracts. There are a multitude of ways to invest in gold. You can buy physical gold in the form of jewelry, bars, and coins; buy shares in a gold mining company or other gold-related investment; or buy something that gets its value from gold. Each method has its advantages and disadvantages.
That can make it overwhelming for novice investors to know how best to gain exposure to this precious metal. Like buying any individual stock, buying shares in a gold mining company carries some risk, but it means that you have full control over the specific companies you invest in. For example, some investors might choose a gold mining company that exercises strong environmental responsibility rather than one that does not. And while owning shares won't allow you to have gold in your hand, it does mean you have the benefit of an asset that you can sell at any time.
However, investing in gold and other precious metals, and particularly physical precious metals, carries a risk, including the risk of loss. While gold is often seen as a safe-haven investment, gold and other metals are not immune to falling prices. Learn about the risks associated with trading these types of products. The SPDR Gold Shares (GLD) ETF, for example, contains physical gold and deposit receipts, and its price follows the price of physical bars.
The dollar, and investors' desire to keep gold as protection against inflation or currency devaluation, help boost its price. The government, as an equivalent currency, some banks and investment companies still issue gold certificates granting the holder ownership of a portion of their gold holdings. Fortunately, there are several ways to gain exposure to gold price movements without physically sustaining it. Holding shares in a gold mining company or a gold ETF exposes you to the gold industry, and since gold doesn't necessarily move in tandem with the stock market, it can help to further diversify your holdings.
Individuals who choose to invest in gold through options or futures contracts need to actively monitor their holdings in order to sell, renew, or exercise their options before they expire worthless. However, jewelry tends to have more value to the user than an investment due to the profit margin of converting the precious metal into jewelry and then selling it in the retail market. Options contracts also allow the holder to buy or sell shares of a gold ETF or gold mining stocks at a specific price and date. Many investors seek to maintain gold as a store of value and as a hedge against inflation, but it can be difficult and cumbersome to maintain large quantities of physical gold.
Many online brokerage firms allow trading in these securities, but may require account holders to sign additional forms recognizing the risk of investing in these derivatives. Insufficient capital can force investors to sell at a loss rather than buy to wait for a possible future recovery. A futures contract gives the holder the right to purchase a specific amount of gold at a future date and price.