The Ultimate Guide to Investing in Gold for Beginners

The price of gold, as always, is fluctuating. Still, the trend seems to be going up since the start of the year. And, it has been increasing steadily over the last five years.

For many people, this is the appeal of investing in gold, but it has many other advantages. For one, an ounce of gold can buy you the same items today as it did 200 years ago. In contrast, there’s other no paper money that has the same purchasing power as it had 50 years ago.

That’s one of the major reasons why gold is popular among investors. Another thing is that it’s doable even for the average investor. How do you invest in gold?

Keep on reading to get started.

Determine Your Goals

Investing in gold isn’t something you should do blindly. You must have goals so you can plan your strategy better. This will also allow you to set the right expectations.

As your goals depend on your individual needs, your investing decisions would also be unique. That said, why do people invest in gold? Here are the most common reasons.

Growth Potential

People invest in gold because of the stability of its growth. Its price has seen a significant increase over the last 10 years.

Analysts are predicting even more growth in the future. This is why people consider the gold exchange a haven.

Fungibility

Gold has value all over the world, whereas cash loses its value in a country that uses a different currency. One ounce of gold is equal to another ounce of gold no matter where you are.

Diversification

The stock market can be too volatile for one to put all their wealth into it. Buying gold is a way to diversify your portfolio without taking too many risks. It also protects you from stock market declines.

Preserving Wealth

Buying gold is also a good way to preserve your wealth and protect it against inflation. When the value of the dollar goes down, the price of gold rises. If you have gold instead of cash, you preserve your purchasing power.

Compare Different Types of Gold

Did you know there’s more than one type of gold? Aside from gold bars, there are gold coins, stocks, and even futures.

Gold Bars

Buying bars is the purest way to own gold, but it’s an extremely expensive one. A standard bar in central banks reserves and that’s traded among bullion dealers is around 400-troy-ounces. And, as of this writing, the cost of an ounce is hovering at $1,900.

That means gold bullion at that weight would cost you around $760,000. Of course, this isn’t always what you have to pay but you get the point.

If your entire gold holding is this bar, it’s going to be hard to sell it. After all, you can’t saw off the end if you decide to sell only 10% of your holding.

Smaller bars are now available, though. These provide much more liquidity, but they’re still pretty expensive.

Because of the high costs of these bars, many owners choose to store them at a depository. Here, you have two further options: to have allocated or unallocated bars.

With allocated bars, you have specific physical bars that are only yours. You can visit them, touch them, and take them out when you wish to.

With unallocated bars, you don’t own specific bars, but you can withdraw your bars, as well. However, you rely on the depository to have enough supply of gold bars when you want to make a withdrawal.

It’s less expensive to go this route, but it’s much riskier. If the gold depository gets into financial or legal trouble, your gold bars will be in trouble, too.

Nevertheless, you should research with care where to buy gold bars and how you should hold them.

Gold Coins

For people who can’t afford the cost of a whole gold bar, experts recommend gold coins instead. Let’s say a coin has an ounce of gold, that means you can buy as many coins as you can afford without committing to a whole bar. They have more liquidity as they’re much more convenient to buy and sell.

The important thing to note here is that the gold value of a coin is different from the collectible value.

The gold value is the amount of gold in a coin, while the collectible value is the actual price. For instance, a coin that has $1,900 worth of gold might sell for $2,000.

The $100 premium is the collectible value. It can increase or decrease depending on the desirability of the coin. Don’t let it surprise you if a coin sells for a much higher price than its weight in gold.

The standard premium is around 1 to 5% of the underlying gold value. In March 2019, however, it jumped to 10%.

That said, you want to research which coins will hold their premiums better. You should also look around for vendors with the best deals.

Different government mints produce different gold coins. They also have different weights and purities. As such, you should look into the coins you’re looking to buy and explore your other options.

The most popular coins today are the American Eagle coin, South African Krugerrand coin, and Canadian Maple Leaf coin among others.

Gold Stocks

With this option, you don’t take physical possession of gold. Rather, you buy into gold securities that are available in the public market.

You own gold indirectly, but it’s a much riskier way to own gold. That’s because if the public company runs into some trouble, your investment takes a hit. Even if the price of gold is rising, you might still lose money.

The returns you get aren’t that much connected to the value of gold.

ETFs and mutual funds are less volatile than individual gold stocks, though. Those that hold actual gold in trust offer returns to shareholders that have a more direct link to the market price of gold.

Investors should be aware, though, that only a few mutual funds focus on gold investing alone. Most have other commodities.

It’s better to look for gold-oriented mutual funds as they’re low in cost. They also offer diversification and easy ownership.

Gold Futures

Futures are contracts to trade an item at a predetermined price at a specified date in the future. In the case of gold futures, that item is gold.

The commissions in gold futures are low and the margin requirements are also lower than the traditional equity investments. For these reasons, many people choose to use futures instead.

However, this route is only for seasoned investors as futures are risky for both parties. The price of gold can either increase or decrease on the date specified in the contract.

As such, only those who have an understanding of hedging risks and using high-level strategies should partake in such contracts.

Find the Right Gold Dealer

Investing in gold involves serious money, so you should only transact with a trusted and reputable vendor. Depending on whether you’re buying bars, coins, or stocks, you’ll need to choose the right company, platform, or brokerage.

Researching the most trusted dealers via Google takes a few seconds. If you find a dealer, though, it pays to check their background first. Remember that some dealers are into some shady business, and you want to avoid these.

Another thing to pay attention to when choosing dealers is the fees. Make sure you’re aware of all the fees they charge as they vary from vendor to vendor.

Buying gold online is also getting more prevalent these days. However, researching the vendor is all the more important here because you won’t get to inspect the gold before buying.

You can buy coins from some websites directly. Some websites, though, only provide a trading platform for investors.

Both have pros and cons. You can have more security with direct dealers, but you can get better deals in a marketplace.

Either way, you should review the sites first; some sites are not reputable.

Look for Professional Help

In many cases, the vendor has knowledgeable people that can help you make the best decisions. They’re professionals who can answer all your questions and guide you to your goals.

Keep in mind, though, that they’re still a business trying to make a profit.

If you need unbiased advice, you may have to hire a financial advisor. This is important when you’re investing a huge amount of money.

Although the final decision is still up to you, a professional can supply you with valuable information you’ll need to make the best decision possible for your strategy and financial situation.

Do Your Research Before Investing in Gold

Diving in and investing in gold right away might seem tempting. Still, like with any other investments, you should research well first. As stable as gold is, it’s still a commodity that may fall in the future.

Researching is only the beginning. To pick up even more tips when it comes to investing in valuable metals, we encourage you to go read our other articles.