How to Invest in Gold

how to invest in gold
How to Invest in Gold

Whenever you buy gold, the first rule is putting a fixed amount of money towards gold every month regardless of the price.

For the average investor, this strategy spreads risk out over time and lessens the downside.

Gold is protection, insurance against inflation, currency debasement, and global uncertainty.

Here are four ways you can invest.

1. Gold Bullion

Buy physical gold at various prices: coins, bars and jewelry…

You can store gold in bank safety deposit boxes or in your home.

When you buy gold coins or bullion, avoid big premiums. You want to buy gold as close to the spot price as possible.

The higher the premium, the higher the gold price will have to rise in order for you to profit

2. Gold ETFs

Gold exchange-traded funds are a popular way to have gold exposure in your portfolio without the hassle of storing the physical metal.

3. Gold ETNs

If you want more risk, try exchange-traded notes, debt instruments that track an index.

You give a bank money for an allotted amount of time and, upon maturity, the bank pays you a return based on the performance of what the ETN is based on, in this case the gold futures market.

ETNs are like playing the futures market without buying contracts.

ETNs are flexible, and an investor can trade them long or short, but there is no principal protection. You can lose all your money.

4. Gold Miner Stocks

A riskier way to invest in gold is through gold-mining stocks.

Mining stocks can have as much as a 3-to-1 leverage to gold’s spot price to the upside and downside.

Gold miners are risky because they trade with the broader equity market. Some tips to consider when picking gold stocks are to find companies with strong production and reserve growth.

Make sure they have good management and inventory supported by either buying smaller-cap companies or by maintaining consistent production.

Many investors make the mistake of buying small gold miners that are in the exploration phase with no cash flow.

Picking among these stocks is like buying a lottery ticket, very few companies actually strike gold and become profitable.

With gold prices high, gold companies can make more for every ounce of gold they produce, but their net profits depend on their cash costs; how much it costs them to produce an ounce of gold.

Those factors vary from company to company and are subject to currency issues, energy costs and geopolitical factors.

If you do go the gold stock route, you have to be prepared for the rollercoaster ride…!