Hoarding gold has been a favorite pastime of the wealthy throughout history, not only because it’s a tangible asset, but because, well, it’s gold. The metal is the most popular investment out of all the precious metals, and for good reason; gold’s value will remain the same even if paper currency completely loses its value.
Gold has been called by some investors and financial experts the “only real hedge” against the world’s massive financial crises. There are several ways to go about investing in gold; investment choices vary from person to person, since it depends on how much you want to invest, what your investment goals are, what risks you are willing to take, and the amount of time you intend on holding on to your gold.
Let’s take a look at four ways you can start putting some gold in your hands (or your bank).
1. Gold bullion:
The most intuitive option is to buy physical gold like coins, bars, and jewelry. American Eagle, American Buffalo, and St. Gauden’s are some of the most popular gold coins. Once you buy the actual gold, you can store it either in your home or in bank safety deposit boxes. Companies like Kitco.com offer a secure place to store gold, and they also allow you to trade the metal. When buying gold coins or bullion, it’s good to remember to avoid large premiums; try to aim to purchase as close to the spot price as possible- at most at a 10% premium. High premiums mean you need a higher gold price in order for you to profit.
Exchange-traded funds are a popular way to put gold into your portfolio without actually handling it. With this option, you can invest in one of three physically backed EFT’s, which follow the spot price of gold. The three EFT’s are SPDR Gold Shares, ETFS Gold Trust and iShares Comex Gold Trust. For each share you buy, the equivalent of one-tenth of an ounce of gold is what you will generally own.
This stands for exchange-traded notes, which involve a higher risk factor. It works like this: you give the bank your money, and upon maturity, the bank will pay you a return based on the performance of the ETN’s in the gold futures market. Some of the more popular ETN’s include DB Gold Double Long ETN, DB Gold Short ETN, DB Gold Double Short ETN and UBS Bloomberg CMCI Gold ETN. ETN’s are flexible, but beware: if the issuer or the bank goes under, you can kiss all of your money goodbye, too.
4. Mining Companies:
This last option is also a bit riskier in that gold mines trade in a broader equity market. When you choose a gold stock, try to find companies with a history of strong production, as well as strong reserve growth. You can also look for good management, an inventory that is supported by purchasing smaller companies, and consistent production. The gold company you are betting on should also be unhedged. Hedges allow a gold company to sell the product at a set price, which guarantees a specific profit if the price of gold falls. However, when the gold spot price rises, the company’s earning potential can be capped due to hedging.
Kristy Kravitsky is a writer and graduate of Pennsylvania State University.
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