Gold stocks work like other stocks; basically, you invest in companies that mine or hold gold on your behalf. Physical gold is a more stable investment that you own and store in an IRA-certified account. Investing in the shares of companies that extract, refine and trade gold is a much simpler proposition than buying physical gold. Since this means buying stocks from gold mining companies, you can invest using your brokerage account.
Ultimately, the choice to buy physical gold or gold stocks is up to you. In fact, if you look at longer time horizons, such as over the past 30 years, the Dow Jones industrial average, a good representation of the stock market in general, has significantly surpassed gold. And while the stock market has its ups and downs, investing in physical gold can involve many unexpected costs and considerations, such as insurance and safe storage. Investing in gold mutual funds means that you own shares in several gold-related assets, such as many companies that mine or process gold, but you don't own real gold or individual stocks.
. ETFs and mutual funds also come with certain legal protections. Please note that some funds will have management fees. Learn more about ETFs and mutual funds.
A gold futures contract is an agreement to buy or sell a certain amount of gold at a later date. The contract itself is what is traded on an exchange. Gold futures are more liquid than physical gold and have no management fees, although brokerage firms may charge a trading fee (also called a commission) per contract. Keep in mind that trading futures contracts involves a great deal of risk and is not an appropriate investment option for an inexperienced investor.
The amount of money you can lose with these investments may exceed your original investment. If you decide that investing in physical gold is right for you, here are some things to consider:. You know you want to buy gold to help diversify your portfolio, but you're not sure if you should buy gold stocks or physical gold. On the other hand, physical gold as an asset involves the precious metal used to make gold pieces, such as coins and ingots.
Gold has served as a currency for hundreds of years because it has an inherent value as a beautiful and functional precious metal. Investing in gold stocks, ETFs or mutual funds is often the best way to expose yourself to gold in your portfolio. These forms of wealth on paper cannot reproduce the same security and protection as the possession of a tangible asset such as physical gold. When you buy or sell gold stocks, you pay commissions to your broker and to the exchange where you buy or sell the shares.
Because gold stocks tend to mimic stock market trends, not the price of gold itself, your gold stocks can perform well even when the price of gold itself declines. You can also choose to buy gold that you can use or that someone has ever used but that has been damaged in the form of gold jewelry. The SPDR Gold Shares (GLD) ETF, for example, contains physical gold and deposit receipts, and its price follows the price of physical bullion. If you're looking for a stable physical asset that doesn't depend on the stock market, it's best to invest in bullion products.
Whether you choose to hold gold or physical metal stocks depends largely on the risks you think the economy and society face. In addition, the price volatility of gold stocks tends to exceed the price volatility of physical gold. Despite its former appeal, gold isn't always the strong investment that movies and television shows may have led you to believe. .