Of all the ways to invest in gold, the riskiest is to trade futures or options contracts, a form of speculative investment. Futures and options are derivatives, meaning that their value is based entirely on the price of an underlying asset. There are many ways to invest in gold. You can buy physical gold in the form of jewelry, ingots and coins; buy shares in a gold mining company; or buy something whose value derives from gold.
Another option is to rollover your IRA into gold, which can be a great way to diversify your portfolio. Each method has its advantages and disadvantages. This can make it overwhelming for beginning investors to learn how best to expose themselves to this precious metal. Buying gold mining stocks is relatively simple, through a brokerage account with an online broker or investment application. Once you add funds to your account, you can choose a gold stock and place an order.
Gold stocks are simply shares of gold mining companies. You can buy shares of these companies on the stock markets. Many people prefer gold mining stocks to gold coins and ingots because of their greater upward potential to produce cash flow. However, mining stocks do not offer direct exposure to the price of gold.
Mining companies are individual companies with their own financial situation, so factors that go beyond the price of gold can affect their value. Alternatives to investing in gold include buying shares in gold mining companies or gold exchange-traded funds (ETFs). The SPDR Gold Shares (GLD) ETF, for example, contains physical gold and deposit receipts, and its price follows the price of physical bullion. As you'll discover below, you don't always have to buy physical gold to include gold in your portfolio.
The VanEck Vectors Gold Miners (GDX) ETF, on the other hand, is a passively managed fund that tracks an underlying basket of stocks of gold mining and refining companies. Legitimate traders can't make a profit if they sell gold below the spot, so this could be an indication of illegally sourced gold or even counterfeit gold. In addition to cryptocurrencies and gold-backed gold mutual funds, there are also gold miner ETFs, such as the Van Eck Vectors Gold Miners (GDX) ETF and the Van Eck Vectors Junior Gold Miners (GDXJ) ETF. While you probably want to buy ETFs that actually hold physical gold, there are funds that invest in companies in the gold industry, often gold mining stocks or gold streaming companies that offer funding to gold miners.
However, keep in mind that the stocks of gold companies are correlated with gold prices, but they are also based on the fundamentals related to the current profitability and expenses of each company. Like an ETF, it offers exposure to the price of gold without the owner having to physically hold or store any gold. Gold ETFs focus on owning physical gold or the shares of gold mining companies, creating different risk profiles. While investors should weigh each option to determine the best method for their circumstances and their risk tolerance, gold price ETFs and streaming and gold royalty companies are often ideal options for beginning gold investors.
The main attraction of semi-numerical gold coins is that they combine gold content with collectible advantages. Cost overruns, mismanagement, and excessive debt can cause gold mining stocks to underperform the price of gold. This means that the value of mutual funds and ETFs in gold may not fully match the market price of gold and that these investments may not perform as well as physical gold. Contracts move with the underlying price of gold or the shares of gold-related stocks, exposing the investor to gold without owning the underlying investment.