Ways to Invest in Gold

1. Buy Gold Bullion. The big disadvantage to invest in gold in physical form is that you need to take possession (or pay to have it stored). Taking possession of a 100 oz gold bar is simply impractical. I assume that’s why some investors like gold coins – they can be stored anywhere and are easily transported, although not in bulk. These physical ownership options for gold are typically used by those who believe the world is coming to an end and nothing other than having gold in your possession will be any good. Another disadvantage is that when you invest in gold physically, it tends to trade with a wide spread between bid and ask prices. So don’t expect to turn a fast profit. As an example, today, Jan 12, 2012, here are the bid and asked prices for bullion and various gold coins:

Bid Asked
Gold Bulk Generic
1,643.60 1,652.90
Gold Bullion Bar –
1,649.40 1,675.50
Gold American
1,687.40 1,714.91
Gold American Eagle 1,686.58 1,713.98
Gold Australian
1,657.55 1,698.41
Gold Austrian
1,663.32 1,702.54
Gold Canadian Maple
1,663.40 1,688.30
Gold South African
1,664.90 1,690.20


2. Gold exchange-traded funds is another way for investing in gold. An ETF is a type of mutual fund that trades on a stock exchange like an ordinary stock but unlike a mutual fund which buys stocks, the Gold ETFS buy physical gold. Thus, the two gold ETFs that trade in the United States both hold gold bullion as their one and only asset. You can locate these two ETFs under the symbol “GLD” and “IAU”. Or, if you want more leverage, there are some ETFs (or very similarly, ETNs) that use options and futures to multiply your gain and loss such as “DGP” (double gold long) and “DZZ” (double gold short).

3. Gold mutual funds. For people who are hesitant to invest in physical gold or a fund that buys such you can invest in funds that hold a portfolio of gold stocks-that is, the stocks of companies like Newmont Mining, Barrick Gold, Goldcorp and others. The aforementioned companies are examples of senior gold stocks. A senior is a large, well-capitalized company that has been around several years and has a profitable track record. They tend to own established mines that produce known quantities of gold each year. There are also speculative junior gold stocks that are not established and may have significant claims in the ground but may not have a history of earnings. Some like the idea of investing in gold stocks as theoretically, for each 10% increase in the gold price, a gold miner’s earnings should increase by say 40%.

4. Gold options and futures. Options allow you to speculate in gold prices and profit from smaller moves and you can speculate on price movements in either direction. If you buy a call, you are hoping prices will rise. A call fixes the purchase price so the higher that price goes, the greater the margin between your fixed option price and current market price. When you buy a put, you expect the price to fall. Buying options is risky, and more people lose than win. The weak aspect is that options expire within a fixed period of time and so the clock is against you. Thus, for the buyer time is the enemy because as the expiration date gets closer, an option’s “time value” disappears. The futures market, yet another way to invest in gold, helps mitigate the expiring time value issue but your potential loss is theoretically unlimited (use stops to control losses)

In many cases, the reason to invest in gold is that it has provided a hedge against the value erosion of paper money. With nations printing more money than ever and potentially debasing its value, interest to invest in gold appears greater than ever.

Categories: Gold,Investing

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