Investing in gold is one of the most traditional forms of investment.
Since time immemorial, gold is considered as a safe investment.
Be it global uncertainties or protection against inflation; gold is a common option.
It invariably is also one of the most stable alternatives.
It protects investments, provides value and also stability.
If you calculate the overall returns, the yellow metal has delivered over 3000% in 50 years.
This goes on to reiterate that whenever you invest in gold, it is profitable.
Most times, you do not even have to pay attention to the price.
Historical data indicates that gold has always yielded positive returns.
If you track the Dow and the gold returns since 1915, the ratio is at 19.01.
This means you will need as many ounces of gold to buy the Dow.
Now compare the number from the lows of 1.94 during the 1933 depression.
That itself goes on to highlight the rate of returns the yellow metal can deliver.
In many ways, it is often considered a steady source of returns.
But one cardinal issue is undeniably how to invest in gold.
Gone are the days when you could only make jewelry or store gold biscuits
There are many options currently.
Needless to mention, this has simplified gold investments also.
You can choose to hold gold physically or also opt for the variety of e-options.
This has also reduced the relative investment cost.
As a result, it has enhanced the value even further.
Moreover, it helps you respond to market changes a lot faster.
After all, the commodities market is operational 24×7.
So why not take advantage of the opportunity.
How to Invest in Gold and Jewelry
When you think about how to invest in gold, this is one of the oldest forms.
In fact, buying physical gold is counted among the most traditional types of investment.
For centuries now, gold has been held in this manner.
As the name indicates, you physically buy gold.
This is common also because people are most comfortable holding gold in this manner.
Now buying gold can be in different ways.
It also depends on the investment outlook.
The amount of money you can spare also plays a crucial role.
Buying gold jewelry is by far one of the oldest ways of owning gold
Whenever you plan to invest in gold, you will always think about this.
However, this type of gold buying is mostly for use.
You will hardly buy gold jewelry as a form of an investment.
Though there is no way to deny the investment potential.
In fact, it is one of the simplest ways to buy gold.
You can simply walk into a shop and buy a piece of jewelry you like.
As long as you have the money to pay for it, you don’t have to worry about anything.
But the problem is the cost incurred.
When you are buying gold jewelry, you are also paying making charges.
Most times, the making charge for gold jewelry is as much as 25-30% of the cost.
Moreover, when you buy gold in this way, the relative safety is also compromised.
The only way to safeguard it is to keep it in a bank locker.
But supposing you are wearing it and there is a theft, you can do nothing.
You lose your entire investment in one simple move.
That can be huge blow to your financial future as well.
Liquidating it can be problematic too.
1. Buying Gold Bar/Coin
This is another form of investing in physical gold.
You can choose to invest in gold this way for purely investment purpose.
You can buy these gold bars or coins quite easily from banks or jewelers.
One major advantage is assigning the purity of gold.
Gold jewelry can have varying purity like 22 carats, 18 carats and even 9 carats.
But when you buy gold coins, it is generally worth 24 carats.
If you have plans to buy jewelry in future, this is a convenient way.
Moreover, in this form, you can keep adding to your kitty little by little.
While buying jewelry normally means you have to commit to a certain amount.
There is no such compulsion in this case.
You can buy just the amount of gold that you can afford to.
So, in many ways, it is like a SIP or systematic investment plan.
You are investing a small amount every month.
Storing the gold coins or bars is pretty hassle-free.
You can either keep it at home or in the bank locker.
But the problem with this type of investment is the pricing.
On an average, gold coins are priced at a premium rate.
They are generally 5-10% more expensive than the market price of gold.
Also when you sell it, you will get only the market price of gold.
That means there is again that much discount on the overall price.
So in effect, you are buying it at a higher rate and selling at a lower price.
That means you suffer an average 5-10% loss on your investment.
This undeniably is a relatively more expensive way to own gold.
So if you consider the transactions charges, it is quite high, just like in case of jewelry.
2. How to Invest in Gold ETF
Along with physical gold, this is perhaps the most common form of gold investment.
Unlike physical gold, this form of investing in gold is quite new.
If you are confused about Gold ETFs, let’s suffice to say it is like owning a gold stock.
The term ETF means Exchange Traded Funds.
Your Gold ETF is like the electronic version of the physical gold.
So instead of owning an actual bar, you own the underlying value.
All you need in case of a Gold ETF is just a demat account.
Most times, it is more than sufficient to start trading gold ETFs.
But remember, this kind of gold buying is purely for investment.
They are convenient and relatively simple to operate.
In case of Gold ETF, the extent of liquidity is also quite huge.
You can sell it anytime you need and at whatever the existing market rate.
Unlike Mutual Funds, ETFs are available at the current rate for both buying and selling.
You can buy whatever amount you are comfortable with.
There is no pre-decided limit in this case.
The amount of gold you invest in is solely dependent on your personal finances.
But this again is not without associated charges.
You can buy ETFs via a demat account.
This essentially means you need to pay brokerages as well.
You have to pay a certain amount of money to the bank too.
This is primarily for maintaining the demat account.
However, the total cost is negotiable.
In the sense, you can choose a broker who charges less than others per transaction.
You can also choose to create a demat account in a bank with lesser charges.
This will, however, not give you the same feel as owning actual gold does.
But the convenience and liquidity are much higher.
3. Buying into Gold Accounts
When you are exploring options of how to invest in gold, this is another format.
This is a special offering from a wide range of bullion banks.
Sometimes even gold dealers offer this facility.
As the name indicates, these gold accounts are similar to conventional currency accounts.
The bank buys gold on behalf of the customer in this case.
The gold is then transferred electronically in to the account.
So pretty much just like currency, this gets deposited in your account
Normally there are two types of gold account.
– Unallocated Deposit Account
This one operates as a conventional bank account.
In case the bank becomes insolvent, it can easily use this money to lend creditors.
This essentially makes the account holder an unsecured creditor.
Just like lot of other bank deposits, this can be used as potential loan.
– Allocated Deposit Account
The gold is deposited physically in this case.
The bank cannot lend this gold, in case it becomes bankrupt.
So in many ways, this is a secured gold deposit.
In both the cases, the account holders are mostly institutional investors.
On an average, you need to maintain deposits of 1000 ounce of gold or more.
However, the fees of both allocated and the unallocated account can alter greatly.
These are predominantly dependent on the amount of gold deposit.
The creditworthiness of the investor is most important.
That also has a huge impact on the relative cost of maintaining these type of account.
The reason why you may want to open this account is same as a bank savings account.
You want to capitalize on the relatively high returns of gold.
But at the same time, you save yourself the hassle of owning physical gold.
It is available in e-format.
4. Gold ETNs
This is a fairly more risky type of gold investment.
But if you have the desired risk appetite, you can easily select this method of investment.
The term ETN stands for Exchange Traded Notes.
In essence, this is a debt instrument which helps you invest in gold.
It tracks the bullion market movement.
In this case, you offer the bank a pre-decided amount of money.
This money is given for a set period.
The bank will pay you returns on the basis of gold price movement.
In this case, you can also look at taking advantage of futures pricing.
In essence, you are exposed to the Gold futures market this way.
But this helps you avoid any direct exposure.
Only the ETN is deriving its value from the relative rate of the underlying currency.
The ETNs are extremely flexible investment instruments.
The trader or the investor has the option to trade them long or short.
But there are some disadvantages of this type of investment.
You have no protection of the principal amount of money.
If you end up betting on the wrong end of the trade, you can lose your entire capital.
But at the same time, your relative returns are significantly higher.
In fact, that is a primary reason why many people are interested in this form of trade.
Additionally, this provides a relatively safe exposure to the bullion futures market.
The gold bullion market is extremely dynamic in nature.
It is trading 24×7 and very susceptible to global political development.
But the Futures market also offers great return prospects.
This is exactly why ETNs can offer a great investment opportunity.
5. Gold Futures & Derivatives
When you are exploring how to invest in gold, this is another option.
Of course, Gold futures and derivatives are not a very common alternative.
This is primarily because you need a certain amount of understanding and know-how.
You cannot just randomly invest in gold Futures.
Without sufficient knowledge base, you cannot invest in gold futures.
This is exactly why this form of investment is suitable only for experienced users.
The gold derivative trade is through exchanges or over-the-counter.
The clearing for these is held in a centralized clearing house after matching sellers and buyers.
Normally these are bilateral contracts and have a flexible format.
However, this type of trading incorporates counterparty risks.
Forwards, Futures and Options are the most common variants of Gold Derivative Trade.
The settlement is possible both in-cash and in-kind in case of these.
More often than not, you will see Derivatives are traded on margin.
An initial margin is paid to the broker.
This amount in most cases is just a fraction of the underlying contract.
As a result, investors can easily get the gold value of a higher amount.
Their current cash affordability does not come in the way.
By offering a small fraction, they can take a position in larger investment amount.
It is needless to mention that a higher leverage increases return prospects too.
But at the same time, a higher leverage also increases the risk.
Therefore, you have to make a calculated move.
6. Buy Gold Mining Stocks
If you look at ways to invest in gold, this is perhaps the most indirect way.
In this case, your investment is more aligned with the equity market movement.
This is because you have bought shares of gold mining companies.
The daily price movement in bullion trade hardly has any bearing.
Of course, you can argue that this is closely linked to the bullion market too.
This is because the gold prices in the commodity market will directly impact gold mining.
However, the growth is more dependent on the company’s performance.
The earnings of the company are dependent on the growth of the company.
While the gold demand will determine part of the business, it is not the only determinant.
In case there is a serious downturn in stock markets, you will see the impact on your stocks.
More importantly, the stocks, in this case, will work in tandem with equity market dynamics.
Moreover, the corporate governance factor also plays an important role.
If the company is not governed properly, it will not deliver desired returns.
So even when gold prices are shooting up, you may see these stocks spiraling downward.
So the value of gold is only one small factor in deciding the value.
This is exactly why the relative risk is much higher in this case.
You are exposed to the equity market risks as well as the bullion market risks.
Trade is not one-dimensional in this case.
It is dependent on multiple factors.
An investor has to be very alert and always on their toes.
Moreover, it does not provide the haven experience of regular gold investment.
Regular gold investment provides a cushion against inflation.
But gold mining stocks don’t give you that leeway.
There Are Many Options to Invest in Gold
So if you are keen to know how to invest in gold, there are many options.
But it is important to have a clear vision about your investment target.
The amount of money that you want to invest in is a crucial factor.
Moreover the type of investor that you are also plays an important role.
There are some ways of investing in gold that is best suited for professionals.
While beginners can look at safe bets like physical gold buying and ETF.
However, the bottom line is you can invest in gold in any way, but gains are assured.
Gold traditionally has yielded better returns than most other asset classes.
This is exactly why it will make sense to invest in gold.
Investing in gold can help you realize the better value of your savings.