Central banks around the world are buying gold in near-record amounts to shore up their financial positions before the next crisis occurs.
Most investors understand that gold plays a valuable role in a sound investment portfolio, but unless you are already a gold investor you likely do not know of best ways is to invest in gold.
It is not complicated.
Below are a few ways that investors can invest in gold, along with their pros and cons, as follows:
For decades the only way to invest in gold was to hold physical gold. For most people that meant owning gold coins. In recent years high quality gold bullion bars have become available for individual investors in a variety of different sizes.
The advantage of holding physical gold is that it is available when you need it. If you find yourself with a sudden need for cash you can take your coins to the nearest coin dealer, metal broker, pawn shop or online marketplaces to sell your coins.
The major disadvantages to owning physical gold are storage and insurance. You could store your gold at home, which would generally require purchasing some sort of safe. Or you could store the gold in a safe deposit box in a bank.
But that would mean that your access to your gold is dependent on your bank being open. Outside banking hours you can forget about being able to get to your gold. And in the event of a bank holiday, a bank failure, or a government-mandated search of bank deposit box assets, you’re at risk of losing your gold.
Then there is insurance. Theft of your gold from your home is a real possibility. You would need to be responsible for any insurance to make yourself whole in the event of such an event.
Exchange-Traded Funds (ETFs)
ETFs have become an incredibly popular investing method over the past decade. They offer investors the opportunity to gain exposure to a wide variety of investment assets, especially commodities, without having to purchase the assets themselves.
In the case of gold ETFs, the fund holds gold and issues shares in that gold to investors. The value of the shares is supposed to track the value of gold. The major advantage to ETFs is that the shares are highly liquid and are able to be bought and sold on a variety of different exchanges.
The disadvantage to ETFs is that investors do not actually know if the fund owns as much gold as it says it does, nor do they know the exact relationship between the number of outstanding shares and the amount of gold held. That is the Big Q when it comes to “paper gold.”
Gold ETFs also do not allow investors to take physical possession or ownership of any underlying gold. So if there ever comes a time when you want to take physical possession of gold, you cannot. The largest gold ETF is
SPDR Gold Shares (GLD)
And then there are gold IRAs. Like conventional IRAs, gold IRAs allow investors to purchase gold with pre-tax dollars and hold that gold tax-free until it comes time for distribution. When investors choose to take a distribution they can either take it in cash or in gold.
Owning gold in a gold IRA means that investors actually own physical gold that is held by a certified custodian in a vault, and that gold is insured. Investors choose which coins or bars they want to own, and they own exactly those coins or bars, not just shares in a pool of gold.
Because of the tax advantages of a gold IRA, the security of storing gold with an insured custodian, and the ability to take physical delivery if the investor desires, a gold IRA offers the best of all possible worlds.
While the decision on how to invest in gold is ultimately a personal choice that investors will have to decide on their own, the important thing is to start investing in gold now before gold prices rise higher, and stock markets crash.
Investors who held gold during the last financial crisis came out way ahead. Investors who diversify into gold before the next financial crisis will find the same protection.
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