How to Invest in Gold: Strategies Beyond Bars and Coins for 2024

In the last quarter of 2023, gold rallied to a record high of $2,150 per troy ounce. It has renewed interest in investing in gold following a period of decline during central banks’ aggressive tightening from 2021 to 2022.

When discussing gold investment, one might envision a wooden chest brimming with gold bars and coins. However, there are other ways to buy gold today, some of which do not require owning real gold bars.

In this article, we look into how to invest in gold and explore the risks to watch.

Key Takeaways

  • Gold can hold its value over a longer term, making it a hedge against inflation.
  • Gold is not an income-generating asset; it provides returns solely through price appreciation.
  • During interest rate hikes, the price of non-yielding gold could drop as investors transfer their capital to higher-return assets.
  • Ways to invest in gold without physical ownership include buying shares of gold mining companies and gold-backed derivatives, such as gold futures and options.
  • Gold reached an all-time high in December 2023 at $2,150.

How to Invest in Gold and Why It Remains Popular

Across centuries and cultures, gold has indisputably maintained a reputation as a valued asset. Its ability to withstand downturns makes it an indispensable asset for investors and the general public who seek ways to protect their financial assets.

Despite its sparkle, gold has a twist: it does not bring income like other investments, such as bonds or stocks. The precious metal does produce returns from its price movement, but holders must wait at least half a decade to enjoy their pots of gold.

Over time, investors have sought ways to maximize gold’s value through various investment vehicles, in addition to purchasing gold in physical forms such as bars and jewelry.

However, if this is the first time you wonder how to buy gold, picking the type of gold investments that suit your investing strategy can be overwhelming.

So, how to invest in gold for beginners? Let’s review each way of investing in gold that might become the right choice for you.

Top 5 Ways to Invest in Gold

Top 5 Ways to Invest in Gold

Buying Physical Gold

How to buy physical gold? Buying gold bullion, such as bars, ingots, and coins, remains the most common way of investing in physical gold.

Gold investment in bars and coins accounted for 23.3% of total gold demand in 2023 at 1,267 tons, according to World Gold Council’s data.

Jewelry, which makes up nearly 41% of total gold demand in 2023, can also bolster physical gold investment portfolios, WGC’s data show.

Supply and Demands Statistics
Source: World Gold Council

Purchasing gold in physical form is pretty straightforward, but there are a few critical considerations.

  • Safety is at the top of the priority list.Verify their physical office address and check whether they are listed in an official national registry to ensure you buy from a trustworthy and respectable dealer. Check for any warnings against them. Additionally, confirm whether they have a well-established vault facility to securely hold the bullion and jewelry.
  • Fees and costs. Buying gold in physical forms usually presupposes fees and premiums. Always ask sellers whether the sale price includes premiums, commissions, insurance, storage, certificates, and delivery fees. These costs will impact the return when reselling the yellow metal.

“When investing in gold, make sure you know the spread between the buying and selling prices. Therefore, if you experience a loss when selling a gold bar that you bought when the price of gold was up, you won’t get confused,” Geoffrey Aten, CEO of Jakarta-based digital gold seller Lakuemas, told Techopedia.

Gold Bars

According to WGC’s guidelines on how to buy gold bars, gold bars are sold at a premium to the current spot price. Investors will be charged for delivery, storage, and insurance expenses.

Gold bar purity typically ranges between 99.5% and 99.99%. However, for investors looking into investing in gold, it is advisable to choose investment-grade gold bars with 99.99% purity.

Investors can buy gold bars ranging from 1 gram to 100 and 1,000 grams. They can purchase bullion in denominations of 1, 10, 100, and 400 troy ounces.

Gold bars are produced by industry-accredited manufacturers, typically bearing the producer’s name, weight, and purity stamped on them.

Gold Coins

Gold coins normally range in purity from 91.67% (22 carats) to 99.99% (24 carats) and are available in various shapes and sizes. If you wish to buy gold coins, check to see if there are additional design or tax expenses.

Geoffrey, CEO of Lakuemas, stated that some countries consider gold coins as jewelry, making them subject to value-added tax and/or other taxes based on local regulations.

As a result, understanding how to buy gold coins under local legislation is crucial.

Jewelry

In many countries, people prefer to buy gold jewelry for investments, not just for fashion or social status.

However, investing in gold jewelry bears costs that are not directly related to the value of the gold. For example, the price of a gold necklace includes design, labor, and marketing costs.

According to Geoffrey of Lakuemas, the selling price for gold jewelry could be 25% to 30% lower than the buying price, as sellers exclude all the costs.

Investing in Gold ETFs or Unit Trust

Before we delve into how to invest in Gold ETF, we should know what is an exchange-traded fund or ETF. Gold ETFs invest in a wide range of actual gold-backed assets, such as shares in gold mining companies or gold-backed derivatives.

Some ETFs merely follow physical gold price movements. The value of an ETF is determined by its underlying assets.

Physically backed gold ETFs allow investors to buy gold as an asset class without purchasing real gold, sparing them the inconvenience of storing their holdings.

Gold-backed ETFs are typically less expensive than buying gold physically, making it possible for first-time investors to diversify their portfolios without investing much money.

Buying Gold Mining Stocks

To gain exposure to gold without physically owning it, consider investing in shares of gold mining companies.

The value of shares in gold miners or jewelry producers tracks the price of gold rather than the overall stock market. In addition to potential gains from share prices, investing in gold stocks can provide dividends — portions of a company’s profits distributed to shareholders, a benefit not available with physical gold.

However, investing in gold company stocks has its challenges. Various factors influence share prices, including management quality, extraction costs, and overall market sentiment. It requires more effort than simply keeping an eye on the price of gold.

“There are other fundamentals to examine when buying gold stocks, including the company’s management. Who are the members of management? Do they have any legal cases? You should also review its financial report, track the supply-demand season, and consider other factors. Furthermore, as a shareholder, you must attend the shareholders’ meeting,” said Lakuemas’ Geoffrey.

So, how to invest in gold stocks? You can start by opening a brokerage account, depositing funds, selecting the stocks you want, and placing an order through the broker’s website.

Here are the top five gold mining companies by market capitalization, according to CompaniesMarketCap.

1. Newmont Mining Corp (NEM)

Based in Denver, Colorado, Newmont Mining Corporation has gold operations in Africa, North America, Australia, and Latin America.

Founded in 1921, NEM is the only gold producer listed in the S&P 500. The company set full-year attributable gold production guidance of 5.3 million ounces in 2023, according to a press release.

As of January 2024, NEM has a market capitalization of $40.75 billion.

2. Barrick Gold

The Canadian gold producer mines gold in 9 countries, including Tanzania, Mali, the Democratic Republic of Congo, Ivory Coast, and Argentina.

For 2023, Barrick Gold aimed to produce between 4.2 million and 4.6 million ounces of the yellow metal.

Shares of the Toronto-based company are traded on the New York Stock Exchange (NYSE) under the symbol GOLD and on the Toronto Stock Exchange under the symbol ABX.

As of January 2024, it has a market capitalization of $28.09 billion.

3. Agnico Eagle Mines

Founded in 1957, the Toronto-based gold miner has gold mines in Canada, Australia, Finland, and Mexico. The company planned to mine between 3.2 million and 3.4 million ounces of gold in 2023, according to its 3Q financial report.

As of January 2024, it has a market capitalization of $25.03 billion.

4. Wheaton Precious Metals

Based in Vancouver, Wheaton Precious Metals has stakes in several gold mines in Canada, the US, and Latin America.

It has a market capitalization of $21.41 billion as of January 2024, making it the fourth-largest gold miner.

5. Franco Nevada

The Toronto and New York-listed gold miner has more than 400 mining assets, ranging from gold and silver to oil and gas, according to the company’s website.

However, revenue from gold assets accounts for 55% of Franco Nevada’s revenue in 2022.

The company with a ticker FNV has a market capitalization of $21.12 billion as of January 2024.

Investing in Gold Futures, Options, and Forwards

Gold futures and options are popular ways to invest in gold in the derivatives market.

According to Ibrahim Assuabi, director of Jakarta-based brokerage Laba Forexindo Berjangka, the futures market is highly liquid and unpredictable, attracting investors to capitalize on large margins between price spikes.

“The profit could be huge but the risks are equally significant. Therefore, inexperienced traders shouldn’t invest in gold derivatives,” Assuabi told Techopedia.com.

Nonetheless, let’s find out how to buy gold for investment in each type of derivatives.

Gold Futures

Gold futures are agreements to buy or sell gold at a later date in the future at a specified price, quantity, and quality. The contract is standardized and traded on regulated exchanges.

Investing in gold futures allows investors to go short or long and provides more liquidity than owning gold in physical form.

Investors only have to pay commissions or trade fees to brokerages.

According to the WGC, gold futures are primarily used by corporate and institutional users. Corporate customers purchase gold futures contracts for risk management, whereas institutional customers buy them for speculation.

Gold Options

Investing in gold using an option allows investors to buy gold and sell it later at certain conditions, such as the date, price, and quantity.

The difference with gold futures contracts is that investors are not required to execute the option, which can be traded on exchanges or over the counter (OTC).

Gold Forwards

Gold forwards are similar to gold futures but are not traded on regulated standardized exchanges.

The contracts are simply bilateral agreements to purchase and sell gold later or in the future.

Alternatives: Gold Saving Plans and Digital Gold

Gold saving plans and digital gold have become increasingly popular as alternatives to investing in gold. What are gold saving plans and digital gold, and how do they work?

Gold Saving Plans

Like a regular bank’s savings account, investors or customers purchase gold periodically or in installments with a certain target.

For example, a buyer who wants to buy 100 grams of gold can put their money into the gold savings account weekly or monthly until it accumulates to the price of 100 grams of gold.

The buyer can withdraw the physical gold when they need it.

Providers of gold saving plans can be banks or pawnshops. They buy physical gold and save it in a professional vault on behalf of the customers.

Digital Gold

Digital gold providers offer customers the ease of buying and selling gold online backed by investment-grade bullion bars bought from reputable manufacturers.

As in gold saving plans, the physical gold is stored in professional vaults.

With digital gold, investors can own gold without the hassle of finding a reliable dealer, handling delivery, storing gold, and securing certificates.

Benefits and Challenges of Investing in Gold

Benefits of Investing in Gold

To understand whether investing in gold could help diversify a portfolio, investors should consider the pros and cons of gold investments.

The main advantages of investing in gold are as follows:

Haven During Uncertain Times

Unlike other tangible assets such as property and fiat currencies, gold’s value does not depreciate over time. In fact, yellow metal prices tend to climb under economic and geopolitical uncertainty.

Gold interacts negatively with stocks and bonds. As a result, gold frequently shines when economic uncertainty causes stock and bond markets to fall.

Gold’s appeal grows during political or geopolitical crises as investors seek to protect their money and invest in assets that are unlikely to depreciate.

Gold’s function as a haven is reflected in the strong purchase by central banks in 2023 during the looming global recession and geopolitical conflicts in Ukraine and the Middle East. In the nine months of 2023, central banks bought 800 tons of gold, the highest record for the three quarters, according to WGC.

Hedge Against Inflation

Inflation or an increase in the price of goods and services in an economy over a certain period might devalue other investment assets, such as stocks and bonds.

Inflation can drive up costs, potentially reducing a company’s profit margin. In the case of bonds, inflation is known as ‘the enemy of bond investors’ since rising prices decrease the purchasing power of a bond’s interest payment, making it unappealing to investors.

On the other hand, gold has proven to maintain its value during periods of high inflation rates. Often, the demand for gold rises amid inflation as people seek to preserve the value of their investments.

Portfolio Diversification Tool

With its relatively stable value, having gold in an investment portfolio can help minimize losses during a market slump.

In the long term, gold can become a source of returns that may beat stocks, bonds, and other assets, including fiat currencies and property.

Challenges of Investing in Gold

Although gold is generally considered a secure investment, it is not entirely risk-free. Below are several risks to consider before buying gold for investment.

Absence of Passive Income

Unlike other assets, such as stocks, bonds, or property rentals, gold does not generate income. Returns on gold investment come solely from the price increase, which makes it suitable for a long-term investment.

Economic Factors

Interest rate hikes and a stronger US dollar can pose a risk to gold prices. Since gold is a non-yielding asset, a rise in interest rates could prompt investors to sell gold holdings and switch to higher-yield fixed-income assets, such as bonds.

A stronger US dollar against other currencies could also lower gold prices. Like other commodities, gold is traded in US dollars, making the shiny metal more expensive in local currency when the greenback strengthens. It subsequently dampens the appetite to buy gold.

Extra Expenses

While purchasing physical gold, such as bullion and jewelry, is a common method of gold investment, it incurs expenses that may diminish its value when resold.

These fees include the expenses related to storing gold holdings in professional vaults, certificates, and transportation.

These extra costs mean investors should hold gold for a medium to long term to enjoy returns.

Is Gold a Good Investment?

Like other assets, investing in gold should be adjusted with your investing strategy.

If you want to maximize the growth of your investment portfolio, gold may not be the best option because it does not generate high or passive income.

On the other hand, if you’re looking for financial protection, the yellow metal could be a low-risk, safe investment.

Most importantly, do your research about gold investing and price forecast, and ask for professional advice on how to buy gold.

The Bottom line

Gold has important roles as an inflation hedge, a store of value, a credit risk-free asset, and a generally positive performer during market slumps.

With these roles, gold can help investors diversify their investment portfolios and mitigate losses caused by the volatility of higher-yield assets.

Before investing in gold, investors must weigh risks such as interest rates and the precious metal’s inability to generate income. It is best to consult with advisors and learn how to invest in gold to align with one’s investing strategy and circumstances.

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References

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Fitri Wulandari

Fitri began her journalism career in 2001 as a business reporter for the English-language daily The Jakarta Post, focusing on macroeconomics and energy. When she joined Dow Jones Newswires in 2004, she began covering commodities.