How to Invest in Gold for Beginners

  • Gold has been used as a hedge against inflation for decades.
  • Now is the time to add the metal to your portfolio.
  • You can invest in gold mining company stocks, mutual funds, or exchange-traded funds.
Closeup of a large gold nugget. stocks under $10
Source: Shutterstock

Gold has been the currency of choice in the world for many years. In volatile times like today, it can be used as a hedge against inflation as it helps reduce overall portfolio risk. It is an investment that can stand the test of time, whether it is a pandemic, recession, or war, gold investments will always pay off in the long-term. However, some may wonder how to invest in gold.

If you have decided to buy some gold for your portfolio, there are many opportunities for you to consider. A direct way to own gold is to buy physical coins or bars. If you are looking for an indirect way to buy gold, consider investing in gold mining stocks, mutual funds, and exchange-traded funds (ETFs). Let’s dig deeper into how you can invest in gold. 

Gold Mining Companies

The easiest way to invest in gold is to buy gold mining company stocks. These companies engage in mining and refining and can profit from the rise in gold prices. Investing in the stocks will carry lower risk during market turmoil.

It’s important to note that business factors common to the industry will have an impact on the success of the company. However, they can still show a profit in a market downturn or when gold prices are declining.

Mutual Funds And Gold ETFs

An alternative to buying gold directly is to invest in a gold-based exchange-traded fund or mutual fund. Each share of the ETF instrument will represent a certain amount of gold and you can buy and sell the ETF just like stocks. It is an easier and more cost-effective way of investing in and holding gold.

Several mutual funds own gold bullion and gold company stocks in their portfolios, but you need to keep in mind that there are limited mutual funds that focus only on gold investing; they usually own several other commodities. A few funds directly invest in mining company indexes, while many others are tied directly to gold prices. 

Futures And Options 

You can enter into a futures contract to buy or sell gold. Futures are traded in terms of contracts and not shares and they represent a certain amount of gold. 

Options on futures are an alternative to buying futures right away. It gives you an option to buy the futures contract at a specific time at a certain price. Due to the high volatility associated with futures and options, they are ideal for professional traders and not beginners. 

The Bottom Line

Besides the three indirect ways of investing in gold, you can also build your portfolio by investing in gold bullion, gold coins, or gold jewelry. However, their size could make them illiquid and you will need secure storage space and insurance to keep them safe. This is why investments like mutual funds and stocks are considered ideal since they are low-risk, cost-efficient, and highly liquid. 

If you are ready to add gold to your portfolio, begin with one of the indirect ways and expand your position with time. 

On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.

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