How to invest in gold for beginners? This article covers four different options along with pros and cons of each so you can decide on the best path for your financial future.
On September 12th, Goldman Sachs industry analysts stated, ‘Gold is our strategists’ preferred near-term long (the commodity they most expect to rise in the short term), and it’s also their preferred hedge against geopolitical and financial risks.’
During times of chaos, gold usually shines. As of this writing, gold is up 28.6% year-to-date in 2024, and with ongoing uncertainty in the economy, politics, and global conflicts, it may continue to rise.
If you’re a beginner wondering how to invest in gold, this article guides you through the various options and weighs the pros and cons of each approach.
Investing in gold for beginners
There are several ways you can get started investing in gold. Note that owning gold jewelry is not the same thing as owning gold as an investment. Investments either generate income, help you diversify your portfolio from being all-in the stock market, or preserve wealth.
There are four main ways to invest in gold, including owning gold bullion, investing in gold ETFs or mutual funds, speculating with gold futures contracts, or investing in mining companies.
1. Physical gold
The first way to invest is buy buying physical gold in bars or coins, which have value based on their weight and purity.
Gold bars: Bars come in different sizes, ranging from small 1-gram bars, which weigh about the same as a paperclip, to much larger ones weighing several kilograms. Reputable mints or refineries produce and value these based on weight and purity.
Gold coins: Investors like gold coins for their portability and smaller denominations, which are easier to authenticate since government authorities mint them.
As JohnTeaGuy highlighted on Reddit r/Gold mentioned when asked why they chose gold coins: “Weight and purity guaranteed by government mint, easily recognizable, difficult to counterfeit.”
Pros
Owning physical gold as part of your investment strategy provides these advantages:
Tangible asset: When you invest in physical gold, you own a real and tangible asset that you can hold in your hands. Unlike stocks or digital currencies, physical gold gives you complete control.
You decide when to buy, sell, or hold onto it. Many investors appreciate this sense of security, knowing they have a valuable asset in their possession, not tied to a digital platform or reliant on third parties.
Hedge against inflation: Gold has long been viewed as a way to protect wealth from inflation or a drop in currency values. Over time, the purchasing power of money can lessen, but physical gold tends to hold its value.
This makes it popular for those looking to protect their wealth during these inflationary periods.
Global liquidity: One of the key benefits of owning gold is its universal acceptance. People recognize and value gold all over the world, making it easy to buy and sell no matter where you are.
You can quickly convert your gold into cash when needed. This makes gold a highly flexible investment, especially if you ever need access to funds in a different country or in times of crisis.
Diversification: Gold acts as a balancing factor in your portfolio, providing stability when other assets like stocks or bonds fluctuate. Adding physical gold to your investments helps spread out risk, making your overall portfolio more resilient to market ups and downs.
No counterparty risk: One of the great benefits of physical gold is that you don’t have to depend on any third party, like a bank or financial institution, to maintain its value. You own it outright, and it’s not tied to the performance of any company or market so it’s independent from the risks other assets carry.
Limited supply and growing demand: Gold is a finite resource with a limited amount available, and we can’t simply increase its supply. Demand from investors, central banks, and industries can lead to rising gold prices.
Recent data from Gold.org shows the overall demand for gold in 2024 reaching the highest amount for any Q2 on record.
Cons
Consider a few of the drawbacks:
Storage and insurance costs: When you buy physical gold, you need to consider the cost of storing it securely. Fees for vaults or safety deposit boxes can accumulate over time, so make sure to factor them into your budget.
You may also need insurance, which adds protection but comes with additional costs. Though these expenses can be small, but they can reduce your overall profits if not accounted for.
No income generation: Gold doesn’t provide regular income like some other investments. It doesn’t pay interest or dividends, and its value relies on how the market performs.
The reason people invest in gold bullion is to protect wealth and provide a hedge against economic instability, not to generate cash flow or income.
2. Gold ETFs and mutual funds
Gold ETFs and mutual funds are more like “paper gold.” You’re investing in gold-related assets but not in the actual metal itself. This option exposes you to a gold investment without the need to deal with physical storage.
Pros
Investing in mutual funds and gold ETFs has its advantages:
Lower capital requirement: You can start with a smaller investment since ETFs and mutual funds allow for fractional ownership.
Ease of trading: Gold ETFs can be traded like stocks, making them easy to buy and sell anytime during market hours.
Cons
Investing in mutual funds and gold ETFs has disadvantages to keep in mind:
Counterparty risk: The financial health of the fund issuer affects your investment. If the issuer faces financial difficulties, it could affect your investment.
Complexity: Some ETFs and mutual funds have complex structures involving derivatives or other assets that can add risk and reduce transparency.
No physical ownership: This isn’t really owning physical gold, so you can’t take possession of the metal if you want to.
3. Gold futures and options
Gold futures and options are contracts that let you bet on the future price of gold. Futures commit you to buy or sell gold at a set price on a specific date, while options give you the right but not the obligation to do so.
Pros
Here are some advantages of investing in gold futures and options:
Short-term trading: These contracts are ideal for short-term strategies so you can capitalize on price movements without holding gold for the long term.
Potential for high returns: Leverage can increase returns if the market moves in your favor.
Cons
Here are the disadvantages of investing in gold futures and options:
High risk: Leverage works both ways, so while it can increase profits, it can also amplify losses, which can potentially wipe out your investment.
Expiration dates: Futures and options have fixed expiration dates that can force you to take action within a set time frame, even if the market conditions aren’t great at that time.
Margin calls: With futures, if the market moves against you, you have to deposit additional funds to keep your position, which adds more risk.
4. Gold mining company
When you invest in gold mining companies, you’re buying shares in businesses that produce gold. This can let you profit from gold indirectly since you hold gold mining stocks and not the physical metal.
Pros
Some advantages of investing in gold mining companies are:
Potential for high returns: If gold prices rise or the company makes new gold discoveries, the stock price of gold mining companies can increase the value of our investment.
Dividends: Some gold mining companies pay dividends which gives you income and capital gains.
Cons
Here are the disadvantages of investing in gold mining companies:
Company-specific risks: Operational issues, mismanagement, or labor disputes can affect a company’s stock price, even if gold prices rise.
Operational costs: Mining is a capital-intensive business, and rising costs for labor, equipment, and energy can lower profitability.
Environmental and regulatory risks: Mining operations face scrutiny over environmental concerns, and accidents or stricter regulations can lead to fines or disruptions.
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Steps to invest in gold bullion
If you want to buy gold investments like coins or bars, here are the steps to get started:
Step 1: Find a trustworthy gold dealer: Start by choosing a trusted gold dealer like Swiss America, which has a long history and strong customer reviews.
Step 2: Buy gold: If you’re looking to invest with retirement funds like a 401(k) rollover or an existing IRA, the IRS has specific rules to follow. First, you’ll work with an IRA custodian to purchase gold bullion on your behalf.
From there, the IRS has rules around which gold bullion qualifies for these accounts. The Swiss America team can provide direction and guidance on which gold assets qualify.
If you’re buying physical gold bars or coins outside of a retirement account, you can whichever gold or other precious metals you want.
Step 3: Store your gold: After your purchase, your dealer will ship your actual gold. If it’s part of a retirement account, it goes to an IRS-approved depository since taking direct possession could lead to tax penalties.
For non-retirement accounts, you can have your gold delivered to your home, a safety deposit box, or a secure depository.
Step 4: Monitor investment: Swiss America clients can track their holdings through our online portal, which provides real-time market updates, purchase history, and options for selling or adjusting your portfolio.
Why do investors prefer Swiss America
When you go to buy gold, consider choosing Swiss America as your precious metal dealer and receive benefits like:
Deep expertise: We’ve been in the industry for over 40 years and have navigated different market changes. You can be confident knowing that we’re a trustworthy company and that we’re committed to your success.
Happy customers: Our thousands of customers appreciate our high-quality metals, prompt delivery, and responsive customer service.
Education: We provide expert guidance on secure storage, precious metals IRAs, and market trends. Many investors appreciate our free resources like our daily newsletter, specialized reports, and regular podcasts.
Trade-in program: For selling gold, our trade program provides liquidity for emergencies or portfolio adjustments to support your long-term success rather than just a one-time sale.
Gold investing for beginners
Gold investments don’t have to be complicated or difficult. With the options listed here, you have a few different ways to get started and reduce your portfolio risk today.
If you want to learn more about owning gold as a physical asset, contact the Swiss America team today!
How to invest in gold for beginners: FAQs
How much money do I need to start investing in gold?
As of this writing, gold prices are about $2600/oz so if you want to invest in gold bars or coins, you’ll need slightly more than $2600 to get started.
How much gold should a beginner buy?
As a beginner, it’s better to start small, maybe with a few gold coins or bars, to get familiar with the process. Many experts recommend allocating around 5-10% of your investment portfolio to gold.
What is the smartest way to buy gold?
The smartest way to purchase gold depends on your goals. Physical gold, like bars and coins, is the best choice for stability.
Note: The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals before making any decisions or taking action based on this information.
