3 Strategies for Investing in Gold

gold coinGold has always been a widely sought after metal and still is today. It has been a hot topic recently as it looks like inflation will increase substantially and the US dollar will lose more of its value. Here are the most popular ways to own, trade and invest in gold.



Gold has always been a widely sought after metal and still is today. It has been a hot topic recently as it looks like inflation will increase substantially and the US dollar will lose more of its value. People who are always bullish about gold as the best and sometimes the only investments to make are called “gold bugs”, here are three good ways to own or invest in gold

Gold Exchange Traded Funds (ETFs)


If you were to buy gold coins or bars yourself, you would have to consider paying shipping and the storage costs if you wanted them stored in a safe deposit box or some other safe place.

You don’t have to worry about these things when buying an ETF. One of the most popular and heavily traded exchange traded fund is GLD. It roughly tracks the price of gold and is usually 1/10 of the price of gold per ounce. So if gold is at $900 per ounce, than GLD will be about $90 per share. Another similar ETF is IAU. GLD has far more trading volume than does IAU and when trading in stocks or ETFs, the higher the volume the better. There are all kinds of ETFs for gold, for example there are ones that are called 2x (double long and that symbol is DGP). This means that for every $1 gold goes up, these funds go up twice as much. That of course means the reverse is true and you can lose your money twice as fast.

When you buy a gold ETF you are not actually buying gold. You are buying an instrument that tracks the price of gold. You cannot call them up and say you want your gold bars now and take possession.

Gold Mining Companies


You can also buy ETFs that own only gold mining stocks or you can find the gold mining companies yourself and invest in them. There are many gold mining stocks to research and invest in. This way you are not investing in the gold itself but buying the companies that find and dig up the gold, and like any other company you need to look at their balance sheet and see how they are doing. You have to look at the price of gold and how much cash the company is using to mine the gold, is it worth the mining of gold at certain times. Since these companies like any other company have operating costs such as payroll, equipment and land you have to read their balance sheets. Some of the larger mining companies are:

  • Barrick Gold (ABX)
  • Newmont Mining (NEM)
  • Placer Dome (PDG)
  • Yamana Gold (AUY)
  • AngloGold Ashanti (AU)
There are many small gold mining companies you can look at but most of these would be considered more speculation than investing in gold. The most popular ETF for gold mining companies is GDX. Buying that ETF you would spread your risk out among numerous gold mining companies.


Gold 1 ounce
Source/Wikipedia

Buying Gold Bullion and Coins


You can buy gold coins or gold bars, both are bullion. When you want to buy gold you are looking for a practical way to buy, own and sell it when necessary. When buying gold from a dealer and sometimes a bank this way, there will also be a commission charged called a premium. So you pay the price of gold and also the commission. You can also buy gold in half ounce, one-quarter ounce and a tenth of an ounce to as small as 1/20th of an ounce. The smaller the amount of gold you buy the larger the premium can be which can make it double the price of gold by the time everything is done and paid for.

A coin such as the American Gold Eagle and the South African Krugerrand have some silver and copper in it for durability, but the gold content is equal to a 1 ounce piece of gold. Sometimes a certain coin will become scarcer and those prices will have a higher premium. With the American Eagle gold coin, there is a difference. The mint produces and sells the proof and uncirculated coin for collectors and there is also a bullion version. When investing in only gold you want to look at the bullion coin. In March 2009 the US mint has suspended the production of the collectable coin and is focusing only on the bullion coin due to an unprecedented demand for the gold bullion coin. Sometimes certain gold bullion coins will cost more than others when you add in the premium, so look around for the coins that are closest to the spot price of gold. Here are some other gold bullion coins.

  • Mexican $50 Peso coin
  • Canadian gold Maple Leafs
  • Australian gold Kangaroos, they change the design of this coin each year.
  • Austrian Philharmonic
  • China mint gold Panda coins, this coin also changes designs most every year.
  • South African Krugerrand 
  • American Buffalo gold coin

When you buy older gold coins you are also buying a collectable coin, which can also rise and fall on the value of the coin and the price of gold. Unless you’re knowledgable about coin collecting, you should stick with the gold bullion bars and coins. And make sure you are dealing with a reputable gold or coin dealer. Research them before buying from them.

Gold is not the only precious metal you can buy. You might consider other precious metals such as silver or platinum.

Copyright © 2009 Sam Montana
 

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