Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.
The concept of investing in gold seems rather archaic—like you’re a pirate hoarding your stash on an island in the Caribbean. But gold has been a popular asset for centuries, and that’s not just because it’s so shiny. Because it’s a natural resource that is relatively plentiful but is difficult to extract, gold has been in demand as a valuable money asset since it was discovered, and is still considered a valuable addition to a diversified portfolio.
How to invest in gold
Part of gold's appeal comes from its physicality: You can touch it and hold it. You can't really hold a share of Johnson & Johnson stock. Way back in the day, ancient civilizations traded in gold because its malleability allows it to be easily turned into coins or jewellery.Grow your money with low fees and no account minimums. Invest as little as a dollar and we’ll build you a personalized investment portfolio to meet your financial goals.
Although it’s historically been a volatile market, gold has also proven to be a durable investment. Here are some tips on how to get started:
1. Buy physical gold
Investors interested in getting into gold can buy bullion (nuggets), gold coins, jewelry, or even bars—just keep in mind that they’re pretty heavy, and you’re going to have to pay for a place to store it, as well as insure it. One problem with jewelry is that it usually comes with a high markup relative to how much gold it actually contains, and its resale value can be lower than what you originally paid for it, so it’s usually not as appealing as buying gold in its purer forms.
Gold bullion, coins, and bars may come with a markup as well, depending on what dealer you’re buying them from (you can also buy them from a bank). The closer to the source you can buy from, the less extras you’ll be paying. Government mints are also a good source for gold coins, with some of the most popular coins being Gold Eagle (US), Gold Maple Leaf (Canada), or Gold Kruggerrand (South Africa).
2. Buy gold ETFs
Since gold is an asset that’s traded on stock markets, you can actually buy gold ETFs, which might be a more appealing option for investors who don’t want to have to deal with safely storing several grams worth of gold. Each share of the ETF represents one-tenth of an ounce of gold, so if gold is currently $1,200 an ounce, the gold ETF will trade at $120 per share. It’s important to remember that owning a gold ETF doesn’t mean you actually own gold directly; the ETF holds the gold on your behalf, and you then benefit from the gold’s valuation on the market. ETFs are also low-cost by design, so investing in ETFs as opposed to physical gold is usually more accessible for investors turned off by the high purchasing price of gold and the associated fees.
Buying gold ETFs is like buying any other kind of stock or security: You’ll need to have an account with a brokerage or an investment platform through which to carry out the trade. There are several gold ETFs such as the SPDR Gold Share and the iShares Gold Trust, which are so-called physically-backed ETFs, meaning that the funds are actually backed by physical gold instead of using derivatives that follow an index.
3. Buy gold certificates
Gold certificates are another way to own gold without having to deal with the nuisance of storing a bunch of gold coins or bars. In lieu of physical gold, you’re given a certificate of ownership by a company that owns gold. You receive a certificate representing ownership of a specific amount of gold. This helps avoiding storage and transfer issues. But you’ll still have to go through a dealer, just like you do with physical gold.
Gold certificates were popular in the United States when they could be used as currency during the gold standard, where the country’s currency was directly linked to gold, and gold was kept at a fixed price. But now, investors tend to simply go with gold ETFs.
4. Buy gold mining stock
This is a more indirect way to get in on the proverbial gold rush. Instead of directly buying gold or gold ETFs, you could invest in the companies mining the gold. The reason why investors might choose to do this is because it offers more potential for growth than physical gold. One gram of gold is going to remain a gram—whether ten, fifty, or a hundred years go by. A company, however, has the potential for growth—and so does its stock price. You can also own gold mining stock by investing in a mutual fund that includes this kind of stock.
However, choosing this option means you’ll have to deal with the risks involved in buying stock, and stocks are notoriously volatile. Your investment will be vulnerable to the management of the company, and if you’re interested in sustainable investments, then mining stock might not be the right pick for you.
5. Buy stock from royalty and streaming companies
Another way to indirectly invest in gold is to buy stock from royalty and streaming companies, which are companies within the mining industry that serve as financiers for mining companies that are looking for economic support for exploration and production projects. They then receive royalties on anything the project produces. Investors tend to prefer these companies to straight up mining companies, since they don’t have to deal with the logistical risks of running a mining company and can therefore avoid a lot of economic pitfalls.
But like any other stock, there are still risks associated with investing in royalty and streaming companies, and investors need to do their homework or invest in a specialized fund in order to confidently invest in gold through this avenue.
Why invest in gold
So what’s the deal with the shiny metal anyway? There are so many exciting investment opportunities by now, why would people still go back to something as archaic as gold? Well, one of the main reasons why gold is still a popular asset is because of diversification. By having a range of investments that cover different areas, you’re less likely to lose all of your money if one sector happens to take a nosedive. Gold is one of those sectors that it can be useful to keep money in.
Piggybacking off of that, gold has historically performed well during times of market turmoil, since it’s a commodity that tends to maintain its value even when as other commodities like paper currency decrease. It’s why investors tend to choose gold when currencies start to decline, as well, which in turn causes the price of gold to rise, which in turn attracts even more investors.
It’s also seen as a good investment to have during times of geopolitical instability (hence gold’s common moniker as the “crisis commodity”). Gold is also seen as a good hedge against inflation, since its price tends to rise alongside rising costs of living.
Another argument made by gold lovers? As emerging markets across the world are producing more investors, the demand for gold will supposedly continue to grow, while the fact that it takes a while for gold supplies to be replenished and it’s a finite resource means that demand will—again, supposedly—continue to outpace supply.
Should you invest in gold?
The price of gold rose pretty steadily in the late 2000s and outperformed the S&P 500, so it's understandable that investors are keen to hop aboard the gilded train.
But it’s also really important to remember that past performances do not guarantee future results. The price of gold is volatile, and can change very quickly and dramatically. So be aware that investing in gold always carries with it a potential for loss, which is why it should only form a small part of your portfolio (some recommend between 3%-5%, up to 10% if you’re happy to take on more risk).
In order to ensure you’re properly diversifying your financial landscape, it can be helpful to work with a financial advisor that knows how to put together a portfolio that includes a wide swath of the market, including gold (in whatever non-physical form you’re choosing to invest in). Another option would be to choose a managed mutual fund that includes the possibility to invest in gold. Also keep in mind that gold itself doesn’t produce any returns, so if you want to be earning dividends from your investment, stock might be a better option for you.
The problem with these choices? They tend to be quite pricey, especially when going down the financial advisor route. So what’s a cash-strapped gold-curious investor to do? Enter the robo-advisor, which presents a low-fee, beginner-friendly option for investors looking to own a well-balanced portfolio without having to be a stocks whiz. Thanks to an algorithm, a personalized portfolio reflecting your financial goals and risk tolerance is created and managed for you, at a fraction of what it would cost you with more traditional advisors.
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