Maybe you need to diversify your investments and lower your risk. Perhaps you’re looking for a so-called safe haven investment to perform better when the rest of the market down.
Gold may be considered the best safe haven investment. Start with our guide to learn more about how you can include some gold in your portfolio.
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Gold as a Commodity
Like any other commodity, the price of gold is determined by supply and demand. Most of the world’s gold comes from the hard rock mining, but it can also be produced using placer mining methods or as a by-product from copper mining.
China, Australia and Russia are the largest producers of gold in the world. Gold’s main use is for jewelry production, but it’s also used in the aerospace industry, medicine, dentistry and electronics. Governments and central banks are also buyers of gold.
Currently, the U.S. is the largest gold holder, while Germany comes 2nd and the International Monetary Fund is 3rd. Private investors are also interested in buying gold and treat the purchase of gold as an investment.
Why are Private Investors Investing in Gold?
Instead of holding a cash position, you might buy gold when they expect a recession, geopolitical uncertainty, inflation or a depreciation of a currency. Sometimes investors hold it as an insurance from the market decline.
In the last 40 years, gold recorded significant gains from 1978 to 1980 and from 1999 to 2011. It struggled during the 90s and after 2011. Fears of inflation and recession led gold to its 1980 highs, while several events caused gold to trade higher after 1999. The September 11 attacks and the war in Iraq held the price higher until 2003.
Insurance buying was behind gold’s move higher going into the 2007 recession. It continued its uptrend as the market traded lower, with economic uncertainty as its main theme. Problems in Europe, weaker U.S. dollar, concerns over economic recovery kept the gold price high until 2011.
Gold has not always performed well. It struggled during the ’90s due to a growing U.S. GDP, interest rate hikes in 1995, and a tight fiscal policy. After 2011, the strength of the U.S. dollar and economy hurt gold. The stock market broke out of a downtrend and turned in the uptrend and investors were not as interested in owning gold as an insurance.
Now you know a little more about gold and why people may invest in it. Here’s how you can start investing in gold.
1. Buy physical gold
You can get exposure to gold by purchasing gold jewelry, coins or bullion. Gold bullion trades close to the price of gold, and it can refer to gold bullion bars or gold bullion coins.
Bullion doesn’t have any artistic value, which makes it different from jewelry or numismatic coins. To buy gold bullion, you have to pay a premium over the gold price which can be in a range from 3% to 10%. You’ll also have to use a vault or a bank deposit box to store it. You can buy physical gold online, in a jewelry store or through another gold storefront.
Before you purchase, make sure the price is fair, the gold is real and tested and that you aren’t paying a higher premium for collectors coins if you’re just looking for pure gold. Be prepared to walk away if these standards can’t be met, especially if an online store or physical storefront feels shady.
Once you buy gold, you have to store it properly. You could store it at home, but security issues could arise from this approach. If you decide to purchase and keep it at home, make sure you have a proper safe and take the necessary measures to protect your assets.
2. Buy gold futures
Futures contracts are standardized contracts that trade on organized exchanges. They allow a holder to buy or sell an underlying at a specified time in future and at the price from the futures contract.
Here’s how it works: A gold futures contract at Chicago Mercantile Exchange covers 100 troy ounces. To trade it, you need to deposit an initial margin, which is a minimal amount necessary to open a position. Every day your position is going to be marked-to-market. This means that if the price goes in your direction, you’ll make a profit. If it goes against you, you’ll lose money.
If your account drops below maintenance margin, you will have to transfer money to your account to meet the amount of initial margin. Futures contracts are leveraged instruments. You need to only need your account balance to be equal to the initial margin, which is lower than the value of the whole contract.
Most brokers do not have the delivery option, so the contract is settled in cash when it expires. The expiry is also standardized feature of the gold futures contract and investors can choose their time horizon while keeping standard expiration in mind. Later expiry contracts prices can be higher than the spot price and earlier expiry futures. When this is the case, we say that the market is in a contango.
On the other hand, when the spot price or the price of early expiring contracts are higher than the price of later expiring futures contracts, we are in a backwardation. If you are buying gold when the market is in a contango, you will also have to pay a premium for later expiry contracts.
3. Invest in gold ETFs
If you are not a fan of investing in gold futures, you can try gold ETFs. Instead of owning futures contract and paying attention to maintenance margin, you can buy shares of ETFs and get an exposure to gold.
If you’ve never invested in ETFs before and want to start, check out Benzinga’s Best Online Brokers for ETF Investing to get started. Once you pick a brokerage, you just have to open an account and pick your preferred gold ETF.
The most popular gold ETF is SPDR Gold Shares (NYSE: GLD). It costs 0.40% annually to own it. The ETF follows gold bullion price.
4. Invest in gold mining companies
An investment in gold mining companies offers exposure to gold, but the exposure is sometimes limited. These companies carry operating risks, which can break a correlation to the gold price. Gold miners are at risk of a default and their shares can trade lower in case of an operating problem with the company regardless of the price of gold.
Best Online Brokers for Gold
Take a look at the best of the best for online gold brokers.
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
SoFi’s mission is simple: to help reach clients like you reach their financial independence and realize their ambitions. SoFi knows that this independence comes from making decisions that help your money start to work for you in the long run. The brand helps individuals make these decisions through personal financial products such as personal loans, student loans and automated and active investing.
The brand additionally provides in-person experiences such as educational and networking events, personalized guidance from experienced financial planners and one-on-one advising with professional career coaches. SoFi’s services have been highlighted in outlets such as Forbes, Medium, and CNBC’s Make It.
- IPO Investing
- Mobile Investing
- U.S.-based customer service
- Highly-rated mobile app for iPhone and Android
- Only available in the U.S.
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Over 8,000 different stocks that can be sold short
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- No chat support
It seems like new digital investment management platforms are sprouting up left and right, and for good reason — there’s a great need for easy, straightforward investment management that doesn’t cost an arm and a leg in fees or to get started. If you’re new to investing or an old hat who wants to make the switch to a virtual manager, deciding which features you need can be confusing if not overwhelming.
If you want a no-frills financial management platform, Axos Invest (formerly WiseBanyan) takes a traditional but sophisticated approach to automated online investing.
- Traditional investors trying out an automated investor for the first time
- New investors that want to take a hands-off approach to portfolio management
- Straightforward automated investing
- Relatively low account minimum and automated investing fee
- A solid roster of available investment account types
- Not a stand-out from other services if you’re someone who likes all the bells and whistles with your digital financial platform
- No direct relationship with a human financial advisor
This latest groundbreaking technology is IBKR GlobalAnalyst, a new trading tool that helps investors compare the rate of PEG or price-earnings growth valuations and provide more immediate and comprehensive financial metrics of stocks, globally.
Recognizing that stock selection can be challenging for investors to compare the valuations of domestic and international stocks, Interactive Brokers created GlobalAnalyst to offer investors a simple, yet powerful tool to easily evaluate investment opportunities around the world.
Using GlobalAnalyst, investors can search for stocks by region, country, industry, market capitalization and currency to uncover undervalued stocks worldwide. The resulting table displays the current market and financial metrics, including the PEG Ratio. The PEG Ratio is the PE ratio divided by the three-year compound earnings growth rate, and smaller PEG Ratios typically indicate undervalued companies.
- Price earnings growth valuations
- Easily evaluate investment opportunities
eToro is a broker that offers access to over 25 of the world’s most popular cryptocurrencies, forex and over 1600 stocks. They have a few unique education and useability tools. Traders can begin buying and selling in as little as 10 minutes.
eToro’s unique CopyTrader feature allows new investors to “copy” the buy and sell orders of professional investors, while the company’s eToro Club feature provides investors with a range of additional education tools and resources.
- Traders looking for an easy-to-use platform
- Traders who want to practice their trades using a virtual account before entering the market
- Simple platform that is easy to master
- CopyTrader feature that allows new traders to copy the same strategies used by professionals
- Virtual dummy account that gives you $100,000 to practice trades
- High non-trading fees
Invest in Gold Today
You can diversify your investments and lower your risk with an investment in gold. There are many ways to add gold to your portfolio. Review our recommended avenues, and choose your gold investment today.