World currencies can be a risky way of holding liquidity and keeping assets, which is why so many people are turning to tangible commodities like gold, oil, and silver. But for the inexperienced investor, this isn’t always the most viable route to go.
Investment into commodities can be confusing when you are starting out, and confusion doesn’t bring much security. So as a starting point for potential investors, here are five different ways you can invest in gold. None of which, are of course completely risk free, but there are plenty of investors around the world who are taking advantage of these schemes and reaping the rewards.
- Investing in Gold Jewellery
When it comes to gold, almost 40% of all the world’s investors have taken an interest in jewellery, which has its advantages and disadvantages. Jewellery is rated by karat, with 24kts representing the purest and 10 sitting on the lower end of the spectrum. When investing in jewellery the price is determined by a combination of the weight by gram and the purity of the piece concerned. When buying from a jeweller, be sure to get a certificate of authentication to be safe. However when it comes to jewellery, it is best to buy to wear, since as an investment it can be tricky. Often you would have to buy at retail prices and sell at wholesale prices, so you would have to wait for a huge rise in the gold price just to break even.
When buying gold as a substitute for currency, investing in ETFs like GLD, DUST and AGOL has its greatest advantage with concerns to liquidity. There are some 33 different portfolios to invest in with ETFs but this comes with a warning. While you are likely to get triple digit percentages on returns, an inexperienced and undiligent investor can stand to lose everything overnight and with relative ease. This kind of investment is only suggested for experienced and savvy investors, and is certainly not for the faint of heart.
- Closed-end Funds
Closed-end funds are another great way of investing because you can often buy stocks at discounted rates. The disadvantage is that there is generally a fee which is 1 to 2 percent higher that ETFs and mutual funds. The Sprott Gold Bullion Fund (SPR216) is one of the most prominent on the market and typically has a three year return on -1.8 percent, or a 5 year return of 4.4%, which makes it better for long term investments.
- Mutual funds
Mutual funds allow you to invest in gold stock without actually having to deal with the gold itself. Generally an investor would buy stocks in a senior company which is established and usually owns, or partially owns a mine. Senior companies offer more security but that means prices are bought at a higher rate, and returns are slow and low. Investing in newer, junior companies can yield higher returns since you buy low, but the risk is substantially higher that you could lose a lot of money. Still this method is great for those who don’t want to actually handle the gold themselves, and feel more secure just dealing with stocks.
- Gold coins
Investing in gold coins is an age old favourite of many people, and can be done on a large or small scale. The three best sellers include Kruger Rand, American Gold Eagles, and Canadian Gold Coins. If you are investing in these, security can sometimes be an issue, since storing them safely can be a problem. Each coin is exceptionally valuable, so if you have a lot, you may want to spend a bit of money on securing them from theft.
The type of investment you choose would depend largely on your existing investment portfolios, your buying power, and preference, but either way it is hard to tell which method is the best. For beginner investors, mutual funds and tangible assets are probably the best call, but their low risk makes them give smaller returns.