Guide to Investing in Physical Gold

Whenever economic scenes get challenging or financial events throw the markets for a loop, many investors choose gold as a safe haven. In fact, some of them are searching for a safe asset that has an established track, and that’s gold. 

Investors such as gold for various reasons, and it has qualities that make the commodity a great counterpoint to traditional securities like bonds and stocks. On top of that, they think of gold as a store of value, although it is an asset that does not have a general cash flow. 

Others consider gold a hedge against inflation, considering the actions of the FED to stimulate the economy—including government spending and near-zero interest rates—that could send inflation racing higher. This is why you need to consider a physical gold investment, says Tim Schmidt, founder of, a leading retirement strategist.

Below are the different ways for you to own gold. You can also consider some of the potential risks that come with each of them. 

  1. ETFs that own mining stocks

If delving into individual gold companies is not your preference, opting for ETFs (Exchange-Traded Funds) might be a sensible choice. Investing in gold miner ETFs provides exposure to the major players in the gold mining market. These funds offer diversification across the sector, shielding you from significant losses resulting from the underperformance of any single miner.

Prominent ETFs in this category include VanEck Gold Miners ETF (GDX), VanEck Junior Gold Miners ETF (GDXJ), and iShares MSCI Global Gold Miners ETF (RING). As of March 2023, their expense ratios are 0.51 percent, 0.52 percent, and 0.39 percent, respectively. These ETFs grant the benefits of holding shares in individual miners while enjoying the safety that comes with diversification.

Risks: Despite the diversification provided by ETFs, they cannot safeguard you against industry-wide issues such as prolonged periods of low gold prices. Hence, it’s essential to exercise caution when selecting your ETF, as not all funds are alike. Some may consist of well-established miners, while others might have junior miners, which inherently carry higher risk.

  1. Mining stocks

Investing in mining stocks presents another avenue to capitalize on the surge in gold prices. By owning shares in gold-producing companies, investors can potentially benefit in two ways. Firstly, as the price of gold rises, the miner’s profits tend to increase as well. Secondly, these mining firms have the capacity to ramp up production gradually, leading to a dual impact on returns.

However, there are inherent risks when investing in individual stocks, including mining companies. It’s crucial to thoroughly understand the workings of the business before making any investment decisions. The mining industry harbors numerous highly risky ventures, necessitating caution while selecting a reliable player with a proven track record. To mitigate risk, it is advisable to steer clear of small mining companies and those that have not yet begun production. Additionally, like any other stocks, mining stocks can be prone to volatility, so prudent risk management is essential.

  1. ETFs that own gold 

If you prefer to dodge the difficulties of owning physical gold or dealing with the fast-paced and margin-intensive futures market, an excellent alternative is to invest in exchange-traded funds (ETFs) that track the performance of the commodity.

Among the most significant ETFs in this space are SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and Abide Physical Gold Shares ETF (SGOL). These ETFs aim to replicate the price movements of gold, while their annual expense ratios stand at a mere 0.4 percent, 0.25 percent, and 0.17 percent, respectively, as of March 2023.

Another key advantage of ETFs over owning physical gold is their superior liquidity. ETFs can be readily traded for cash at prevailing market prices, similar to selling a stock. This feature grants gold ETFs a higher level of liquidity compared to physical gold, and they can be conveniently traded from the comfort of one’s home.

Risks: Investing in gold ETFs exposes you to the price fluctuations of gold, so if the price rises or falls, the ETF’s performance should follow suit, minus the fund’s expenses. Like stocks, gold can be subject to volatility at times, but owning ETFs helps avoid the primary risks associated with possessing physical gold, such as safeguarding and getting full value for your holdings.

  1. Gold futures

Gold futures offer an attractive avenue for speculating on the price movements of gold, whether it’s expected to rise or fall. Although it is possible to take physical delivery of gold through futures contracts, most speculators are not motivated by this option.

The primary advantage of using gold futures for investment lies in the significant leverage they offer. With a relatively small investment, you can control a considerable amount of gold futures. This leverage potential allows for the opportunity to make substantial gains in a short period if the gold futures move in the anticipated direction.

However, it’s important to note that the same leverage that can lead to high profits also amplifies the risks. If the gold futures move against your position, you might be required to put up additional funds (called margin) to maintain the contract, or the broker may close your position, resulting in losses. Therefore, while the futures market provides the possibility of substantial gains, it also comes with the potential for quick and significant losses.

It is essential to recognize that the futures market is more suitable for sophisticated investors due to its complexities and risks. Additionally, not all major brokers offer futures trading, so it’s crucial to find a broker that provides this service if you intend to participate in gold futures.

  1. Gold bullion 

Owning gold bullion in the form of bars or coins can be emotionally satisfying as you can physically see and touch your investment. However, this approach also comes with significant drawbacks, particularly if you own a substantial amount of gold. One major drawback is the responsibility of safeguarding and insuring the physical gold, which can be challenging and costly.

Unlike owning shares in a gold mining company, where the potential for profit can be influenced by increased gold production, owning physical gold relies solely on the commodity’s price appreciation for any potential gains.

There are various ways to purchase gold bullion, including through online dealers like APMEX or JM Bullion, local dealers, collectors, or even pawn shops. When making a purchase, it’s crucial to be aware of the gold’s spot price, which is the current market price per ounce, to ensure a fair deal. Opting for gold bars might be preferable to coins as coins often carry additional collector value, which can affect the overall cost compared to their gold content.

Risks: The most significant risk associated with owning physical gold is the potential for theft if proper security measures are not in place to protect your holdings. The second major risk occurs when you need to sell your gold. In certain situations, it can be challenging to receive the full market value for your holdings, particularly if you own coins and require a quick sale, potentially resulting in selling at a significantly lower price than what they might command on the national market.

Final Thoughts

Investing in gold may not be suitable for all investors, as some prefer to focus on cash-flowing businesses rather than relying on the potential appreciation of the shiny metal by others. This perspective aligns with renowned investors like Warren Buffett, who caution against gold investments and instead endorse purchasing cash-flowing businesses. 

Stocks and funds offer a straightforward ownership experience and high liquidity, allowing investors to easily convert their positions into cash whenever necessary.

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