How to Invest in Gold?

Throughout the history of the 20^thcentury, gold has established its reputation as a better investment option in investment portfolios, especially after the Black Tuesday of 1929. From Wall Street to The old city of London, investors prefer gold in their portfolio, and if you want to invest in gold too, here is how you can invest in gold.

Investment in Gold

Before Investing in Gold, the Question Comes Why an Investor Should Invest in Gold?

Gold got much of its popularity as currencies from ancient times. Although gold has lost its use as regular currency, its popularity and value did not drop a bit; instead, it increased over time. The main reason for that is the gold’s ability to serve as a hedge against any kind of financial trouble, from inflation hedge and economic recession to currency fluctuation and war. An example that will show why gold got its popularity over the last century is: From 1900 to 2021, the market price of gold increased over 90 times in the same time limit the value of one US dollar decreased 31 times. Indicating the inflation rate was much lower than the gold valuation over this time. (Statista.com) (In2013dollars.com)

How to Invest in Gold?

The main purpose of different types of gold investment is to protect and preserve investment value and generate a capital gain on investment over an investment period. There are many types of gold and silver investment available. Out of these many options, the best way of investing in gold is the one which serves the main purpose best way possible while considering the following factors.

• Maximum security of purchasing
• A simple process of purchasing (Less complexity in investing)
• Greater market stability
• Maximum return on investment
• And the low cost of investment

Considering these factors, the alternative options of investing in gold are the followings

Alternative Ways of Making Investment in Gold

Way One: Physical Bullion Investment

These are the gold coins and gold bars. Gold bullion bars come in many sizes and weights, from a quarter of an ounce to up to 400 ounces’ bars of gold are available for investment. Gold American Eagle, Gold Canadian Maple Leaf, and Australian Kangaroo are some of the most famous coins. Some of the most famous and most sold gold bullion bars are Holy Land Mint, Heraeus, Scotia-Mocatta, etc. The widely invested size of gold bar is a 10-ounce bar. Considering the current market price of gold per ounce which is around 1900 US dollars, gold bars are expensive gold investment alternatives. Unlike stocks, Gold bars cannot be bought at fractional shares. Due to its high price, it’s important to buy it from a reputable and source.

How to Buy /Invest?

Investors can buy gold coins and bars from both shops and online websites.

1. Buy in person: investors can directly visit a reputable and certified dealer and purchase after completing the necessary document of purchase and paying for it; some famous and certified gold bars and coins dealers are Orion Metal Exchange, Patriot Gold Group, Oxford Gold group, etc.   
2. Online purchase:

Purchasing online can include visiting web pages of dealers listed in the US mint database and selecting the types of bars and sizes, completing investors information page, going to the purchase page, selecting delivery and storage option, paying for the investment.  

Pros and Cons of Gold Bullions

Pros

• Actual Metal – Gold bars are actual tangible gold; an investor can hold it to himself after purchase.
• No third party risk – As investors can buy it directly from the seller and there is no third party involved, it is much safer and simple to invest in bullion bars and coins
• Greatest Inflation hedge – Concrete gold investments provide a high inflation hedge and security of assets
• It can be used in anywhere in the world
• Unlike gold-based stocks, concrete gold bars and coins can be used in any country around the world for payment.
• Fast liquidation – It can be liquidated in the fastest way due to a lack of paperwork. 

Cons

• High cost of premium – Gold bullions have a high premium cost; dealers charge a good amount of money as a premium; this premium rate can be 1-10% over the spot market gold price. 
• Does not generate profit – Unlike stock and bonds, gold bullions do not generate any yearly interest or dividend
• High Tax on capital gain
• The tax rate on capital gain is as high as 28%
• Storage Cost

There’s also a storage cost in gold bullion which can increase the overall cost of investment

Way Two: Gold Jewelry Investment

It is a form of concrete gold investment. The demand for gold in the jewelry industry makes up around 50% of the total gold production of gold each year. The reason for this high demand is that people love to wear ornaments and jewelry made out of gold. At the same time, most people buy gold jewelry for using only as ornament gold jewelry also used as an investment option for some people who tend to preserve wealth and utilize its beauty.

How to Buy?

Gold jewelry can be bought from local jewelry shops and online shops by paying the amount to obtain a legal record of purchase from a jewelry shop. In any case, investors have to make sure the jewelry they are buying has legal documents and is not fake or impure.

Pros and Cons Gold Jewelry Investment

Pros

• Tangibility
• It can be used as ornaments
• Inflation hedge
• Simplicity in purchasing

Cons

• The cost of design and production is high
• Fewer karats mean impurity
• The market is comparatively more volatile 

Way Three: Gold ETFs/Funds Investment

Gold ETF is of security-based gold investment backed by concrete gold. It functions as stocks and ETFs and refers to as paper gold. There are three basic ways to invest in gold ETFs, and these are 1: investing in a company that invests in concrete gold, 2: Investing in companies that bet futures price of gold, and last is 3: investing in a company that holds lots of gold mining company. Investment in gold ETF’s provides exposure to gold’s long-term stability and offers more liquidity than investing in concrete gold bullions and jewelry.

How to Invest in Gold ETFs?

As mentioned, there are three types of gold ETFs. Although there are some risk-return and operational differences are there in those three types of ETFs, the investment process in those ETF’s is the same because all the ETF’s are like securities of companies. This process of investing in gold ETF’s includes the following steps

Step 1: Open a Demat and Trading account.

Demat account is a repository for holding digital copies of stocks; the first step of gold ETF’s investment is to open a Demat account and a Trading Account online by submitting user documents such as PAN, ID proof, and Residential proof.

Step 2: Select one of the gold ETFs

Selecting the gold ETF option and finding the best performing company available in that specific category, for example: in the case of direct gold ETF investment, there is a well-performing company SPDR Gold Share enlisted under NYSE. Or in case of selecting Gold mining companies, there are Newmont Corporation and Barrick Gold after selecting the company

Step 3: Document phase

Go to the website of the company, open the trading portal of the company broker and complete the required formality of the portal

Step 4: Place order

After formality, place an order from the website selecting the amount of ETF’s

Step 5: Transection

After placing an order, you have to make the transaction of the purchase

Step 6: Confirmation mail

In this step, a confirmation mail will be sent to your mail address. 

Pros and Cons of Gold ETF’s

Pros

• Low cost of premium
• The cost of investment is low as there is no direct possession of gold there, and the market charge is negligible compared to the usual investment amount.
• High Liquidity
• The main advantage of gold ETF is it functions like stock and can be sold at any time, and it provides high liquidity of the asset.
• No storage Fee
• As there is no concrete gold to hold or protect for an investor, there is no cost of holding the gold, which reduces the investment cost.
• Trade at actual spot price
• Gold coins and bullions cost the charge of forming and designing. But gold ETFs’ are just paper-based gold, and it does not have any design and production cost. For this reason, gold ETFs’ are traded at the market rate of pure gold.
• No chance of theft

Because paper-based gold has no chance of theft and loss, it is the greatest advantage of the gold ETFs’ intangibility.

Cons

• The market is more volatile
• The gold ETFs function like other stocks, making it a volatile price change.
• Not tangible asset
• Gold ETFs are not tangible, which makes them less reliable to investors as tangible gold holds the intrinsic value, which is absent in gold ETFs
• Fund management expense
• Gold ETFs’ of a company requires managing the account and ETF, which in turn require a management team and include the fund management fee
• Cost of capital gain

Gold ETFs are tax collectibles. In the case of gold ETFs, the withdrawal from the market with capital gain can cost up to 28% of the total gain as capital gain tax.

Bottom Line

Although all the alternatives of gold investment have some unique pros and cons to invest in, the best one is a subjective question depending on the nature of the investor. If an investor is more interested in high risk and high gain aggressive investment, then Gold ETF’s are suggested, and for those who only want to preserve gold value for long term concrete gold investment is suggested to them

(Forbes.com) (Royalmint.com) (Groww.in) (Bankrate.com) (Cleartax.in)

Bibliography

• (n.d.). Retrieved from https://www.royalmint.com/invest/bullion/bullion-bars/gold-bars/
• Bankrate.com. (n.d.). Retrieved from https://www.bankrate.com/investing/ways-to-buy-sell-gold/#:~:text=You%20can%20purchase%20gold%20bullion,can%20make%20a%20fair%20deal.
• Cleartax.in. (n.d.). Retrieved from https://cleartax.in/s/gold-etfs
• Forbes.com. (n.d.). Retrieved from https://www.forbes.com/advisor/investing/how-to-buy-gold/#:~:text=You%20can%20buy%20gold%20coins,Mint’s%20database.
• Groww. in. (n.d.). Retrieved from https://groww.in/blog/best-way-to-invest-in-gold
• In2013dollars.com. (n.d.). Retrieved from https://www.in2013dollars.com/us/inflation/1900?amount=1#:~:text=%241%20in%201900%20is%20worth%20%2433.19%20today&text=%241%20in%201900%20is%20equivalent,cumulative%20price%20increase%20of%203%2C219.07%25.
• Royalmint.com. (n.d.). Retrieved from https://www.royalmint.com/invest/bullion/bullion-bars/gold-bars/
• Statista.com. (n.d.). Retrieved from https://www.statista.com/statistics/268027/change-in-gold-price-since-1990/