Gold Bars on Pile

Your Complete Guide to Investing in Gold: How to Make Lots of Money

When you think of wealth, how do you picture it? If you grew up watching shows like Duck Tales or Richie Rich, then it might involve large piles of gold bullion. Gold is still, well, the gold standard and is ultimately what our paper notes and copper coins represent. If you have money, it means that you have a share in gold.

Investing in gold might make a lot of intuitive sense then. This way, you’re investing in something physical but that physical thing is literally going to be tied to the value of your cash. That means that the value isn’t dependent on such easily-changeable factors as with stocks and shares or property.

And it really is a good decision when you get down to it too. Gold offers a very effective option for diversifying your portfolio. It’s relatively rare and many investors will use it as a way to offer insurance for their portfolio. Many financial advisors will recommend that you allocate around 5% to 15% of your portfolio to gold and the fact that it’s so easy to understand and explain is just a great added bonus.

Holding Gold in Hands

When trying to explain stocks and shares, or binary options, you will often have to get pretty abstract and technical. On the other hand, gold is gold. We all understand it, we all know why it is inherently valuable and many of us will get some reassurance from knowing there’s something so straightforward in our portfolio.

This also makes gold a very appealing starting point. If you’ve never invested in anything before, then choosing gold will mean choosing something that is easy to understand and that gives you a lot of option.

But just because gold is easy to understand in theory, that doesn’t mean that everyone is instantly going to know how to go about using it. Investing in gold is still daunting for those who aren’t familiar with it and there are definitely ways and ways of going about it. So let’s take a look at how you can go about investing in gold and what some of the best practices are if you want to ensure maximum pay-out.

How to Think About Physical Gold as an Investment

The first thing to understand early on, is that investing in goal is significantly different from a number of other investments. Specifically, it is very different to investing in stocks and shares.

Gold Dollar Sign Stands Out in Field of Gray Dollar Signs

One way in which this is true, is in the potential pay-out you can expect. Gold is low-risk but this also means it is likely to be low-yield. In investment, this is generally a truism across the board: the greater the risk, the greater the potential pay-out. The lower the risk, the lower the amount you can expect to make.

This is why gold is a great way to offering some stability and insurance to your portfolio. It ensures that you’re unlikely to lose all of your investment in one fell swoop and instead means that you should have at least some assets that are still worth something even when times are tough.

For these reasons, many families will also invest in gold as a way to protect their money from unpredictable interest rates or as a way to save for a rainy day. It can also be a good way to pass money from one generation to the next.

Holding Small Gold Bar

If you need more encouragement as to why gold makes a good investment, then this article will make for a good read.

Types of Physical Gold

When we talk of investing in physical gold, this can mean one of several things. One of the most popular ways to invest in gold is to invest in gold bullion. However, you might also buy gold coins, vaulted gold or even gold jewelry. Each type of investment works slightly differently and each brings different benefits and drawbacks. Read on to find out what those are…

Gold Bullion

Gold bullion can come in the form of gold ingots, gold bars or gold nuggets. In short, this is just lumps or sticks of gold but with the guarantee that they will meet some minimum specifications for the given type. That means specifically that the gold will have fineness standards of 99.99%, 99.5% or 99%.

There are different fineness standards for different bullion specifications, with different numbers for ¼ ounce, ½ ounce, 1 ounce, 10 ounces, 100 ounces and 500 ounces.

Gold Bullion on Scale

So buying gold bullion means buying pure gold. This makes it one of the most lucrative and safest investments and even more so than gold jewelry or coins. What’s more, is that there is normally relatively low commission on gold bullion. This is a popular way to try and beat the inflation of the dollar and keep your money safe for when you need it.

Gold Coins

Gold coins do exactly what they say on the tin. These are coins made from gold like you might see on the Pirates of the Caribbean ride at Disney. They’re often purchased by collectors as a form of investment and are issued by countries or private entities.

Spilled Gold Coins out of Bag

Unlike gold bullion however, gold coins are not made from pure gold. This is because gold is actually very soft and easily broken, which makes it unsuitable for use as coins. Thus, gold coins will normally be mixed with other metals, which can somewhat reduce their value (though it also reduces their cost!).

Gold coins are popular as a form of investment for numerous reasons. For starters, rare coins may be worth more than their weight in gold (literally) and collecting these can actually be a fun pastime if it’s something you’re interested in. What’s more, is that gold coins are relatively affordable compared with gold bullion, so if you’re looking only to spend a small amount of money, then it’s a good option.

Gold coins can therefore be broken down into two smaller categories. These are: Modern Bullion Coins and Semi-Numismatic and Numismatic Coins. The former type of gold is gold that will follow the value of gold. The latter is the aforementioned type of coin that is old or rare and thereby may have some value beyond its net worth.

The most popular form of semi-numismatic gold coin is the British gold sovereign, which was the original British pound coin. This type of investment is exempt from capital gains tax.

Gold Jewelry

Gold jewelry is another way you can buy gold as an investment. You might do this through a gold broker (more on this later) or literally just by buying gold from pawn shops. When doing the latter, you are able to avoid the involvement of a broker or reseller and thereby not have to pay any commission. You will have full ownership of the gold and thus you’ll receive 100% of any profit made.

Buying Gold Jewelry

This is a slightly more involved and risky form of investment. If you buy gold jewelry, then it can be potentially melted down and thereby sold for the value of the gold alone. This means that gold pieces will always have at least a minimum value, which in turn reduces a lot of the risk that would normally be involved.

What’s important to note though, is that jewelry often costs more than the value of the gold itself. Instead, you pay for the craftsmanship, the design and the markup offered by the store. What’s more, is that the design of a piece of gold jewelry can go in and out of fashion over time, so what might have been a good investment at one point can actually turn out to be a poor investment later down the road.

You might buy a beautiful and expensive gold bracelet and pass it on to your grandchildren, only for the design to be considered ugly and outdated when they come to sell it. That means that they’ll probably end up melting the gold and selling it for much less (factoring for inflation) than you paid for it.

Then again though, some designs of gold jewelry will stay fashionable or will ‘come back in’ to fashion. Likewise, designs by renowned designers, or that have become antique, might also be worth more with time.

Vaulted Gold

Vaulted gold is a type of gold bullion. Specifically, this is gold that is stored in bank faults and when you purchase this gold, you will again have full ownership of it. This means you don’t have to share your profits with anyone and if you wanted to, you could theoretically withdraw your gold from the bank and take photos with it (don’t act like that’s not appealing…).

Vaulted Stacked Gold

Vaulted gold will usually involve only the cost of the gold itself and the storage, rather than paying to go through a broker. For this reason, it is often cheaper than investing in other types of physical gold while also being closer to the gold price.

This is sometimes also referred to as ‘allocated accounts’. In this type of investment, you buy the bullion or coins from a brokerage which then ships the gold to your account in a depository or bank. Depending on the broker, you may be able to choose from a number of different banks and depositories, or you might be limited to working with a select few partners.

It’s very important tom make sure you carefully inspect the gold account providers in such instances, to ensure that they have adequate security and a track record of being reliable and good to do business with.

Non-Physical Gold

So if all that represents ‘physical gold’, then what is the alternative? How can gold be anything but physical? Here are some examples…

E-Gold

E-gold, also known as ‘digital gold’, is a form of gold investment that can be ‘converted’ to physical gold at any time. In other words, it’s somewhat like having credit in the bank, which corresponds to cash. In this case, you have a digital representation of gold without needing to actually physically own said cold. While this can make certain aspects of investing easier, there are also some risks involved.

E-Gold Logo

Specifically, investing in e-gold means that you won’t be investing through a real ‘bank’ and this means they are not beholden to any financial regulations. There are some concerns that certain digital gold providers operate in an unscrupulous manner, so once again it falls to you as the investor to do your research if you intend on making this kind of investment.

Paper Gold

Paper gold might sound like something a particularly savvy con artist might offer you but it’s actually a very smart investment if you have the money.

Paper Made from Gold

While investing in most types of gold is your low-risk, low-yield affair; investing in paper gold is the kind of investment that involves a bit more risk and potential a very high pay out. The way you do this is to invest in companies that mine gold or are searching for new gold deposits. Some companies also do both. This way, you are investing in gold stock rather than investing in gold itself.

When investing in mining companies, you of course benefit greatly if the company has a winning streak and manages to find a lot of very high quality gold. Likewise, investing in an exploratory company could potentially result in some big pay-outs if those companies find new reserves.

But the risk comes from the fact that the company may not find anything, or that the gold it mines might be sparse or low quality. This is an exciting way to invest in gold but certainly not the ‘sure thing’ that gold bullion represents.

Gold Metal Wrinkled Paper

Then you have the option of investing in financial products: options, futures and spread betting. This means you’re essentially ‘betting’ on the future value of gold rather than owning the gold itself. Investing in gold options means that you’re saying the gold is likely to go up in value over a set period of time and the way you might calculate this is by looking at previous trends as well as events in the news that might affect the value of gold.

You can also use these products to leverage your investment – to borrow money to boost the size of your bet. That increases your potential earnings but of course means you stand to lose even more if things should go wrong and you can end up losing all of your original investment or even ending up in debt!

Gold Exchange-Traded Funds

These are funds that will continuously track the price of gold. They include Streettracks Gold Shares (NYSE:GLD) and ETF Securities’ Gold Bullion Securities (LSE:GBS) in London. These can be purchased via stockbrokers and there is usually an associated annual administration fee between 0.4% and 0.5%.

Gold ETF Illustration

Investing in Precious Metals

Keep in mind that it’s also possible to invest in a range of other precious metals. This might mean investing in silver or any other precious metal you can think of. The rarer and more useful the metal, the more valuable it will be. While investing in gold is the most popular option, you also have lots of other metals to pick from when wondering what to invest in and it ultimately comes down to the broker.

How to Invest in Gold

So now you know the benefits of investing gold and you know the different options available to you, the next question is how to invest in gold.

Gold Bar on Paper next to Glasses and Calculator

Of course the first place to start, is by looking at the type of gold you want to invest in. To that end, you can pick gold bullion, gold coins, paper gold or any of the other types we’ve discussed. From there, the method that you use might be different depending on the type of gold that you choose to invest in.

You can also buy modern gold coins from banks! And actually, one of the best ways to find these coins at a good price is often to travel. It’s well established that Hong Kong offers some of the best value gold and if you head to Queen’s Road in Hong Kong, then you can get gold very affordably from well recognized banks.

Of course a flight to Hong Kong is rarely going to be cheap, so this will work best if you already have a trip planned or if you have friends and relatives overseas.

For example, if you just want to invest in gold jewelry, then your job is very simple: just have a look for a jeweller or a pawn shop in your local area and look for any gold items they may have. The key to this type of investment is knowing what you’re buying. Thus, it will pay off to do some reading first and to learn about different types of jewelry.

Scales Holding Dollars and Gold

Of course, you can also haggle with gold sellers to get the best price and it’s worth hunting around eBay and markets to try and find deals. This is also essentially how you might go about buying collectible gold coins. Make sure you know the current value of gold, so that you can use this as a point of reference when assessing deals and offers.

If you’re interested in buying shares in gold companies, in gold options, or in buying gold exchange-traded funds, then you can go through any normal stock broker in order to find good investments. It’s actually possible

Buying Gold Bullion

As for buying gold bullion or investing in precious metals, you will likely find yourself going through an online broker in most cases. Different brokers will charge different rates for their service, so to maximize your investment you need to do your research and find the best companies.

Holding Gold Bar in Hands

It’s also not uncommon to hear horror stories of investors waiting months to get their payments – so do your research and use a little critical judgement. Look for larger and better recognized dealers and be sure to shop around and compare different rates.

An advantage of buying online though, is that many online gold brokers will partner with banks and other companies that can offer to store your gold for you. This avoids the scenario where you’re keeping gold bullion under your mattress or buried in the garden.

Again, do your research and be very critical when choosing these companies. BullionVault is an example of a company that you can buy gold and silver through online and that will then store it in vaults in Switzerland, London or New York. It has regular audits and can physically deliver gold if you wish it.

Storing your own gold is of course an option though if you do want to take that route. Here, you will have the option of either storing your gold in a safety deposit box with a bank, or of storing it in your actual home. If you choose the latter, then just make sure you have a big insurance policy to cover it!

Selling Gold

Finally, you’ll have to actually sell your gold again in order to liquidize your assets. When you do this, you’ll once again be at the mercy of dealers and will often find yourself getting up to 5% less than the market price. Again, you’ll need to shop around and make sure you go in armed with information.

Gold and Dollars on Pile

As a side note, if you happen to have gold or silver items around the hoes such as old jewelry you no longer want to wear, or gold cutlery, then you may be able to sell this to various gold dealers online or at a pawn broker for a bit of extra cash.

For more information on buying and selling gold, visit our articles page or check out some of our book reviews for even more detailed information.

Conclusion

As you can see then, there are a ton of different ways that you can invest in gold and subsequently sell it on. In the majority of cases though, investing in gold will mean buying gold bullion through an online gold dealer and having it stored for you. Make sure to shop around and arm yourself with information and this can be one of the safest way to add some stability to your portfolio.

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