There are many ways for investors to get exposure to gold. Each has advantages and disadvantages; no one method is right for all investors. Which type of gold investment is right for you depends on your reasons for purchasing gold and your investment strategy.
Physical Gold Investments
Gold investment can come through actual physical gold. Buying gold coins or bullion bars that you can hold in your hand is one way to invest in this metal. Many investors prefer this tangible form of gold investment.
It is particularly popular among those who are buying gold coins because of the possibility of an economic catastrophe rendering paper currency worthless. Others prefer gold coins because they like to physically hold their purchase.
Another market for physical gold comes in the form of jewelry or numismatic investments. These investments carry more value as collectibles than pure bullion, which makes them a bit harder to value as you are paying for more than just the gold in the piece.
Paper Gold Investments
Other ways of investing in gold do not involve physical possession of the metal. “Paper” gold investments are available in a variety of forms. Options include exchange-traded funds (ETFs), shares of which are bought and sold on the stock exchange. ETFs track the price of gold through changes in the value of bullion held by a trust.
There are also gold mining stocks for those who wish to invest in the producers of gold. Another form of paper gold investments, gold futures, are an arrangement to trade gold on a date several months into the future, with amounts and prices agreed upon now. Finally, you can invest in gold “on account”, which means purchasing physical gold bullion that is stored in a depository.
Paper gold investments tend to be lower cost than when buying gold coins, as there is little to no cost over the price of the metal itself. However, there are often annual fees associated with fund maintenance, gold storage, or other aspects of paper gold investment. In contrast, gold coins or bars stored at home incur no fees beyond the initial cost of the metal.
Paper gold investments tend to be more liquid than holding gold bullion. If you have invested in gold coins and wish to sell them, it is necessary to contact a dealer and arrange to sell the coins. On the other hand, most paper gold investments may be traded online with the click of a mouse.
No physical gold will actually change hands, making buying and selling paper investments faster and more efficient. If you plan to hold onto your gold investment for only a short period of time, paper investments enable you to take advantage of price changes to buy and sell quickly.
Many investors prefer paper gold because there is no need to find secure storage, unlike with coins or bullion. However, in the event of an economic collapse, gold bullion stored in a home safe would be more secure than paper investments.
When investing in gold, it is important to consider the tax implications of doing so. Purchases of gold coins and bullion may be subject to the local sales tax in the location where the sale is made. When selling gold coins, the profit is typically considered a capital gain, and subject to a 28% capital gains tax on collectibles.
The tax implications of investing in other forms of gold, such as ETFs or mining stocks, varies. In general, the taxes are lower when investing in paper gold than in physical gold bullion, though this is not always the case.