How To Start Investing in Gold
Investors are taking a newfound interest in Gold this year.
Here are some of the reasons they are citing:
- BRICS launching a Gold-backed currency
- Central banks wildly printing fiat currencies
- Governments spending money like it was printed out of thin air
- Inflation showing up everywhere except in the government statistics that track Inflation
- Opening a Gold IRA
- The ‘Everything Bubble’ popping
- Protecting retirement funds with a proven asset
(5,000 years and counting…)
- Geopolitical tensions rising around the planet
- The latest installment in a long series of 'forever wars'
Regardless of what brought you here today, welcome. You are among friends.
When you consider how to start investing in Gold you may be thinking about any number of factors:
- Storage of wealth in case of Global Economic Reset
- Hedging against Inflation and ongoing monetary debasement
- Diversifying a traditional retirement Portfolio of stocks and bonds
- Gaining exposure to a potential high return Investment
- Leveraging the rising price of Gold with Mining stocks
There are several options we can consider when we think about how to invest in Gold. Let’s take a quick, high-level view at the different ways we can own Gold.
Investing in Gold
The first step when planning how to invest in Gold is clarify the difference between physical Gold and Gold-related securities.
Physical Gold Bullion
The foundation of a Gold Investment Portfolio is physical Precious metal under your personal control.
Gold Bullion Coins and bars are preferred over numismatic Coins.
Bullion Coins and bars typically sell for a small premium over the daily price of Gold. As Investor demand for Bullion overwhelms available supply, however, these small premiums can become large. This behavior is being displayed in the physical Silver markets starting in mid-2020 and continuing into the present.
Premiums for physical Gold Bullion also vary based on the mint of origin and metal weight of the Coin or bar.
Gold-related securities
Gold-related securities derive their value from the physical metal but do not offer the Investor an easy way to take personal possession of physical Gold.
These securities allow an Investor to gain exposure to Gold and the benefits that a Gold Investment can provide:
- Physical Gold Trusts and ETFs
- Mining stocks, warrants, and options
- Gold IRAs
- Gold futures
- Options on Gold futures
How to buy physical Gold
Let’s focus specifically on physical Gold now and how we can obtain an ownership interest in the physical metal.
There are three levels of possession we can talk about when we look at how to invest in Gold Bullion:
Personal possession
The Investor can physically hold the asset in their hands and no other individual or entity has an ownership claim on the asset.
Personal possession, removed storage
The Investor can travel to another location and physically hold the asset in their hands. No other individual or entity has an ownership claim on the asset.
Third-party possession and storage
The Investor controls 100% ownership of the asset but it is unlikely that the individual will ever physically hold the asset in their hands.
Personal Possession
The ideal way to own physical Gold is to hold it in our personal possession.
Depending on our circumstances and preferences, personal possession might look like any of these options:
- A few Gold Coins displayed on the dresser at home or the desk at work
- A ‘grab-and-go’ survival bag with one or two ounces of 1/10th ounce Gold Coins
- A home safe or a sealed PVC pipe buried in the garden
Regardless of how we choose to take personal possession of physical Gold, there are some ground rules that must be considered:
#1: “Never talk about Fight Club”
Nobody, including your beer buddies, needs to know that you are investing in physical Precious metals. What you do with your wealth is none of their business.
#2: “I lost my Gold in a boat accident”
If anyone gets a hint that you might possess physical Gold and they ask you about it, the answer is always, “I lost my Gold in a terrible boat accident, it’s too painful to talk about.”
Personal Possession, Removed Storage
Our next option for investing in Gold Bullion is to take physical possession of the metal and store it in a remote location.
Remote locations fall into several categories:
Bank safety deposit boxes
Check the fine print for what can and cannot be stored in a safety deposit box. Most banks no longer allow or insure Precious metals storage in their safety deposit boxes.
Private commercial storage
In major cities private companies offer secure vaulting services for valuable items. These facilities are unlikely to provide 24/7 physical access to the vaults.
Farmer Joe’s back 40
“It’s down that dirt road a piece. When the brown cow moos at you hang a sharp right. Then follow the windbreak towards the old dried-up creek…” ‘Nuf said.
Third-party Possession and Storage
This form of Gold Bullion ownership is less desirable than our previous options, but it may make sense for Investors who:
- want to invest in more physical Gold than they are able to store locally
- want to invest in physical Gold using tax-favored retirement funds like a Gold IRA
Our main choices for third-party possession and storage of Gold Bullion are:
- Gold ownership certificate programs like the one offered by the Perth Mint in Australia
- Gold IRAs
Gold Ownership Certificate Programs
Gold ownership certificate programs typically allow the Investor to choose between allocated and unallocated metal storage.
In an allocated certificate program a designated amount of physical Gold is set aside and stored specifically for you.
Unallocated, or pooled certificate programs set aside physical Gold but the metal is jointly owned with other Investors.
Pay the extra fees to participate in allocated Precious metal certificates if this form of Gold Investment makes sense for your Portfolio.
Gold IRAs
Gold IRAs provide an alternative Investment for Investors seeking diversification and long-term capital appreciation through exposure to the Precious metals inside their tax-favored retirement accounts.
A growth trend in available Gold IRAs began during the Precious metals bull market which ran from 2002 to 2011.
After the financial crisis of 2008 Gold IRAs became widely available as many companies jumped into the market hoping to profit from this new Investment trend.
How to Invest in Gold Online
Investing in Gold online can be accomplished using any of these vehicles:
- Physical Gold Trusts and ETFs
- Mining stocks, warrants, and options
- Gold IRAs
- Gold futures
- Options on Gold futures
Physical Gold Trusts and ETFs
There are three major physical Gold trusts:
Sprott Physical Gold Trust (PHYS)
SPDR Gold Shares Trust (GLD)
Gold Trusts offer Investors an easy way to gain exposure to the price of physical Gold.
Unfortunately they also create the illusion that the Investor owns physical Gold when they hold shares of the Trust.
For example, GLD allows authorized Investors to convert their shares of GLD to physical Gold if they choose to. There is the requirement, however, that shares can only be converted in baskets of 100,000.
That means an Investor would need a GLD position of about US$16.35 million (04/09/2021) before they could potentially convert. Then they would have to figure out what “authorized” means.
Investors who take the time to read the GLD prospectus will find that the physical Gold allegedly held within the trust is allowed to be held by sub-custodians. Further reading will reveal that the Trust does not require sub-custodians to audit their alleged physical Gold holdings or to maintain legal chains of custody.
Some analysts and market pundits suggest that GLD was intentionally created in order to divert Investor demand away from physical Gold. As always, perform your own due diligence before investing your hard-earned money.
If investing in a physical Gold Trust makes sense for your Precious metals Portfolio, check out the Sprott Physical Gold Trust. In contrast to GLD, the prospectus for PHYS is refreshingly straightforward and transparent. The Trust buys physical Gold, stores it in a secure location, and maintains auditable control of the metal at all times.
Mining Stocks, Warrants, and Options
Mining stocks tend to magnify Gold’s price movement by a factor of two or three. If Gold gains 30% during a price movement the mining stocks are likely to increase by 60% or more.
Investors seeking leverage to the bull Market trend in Gold will want to assemble a Portfolio of select Mining stocks.
There are multiple categories of Gold mining companies that an Investor can select from. They are listed below in order of most conservative to least conservative:
- Dividend payers
- Royalty / streaming companies
- Producers
- Emerging producers
- ETFs – GDX, GDXJ
- Exploration and development companies
The sweet spot in the current Precious metals bull Market trend is likely to be the emerging producers. At a minimum, the market will reprice these Gold mining companies upwards as they begin to produce physical metal. Some of these fledgling companies will become acquisition targets as the major mining companies struggle to replenish their reserves.
Stock warrants offer an Investor the right to purchase a company’s stock at a specified price within a specified time frame. For the most part, warrants can be ignored, although Investors in junior mining companies may end up with warrants in their brokerage account when a miner spins out a new company and provides warrants along with the new shares.
Stock options also offer Investors the right to buy or sell a stock at a specified price within a specified time frame. Trading options is a high-risk strategy that is inappropriate for most Investors.
Gold IRAs
It is certainly possible to setup a Gold IRA online but many Investors will appreciate the fact that the best Gold IRA companies offer personal guidance over the phone in addition to their online help.
As a starting point in your research, consider these Gold IRAs offered by companies specializing in the Precious metals. Each of these companies has an A+ rating by the Better Business Bureau (BBB) in the US or Canada:
Gold Futures
Qualified Investors can trade Gold futures in online accounts if their Broker-dealer authorizes them to do so.
Trading Gold futures is a high-risk endeavor. In addition to normal market risks, futures involve the risk of assignment. As always, consult a qualified Investment advisor before putting your hard-earned money at risk.
Options on Gold Futures
Options on Gold futures are like stock options. They offer Investors a leveraged way to gain exposure to the price of Gold.
As a speculative Investment, options on Gold futures are preferable to the futures themselves because there is no risk of assignment with options.
Physical Gold ETF
When Investors talk about Gold ETFs they are often referring to the Gold Trusts that we discussed above:
- SPDR Gold Shares Trust (NYSE: GLD)
- iShares Gold Trust (NYSE: IAU)
- Sprott Physical Gold Trust (NYSE: PHYS)
These ETFs offer Investors exposure to the price of Gold along with the illusion that holding shares of the ETF somehow translates into physical ownership of actual Gold Bullion.
Another common type of Gold ETF focuses on the Mining stock sector. GDX (VanEck Vectors Gold Miners ETF) (NYSE: GDX) is the largest by a wide margin. GDXJ, the VanEck Vectors Junior Gold Miners ETF, is marketed as a junior mining stock ETF but most of the component companies are mid-cap or large-cap miners, not juniors.
ETF Investors appreciate the convenience of a vehicle that gives them exposure to the broad Mining stock sector. With some research and due diligence, better returns are possible investing in individual Mining companies.
Safest Way to Invest in Gold
The safest way to invest in Gold is to purchase physical metal and hold it in your personal possession.
This removes any question of who owns the asset or whether you are able to access the asset when the need arises.
As a second choice, private storage facilities are available in large cities. If this is an option, you can take personal possession of Gold Bullion and store it at a local vaulting service.
There is a risk of buying fake or counterfeit Gold if an Investor isn’t careful these days. Many of the Precious metals products offered on platforms like eBay are being sold by companies in foreign countries where counterfeiters are known to setup shop.
To minimize the risk of being defrauded, buy from a local coin shop if at all possible. A reputable dealer has the equipment and experience to detect fake Gold and keep it out of their store.
Best Way to Invest in Gold
An effective Investment strategy is to determine what worked last year and then repeat that strategy in the coming year. In 2023 we would search for, "best way to invest in Gold 2022". In 2024 we will be searching for, "best way to invest in Gold 2023".
While there are many ways to define the word “best”, it is likely that our search for the best Gold Investment will lead us yet again to Gold Bullion held in our personal possession.
Here are some tips for making the best Investment possible in Gold:
Lowest premium to price of Gold
For most of our physical Portfolio we want to invest in Gold Bullion coins and bars from the major mints.
Our primary objective is to get the most weight of metal for our money.
Ask your Coin dealer what she has available with the lowest premium to the price of Gold.
On some days it will make sense to pay a little extra for pre 1933 Gold Coins, other times it will be Gold Bullion bars and Coins that makes the most sense.
Any of these Gold bullion Coins are fine: American Gold Eagles and Buffalos, Canadian Gold Maple Leafs, Australian Gold Kangaroos and Nuggets, Austrian Philharmonics, Mexican Libertads.
And remember, the objective is to buy the most physical weight for a given amount of money.
Pre 1933 US Gold Coins
Prior to 1933 Gold Coins circulated as currency in the US.
These beautiful Coins are considered collectibles (numismatics) today because of their age and scarcity.
In addition to the premium paid for any Gold Coin, collectibles carry an additional premium for Numismatic value.
For example, today (04/10/2021) APMEX is offering an extra fine (XF) $10 Indian Head eagle Coin (0.48375 ounces Gold) for $1,127 which represents about a 34% premium to the price of Gold.
A ½ ounce Australian Gold Kangaroo Bullion Coin from the same dealer costs just 13% premium over Gold.
The Kangaroo Coin offers more Gold for the money so it is the logical choice to make.
Paying the extra premium for the Indian Head (or other Numismatic Gold Coin) might make sense if you want to appreciate the coin's beauty. Some Investors pay the premium for pre-1933 US Gold Coins because they believe those Coins have a lower risk of confiscation.
Beauty
There is nothing wrong with purchasing some Numismatic Coins as part of your Portfolio.
Some of these pre 1933 US Gold coins are absolutely stunning.
Have a Coin or two out on your personal desk or dresser where you can appreciate the yellow metal.
Gold Confiscation Risk
Some dealers try to push pre 1933 US Gold Coins claiming that they are less likely to be confiscated if the US government decides to recall Gold again like it did in 1933.
These dealers point to a distinction made in the 1933 Gold confiscation law where Gold currency had to be turned in but collectible Gold Coins could be kept.
Let’s recognize this tactic for the marketing hype it is.
The US is no longer on a Gold standard and doesn’t use Gold for currency. The 1933 law has no relevance to today’s Investor.
If a Precious metals dealer pushes you towards Numismatic Gold Coins they are looking out for their own best interest, not yours. There is no reason to pay a premium for Numismatic Coins unless you want to appreciate them as beautiful works of timeless art.
Conclusion
In this short article we have talked about how to start investing in Gold.
Knowing how to invest in Gold can be intimidating at first but the knowledge is readily available for motivated do-it-yourselfers. There are also Investment advisers who specialize in the Precious metals if you prefer to have personal guidance for your Gold Investments.
The best way to invest in Gold will be different for each individual depending on their Investing horizon and tolerance for risk.
If you have questions about structuring a Precious metals Portfolio, send an email to:support @ satoritraders.com.
Hi, my name is Bryan Post and I love the shiny stuff - Silver and Gold.
I've been investing in the Precious metals and mining stocks since 2002 when I realized that Gold is the only real money on the planet.
Here on SatoriTraders.com I share everything I've learned about the metals, Financials markets, trading, Technical analysis, and the numerous games that central banks play with fiat currencies.
