Gold is one of the most coveted precious metals in the world since the origins of civilization. Moreover, today, its search and extraction forms part of a very important industry.
Whether due to its scarcity, its use in jewelry, being considered a safe haven asset, or having been part of international monetary systems for many years, we are dealing with a mineral of vital importance in the economy.
But, did you know that you can invest in gold from your home without needing to accumulate heavy bullion bars?
As we always say at Forexdominion, know what you’re investing in! To help you learn how to invest in gold, we have created this complete guide, in which you will discover the reasons to invest in gold, its historical performance, and the different ways to invest in it.
This is the first guide in a series of 4 guides:
- How to invest in gold? (you are here)
- Why invest in gold?
- Is it profitable to invest in gold?
- What factors affect the price of gold?
Additionally, Carlos Pareja recorded a video very recently with tips on investing in gold. Explaining the ways to invest in physical gold and ETFs, with an interesting search tool.
5 Ways to Invest in Gold
We can differentiate two ways to invest in gold:
- Buying gold physically
- Acquiring financial products (that replicate its behavior or have it as an underlying asset). Within financial products we find 4 different ways, which we will see below in more detail.
1. Physical gold investment
If we choose to buy gold in physical format, you need to know that there are different ways to obtain it:
- The most popular form is the bullion bar, of which there are more than 30 types based on their shape and size. Most physical gold investors choose this form, since the purity of gold in this format exceeds 99%. Additionally, in most countries its purchase is exempt from VAT since it is considered an investment.
- Another quite famous way to acquire gold is in the form of coins, where their value will depend on the karats they contain.
- One of the problems with this type of investment is storage cost. We recommend that you store physical gold in a safe place, so think carefully about where you’re going to keep it before acquiring it!
Financial products to invest in gold
The other 4 ways to buy gold are through financial products, but with completely different formats:
- Investment in mining stocks. They have the disadvantage of not exactly mimicking the behavior, since they are companies.
- Investment in exchange-traded funds (ETFs) that replicate gold’s behavior. Probably the most affordable, liquid, cheap option that best replicates gold’s behavior.
- Investment in mutual investment funds. They don’t exactly replicate gold’s behavior and are more expensive, although there is a manager in charge.
Let’s look at each of these options in more detail.
First of all, you should know that to invest in gold through a financial vehicle, the first thing you must do is have an account with a broker. It’s the financial intermediary through which you buy financial products. It’s like the supermarket of financial products.
If we decide to invest in gold through financial assets, we can choose from a wide range of options including the following:
2. Investment in gold mining companies through stocks
You can invest in gold through stock market companies. When we use this form of investment we must know that there is a positive correlation between the price of gold and the stock price of a mining company. Generally, an increase in gold price will cause an increase in their stock price on the market.
However, keep in mind that this correlation is not perfect. A rise in gold price, in principle, will improve the mining company’s income statement, but it doesn’t have to be so. It could be that the company has financial problems and doesn’t reflect the increase.
Some of the most famous publicly traded gold mining companies are:
- Barrick Gold Corporation (GOLD)
- Newmont Corporation (NEM)
- Agnico Eagle Mines (AEM)
- There are also gold mining ETFs:
- In Europe: For example the iShares Gold Producers UCITS ETF (ACC) EUR or the same one in USD and the VanEck Gold Miners UCITS ETF (EUR).
- In America: VanEck Gold Miners ETF and the iShares MSCI Global Gold Miners ETF | RING
*This is merely an example, not at all a purchase recommendation.
This form of investment has the advantage of being able to gain tangential exposure to gold easily, since almost any broker will give you the option to buy this class of stocks.
As a disadvantage, it should be noted that the stock price reflects, apart from the gold price, factors specific to equities, such as the fundamentals of the company in question, the evolution of the specific mining company, or the general market situation.
3. Best ETFs to invest in gold
To avoid the possible difference in replicating gold’s behavior, a better option is to buy an exchange-traded fund.
These funds replicate gold’s performance and are traded on stock exchanges just like individual stocks.
Legally, the fund is obligated to have derivative contracts backed by gold. This way, the ETF investor owns that derivative contract that replicates gold’s price, thus exposing themselves to gold’s returns.
ETFs have the advantage of being liquid, with low management costs, and allow direct exposure to gold.
Some of the best-known ETFs and ETCs that replicate gold are:
- iShares Physical Gold, which in Europe has the UCITS wrapper and would be the iShares Gold Producers UCITS ETF
- SPDR Gold Shares (GLD). Not available in Europe (thanks UCITS Regulation…)
- Invesco Physical Gold (SGLD). Only available in Europe through some brokers.
- WisdomTree Physical Core Gold (WGLD). Only available in Europe through some brokers.
- iShares Gold Trust (IAU). Not available in Europe (thanks UCITS Regulation…)
*This is merely an example, not at all a purchase recommendation.
In Europe, commodity ETFs are usually structured as ETCs (Exchange Traded Commodities), because UCITS regulation doesn’t allow a fund/ETF to have a single component. That’s why you’ll see that when buying from Europe they’re called ETCs instead of ETFs, but the main difference is that it only has one asset.
Pay close attention to which one your broker offers and which one you like best.
If you’re in America, for example the tickers of ETFs you can buy are:
- GLD (SPDR Gold Shares)
- IAU (iShares Gold Trust)
Important! If you’re in Europe you cannot buy US ETFs, due to European regulation they must have another vehicle (that is UCITS compliant).
Instead, an example of a gold ETF you can find from Spain is this iShares one:
- PPFB.DE (iShares Physical Gold ETC)
*Remember, the ETFs mentioned are an example, not at all a purchase recommendation; for that it’s necessary to know your investor profile and your financial objectives.
4. Best gold investment funds
There is another fund option, although it usually doesn’t replicate gold’s behavior as faithfully and has higher associated costs.
The main advantage of investing in gold this way is that behind the fund there is professional management, so the manager will focus on generating value for the participant in exchange for a management fee.
The disadvantages are precisely these costs associated with fund management, which can harm its profitability.
Among the main gold investment funds we find:
- BlackRock Global Funds – World Gold Fund (LU0055631609).
- Invesco Gold Special & Special Minerals (LU0503253931).
- Franklin Gold & Precious Metals (LU0496367763).
*This is merely an example, not at all a purchase recommendation.
Both traditional investment funds and ETFs and ETCs have two types of funds when it comes to replicating a commodity. They can do it with a physical asset (physical gold or a debt security backed by gold) or they can replicate it synthetically through financial derivatives. The way they replicate it you can read in the fund’s fact sheet.
5. Gold financial derivatives
Financial derivatives are some of the alternatives for experienced investors seeking some type of hedging, thus minimizing the risks that derive from the fluctuation of the underlying asset’s price.
Remember that derivatives are complex products, which by their nature are leveraged and are not recommended for retail investors. These are futures on gold or options on gold.
Moral: before investing in any financial vehicle, it is crucial to do proper research, understand the associated risks and, if necessary, consult with a financial advisor. It is also vital to consider the tax implications and transaction costs associated with each option.
We have prepared this guide to make your life easier. So keep reading to see the best ways to invest in gold.
Step by step to buy gold
To invest in gold through a financial product, such as an ETF, you have to follow these steps:
- Open an account with a broker that offers the ETF you’re interested in, with low purchase and custody fees.
- Deposit money in the broker.
- Search for the ETF by its ticker (for example GLD or PPFB) or its name (for example SPDR Gold Shares or iShares Physical Gold ETC).
- Click invest and select the amount you want to buy.
- Monitoring. Don’t forget to monitor your investment.
Where to buy gold ETFs?
As we have seen, the first important step to invest in gold is to have a broker through which to buy gold. Only this way can you carry out purchase and sale operations in the market.
If you don’t have an account with any broker, in my opinion these are some of the best brokers to invest in gold ETFs, due to their low purchase fees, low custody fees and their ease of operation.
| Broker | Platinum Instruments | Trading Conditions | Minimum Deposit | Broker Review |
|---|---|---|---|---|
HF Markets | -CFD on platinum spot | Spreads: From 6.6 pips Leverage: 1:100 | 5 USD | Review |
EXNess | -CFD on platinum spot | Spreads: From 20.6 pips Leverage: 1:100 | 10 USD | Review |
RoboForex | -CFD on platinum ETFs | Spreads: From 6.6 pips Leverage: 1:10 | 10 USD | Review |
ICMarkets | -CFD on platinum spot | Spreads: From 10 pips Leverage: 1:100 | $200 | Review |
XTB | -CFD on platinum spot -Platinum ETF | Spreads: From 10 pips Leverage: 1:100 | $100 | Review |
Tickmill | -CFD on platinum spot | Spreads: From 3 pips Leverage: 1:100 | $100 | Review |
FBS | -CFD on platinum spot | Spreads: From 4 pips Leverage: 1:100 | $5 | Review |
Opening an account is a process that is usually quite easy. At the beginning you will have an investor profiling questionnaire. It’s important that you don’t lie.
It’s crucial so that you receive recommendations (and even permissions to contract) for financial instruments adjusted to you as an investor and not end up looking for coins even in the sofa cushions.
Once you finish this entire process, the next step will be to make a transfer to your broker’s cash account. This account is something like a kind of checking account, but one that you will only use to make purchases through the broker you have chosen.
