4 Ways for Beginners to Start Investing in Gold
You can invest in gold by buying the physical asset, buying a physical or synthetic gold exchange-traded commodity (ETC), or through types of gold miner shares.
Gold has been highly prized since the earliest of civilisations, and today it is still held in high esteem as the ‘safe haven’ in times of trouble. Gold can make sense as part of a properly diversified investment portfolio, and there are a few ways to own it.
The price of gold
Investors tend to turn to gold when markets are falling and times are uncertain. It certainly proved its mettle (pardon the pun) during the coronavirus pandemic and the resulting market turbulence in 2020.
Gold peaked above the $2,000 an ounce mark in August 2020 to set a new record. At the time of writing, gold was still performing strongly, priced at $1,715 an ounce.
But there could be new record highs as some experts predict another gold price surge ahead.
How to invest in gold
You can hold gold in various ways, and there are benefits and downsides to each.
1. Buy the physical asset
You can hold gold in the form of gold bars, coins, or even jewellery. The downsides are that you then have the costs of secure storage and insurance. To buy physical gold, you could use a specialist site which stores physical gold for you, buy coins direct from the Royal Mint, or simply get yourself down to the jewellers and buy yourself some.
2. Buy a physical gold ETC
You can buy exchange-traded commodities (ETCs) which hold the physical asset so the product you acquire is backed by actual gold. These can be bought like shares on a stock exchange.
3. Buy a synthetic gold ETC
These products are not backed by physical gold, instead they use derivatives, which are a financial instrument whose value is based on an underlying asset, to give you a return linked to the performance of the gold price. They tend to be more complicated than other types of funds so could come with additional risk and are best left to the experts.
4. Buy gold miner shares
You could buy individual shares in gold miners through a share trading platform or stockbroker. However, this is a high-risk strategy as your exposure will be highly concentrated, and gold mining shares can be volatile, although you might benefit from dividend payments. Bear in mind also that gold mining stocks don’t tend to perform in line with the gold price because there are many other factors that affect their profitability and share price. A lower risk option might be to consider an ETF that tracks the performance of a basket of gold mining companies.
A more mainstream option is to hold an actively managed gold fund (meaning decisions are made by a human fund manager, not a computer algorithm), which should give you a range of gold mining shares, as well as exposure to other businesses involved less directly in the gold industry. You could also choose a broader precious metals or commodities fund that invests in other areas as well as gold, to spread your risk. Many all-purpose multi-asset funds, especially those labelled ‘cautious’ or ‘defensive,’ are also likely to have some exposure to gold.
Is it safe to invest in gold?
Gold’s ‘safe haven’ moniker is misleading because, in truth, no investment is ‘safe’. The element of risk is what brings the potential for reward. Like any investment, the price of gold can go down as well as up and, while we know from history in what environments it usually outperforms, there are no guarantees. Past performance is no guarantee for future performance. Rather than treat it as a quick fix asset to hold when markets get challenging, you might consider making gold a permanent fixture in your portfolio simply for reasons of balance.
Holding gold through a suitable, regulated investment fund bought through a reputable platform is probably quite a lot safer than keeping a jewellery box full of gold at home. It’s just a shame your gold ETC doesn’t look as glamorous with your little black dress.
WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in.
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Hannah is an award-winning journalist with a background in the trade press. She writes about finance, asset management and business for Shares, Citywire, FE Trustnet, and interactive investor. Read more