Best ways to invest in gold – get the right question

When you want to invest in gold, you can do it in different ways, which I will discuss in this article. Besides the way to invest it is also important to look at the when to buy.

You can invest in gold

  • coins
  • bullion (bars)
  • mines / companies / shares
  • mutual funds
  • exchange traded funds
  • Gold future contract

Gold history

Gold has a very long history and therefore investing in gold is besides the pure investing decision an emotional decision. Gold has been always a means of payment and people argue, that it´s value is stable over the time. 2000 years ago you could fit out yourself with one ounce of gold and today you can do the same. One suit, a pair of shoes and a coat you will get for approximately $1,200 USD.

This statement makes clear, that investing in gold is only value conservation, it is nothing about value appreciation.

Nevertheless there have been changes in value. For example, in the gold rush the supply of gold rose and the value of the gold decpriciate.

But the fact, that it’s value is very stable, it makes the value depreciation of the paper money very visible, which is not well seen by the government. Therefore, they try to avoid this competition, because the paper money will lose. There is one easy way to avoid this competition: Prohibition.

The list of gold prohibition is very long and old. For example, during the French revolution from 1789 until 1796 the french government bans privat gold possession by death penalty. In 1796 the paper money broke, i.e. had no value.

Well known is the gold prohibition in the United States from 1933 until 1974. All American people had to deliver their gold to the government and got 20.67 USD per ounce . Half a year later the administration raised the gold price to 35 USD per ounce , but nobody could change the gold for this price because they had to deliver their gold earlier.

Similar things happened in Germany during the great inflation in 1923. Authorities confiscate Gold and foreign currencies without any compensation, though one year later, after cancelling the law and the introduction of a new currency, the court decided, that there has to be a compensation.
Some years later during the rule of the nazis the prohibition arose again and lasted until 1955.

This few events show clearly that government don´t like competition, if this is against their own interest and therefore excludes the competition if necessary. As a gold investor, you should keep in mind these facts and behavior.

Before you invest in gold you should also consider, what you want to achieve with your investment, for example

  • capital gains
  • value conservation
  • a valuable exchange for “bad” times

If you are interested in the last point, make sure that the possession of gold is still possible and that you have a direct access.

Invest in gold coins

There are a lot of coins in circulation, which are well known and of different size or weight. So every investor can choose what size fits him best. If you bought it because of “bad” times, make sure, that the coin is well known, accepted and that you have access to it. Believe me, in “bad” times you don´t have access to a bank locker. If the coin is unknown, you will suffer a big loss, because nobody wants it.

Invest in gold bar

In general gold bar are cheaper than gold coins, because the manufacturing is easier. Also gold bars can be delivered in different sizes, up to 400 ounces (12 kilogramm). The other points are the same as for gold coins.

Mines / shares / companies

The investment in shares is for investors, who believe that the gold price will rise. If the gold price rises, the share price of gold mining companies goes up a lot faster, because their profit goes also up faster. But also the other direction in possible. If the gold price should decrease, it could be, that the company can’t sell the new gold above carrier cost and suffers losses. The worst case would be bankrupt.

Mutual funds

The NYSE Arca Gold BUGS Index is a well known mutual fund, which contains international gold mining companies. Mutual funds try to balance the risk of individual companies but if the gold price is decreasing, their value will decrease as well. But if you are bullish for gold, you should consider this investment. For further information about mutual funds and ETFs take a look at my article: “Mutual fund vs ETF comparision“)

Exchange trades fund

ETFs are the cheaper version of mutual fonds with the same advantage. Furtheron if you should think that the gold price will decrease, you can choose an ETF, that has an inverse price development. This means, if the gold price goes down, the price for this ETF will go up, for example the DB Gold short ETN (DGZ).

Gold future contract

If you really want to trade the gold price, you should think about the gold futures contract. It is highly leveraged and you can trade it long and short. But as I mentioned, this is for trading, not investing.

Conclusion

The best way to invest in gold depends on your aim, capital gains, value conservation or as a valuable exchange in “bad” times.
If you are interested in capital gains, you might consider the gold futures contract, ETF, mutual funds or shares.
If you are interested in value conservation, you might consider a bundle of ETF, mutual funds or shares and perhaps some coins or bullions.
If you are interested in a valuable exchange in “bad” times, you should consider coins and bullions with direct access.

I hope, that I could show you some insights and alternatives about the best ways to invest in gold and would like to hear your opinion.

Thank you.

8 thoughts on “Best ways to invest in gold – get the right question

  • 11. April 2016 at 18:29
    Permalink

    I’ve been thinking about investing in gold for a while now. Your post covers a lot of terms I had not known about. Valuable exchange may be the best option for me since I am just thinking about holding it for a rainy day so to speak.

    Reply
    • 11. April 2016 at 18:49
      Permalink

      Hello Jaron,
      thank you for your comment. I’m glad, that I could clarify your thoughts, why you want to invest in gold. The next step will be a lot easier then and your expectations about the return of investment will be more accurate.
      Thanks
      Bernd

      Reply
  • 11. April 2016 at 21:09
    Permalink

    I found this article about investing in gold very interesting.
    My husband and I, are always looking for ways to diversify and invest and he enjoys purchasing coins. This gave me a good picture of the history and different ways to do it.

    Appreciate the help,
    Thank you,
    Vicky

    Reply
    • 12. April 2016 at 10:56
      Permalink

      Hello Vicky,
      thanks you for sharing your thoughts. I’m glad that I could deliver a border picture about the gold history and the different investment possibilities.
      Bernd

      Reply
  • 12. April 2016 at 13:24
    Permalink

    Hi Bernd, thanks for the interesting article. I’ve been thinking about investing in gold and all the information I found in your post are really helpful.

    Reply
    • 12. April 2016 at 15:31
      Permalink

      Hello Elektra,
      thanks for your comment to this article about gold investment. I’m glad that I could help you with your investment idea.
      Bernd

      Reply
  • 14. April 2016 at 4:25
    Permalink

    Hi Bernd.

    Very informative article. I’m totally agreeing with you that there are different ways of investing in gold for different purposes.

    Because I read history I’m a little bit concerned about confiscation of gold in the future. Like you say we have seen it before. I try to keep my gold close in case of an emergency.

    I do however believe that gold have a huge potential for value gains. So for me it’s not just a safe investment, I also think that I will see a big increase in my investment. But only time will tell.

    Thank you for raising the question about gold. It’s an very important aspect of investing and I believe that every healthy portfolio should have 10-20% of their equity in physical gold. As a safe haven.

    Marcus

    Reply
    • 14. April 2016 at 10:40
      Permalink

      Hello Marcus,
      yes, maybe you will be right, that the gold price will rise in future. I mean, we saw already prices of 1800 USD per ounce. This price would be an increase of approximately 50%, which would be great. On the other hand I think that the decrease of the gold price is not very likely, because there is a lot of physical demand and countries like russia and china buy a lot of gold.
      I share your estimation about the fraction of gold, that should be in a portfolio.
      Thanks a lot for your valuable comment.
      Bernd

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

*