Do You Know The Basics Of Gold Stocks, ETFs & Bullion?
When looking to buy gold stocks, investors have a few choices. Aside from buying gold bricks, investors can either buy ETFs or mutual funds that deal in gold, or they can purchase futures for gold as a commodity. With the markets moving up and down due to a great deal of uncertainty surrounding COVID, investors have moved toward gold investments in the past few months.
Is Buying Gold Bullion Better Than Gold Stocks?
Gold is considered to be one of the most valuable commodity assets that an investor can buy. Of course, investors can choose to purchase gold bullion in the form of the shiny yellow metal. If you’re looking to buy gold by weight, investors can choose to purchase anywhere from a quarter ounce all the way to a 400 ounce brick of gold. In addition, investors can also choose to buy vintage coins for their gold value, but this can present some liquidity challenges.
If investors buy well circulated coins, they can have an easier time selling them if the time comes. In addition to gold coins, investors also have the option of investing in gold jewelry. If you want to go with this option, you may run into issues regarding the purity of the jewelry if it is not from a reputable source.
For investment sake, jewelry may not be the best way to go as sentimental value can outweigh the intrinsic value. In addition, it can be difficult to securely store gold bullion or jewelry if investors don’t have access to proper safes or places to keep it. But, this is still an opportune way to purchase gold as an asset.
Buying Gold ETFs and Mutual Funds
Because buying gold bullion can be challenging, some investors choose to purchase ETFs or mutual funds that deal with gold. This can be a much easier way to get into investing in gold. In addition to having more liquidity than physical gold, Gold ETFs and mutual funds can be bought at almost any price. One option for investing in gold on the stock market is SPDR Gold Shares (GLD ETF Report). This is considered to be one of the oldest ETFs of its kind.
Just like any other stock, GLD stock can be traded during the trading day with most brokerage accounts. Each share of this ETF is equivalent to 10% of the current per ounce price of gold. For example, if gold is worth $1,300 per ounce, shares of GLD stock will be $130 each. As opposed to physical gold, gold funds can be more volatile due to their placement on a trading exchange. But, the potential for appreciation of the asset remains the same.
Buying Gold Futures Options
Investors who have more experience trading commodities, may find themselves looking at gold futures and options. Options can be more expensive than purchasing a share of a stock, but the upside potential is also much greater. For those who don’t know, options are essentially a play on whether or not the underlying asset will go up or down. If it goes up, traders are able to exercise their options at the price they purchased it for.
But, if it goes down, investors are left with a valueless option contract. The largest amount of risk that an investor will have is the amount that they purchased the contract for. Investors who want to trade gold options can do so on most brokerage sites. These options are available on most exchanges as well including the Chicago Mercantile Exchange among others.
Buying Gold Mining Stocks
If all of the above options don’t seem like the right choice, investors can always turn to gold mining stocks. While gold mining stocks do represent the price of gold in one way or another, they don’t necessarily rise and fall in correlation with gold bullion. Rather, gold mining stocks move in relation to the mining company itself as well as the price of physical gold.
In this case, investors should make sure that the mining company is financially stable, and has a large amount of gold to mine. With gold mining stocks, investors should use traditional market indicators to determine whether or not it is a gold mining stock to buy. These stocks can be a great way to maximize market exposure, without having the security risk of holding physical gold.
The Bottom Line
When it comes to diversifying ones portfolio, investing in gold can be a great way to go. ETFs present a very interesting investment opportunity as it gives solid market exposure with little volatility. But, if you are an investor looking to avoid market volatility completely, a physical gold brick may be the best option. However you go about investing in gold, investors should make sure that they know their investment strategy, to pick the best option overall.
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