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Gold has been a trusted store of value since human beings have possessed any value to store.

From ancient Rome to modern day China, gold has always been a powerful economic force – a currency without borders, a potent hedge against long-run inflation, and a timeless source of wealth preservation.

But how is gold as an investment in the modern age? Is it worth investing in gold?

 

Investing in gold

 

Disclaimer: This page is intended for informational purposes only. It should not be considered as investment advice. You should speak to a certified financial professional to determine the best investment mix for your specific situation.

Gold as an Investment

Gold has been used as a store of value for over 3,000 years.

In the modern age, gold is still commonly used as a store of wealth by world governments, central banks, individuals and institutional investors. Most central banks own significant quantities of gold (as of 2019, the US government owns more than 250,000,000 troy ounces, worth more than $10 billion). Many large institutional investors and hedge funds also own gold as part of their investment and wealth management portfolios.

What does this all mean to you? Is gold a good investment? Learn all you need to know in our full gold investment guide below!

 

Gold is generally a great store of wealth. Depending on the current economic environment, it can also be a good investment – but its price is volatile. The chart below shows the price of gold in USD terms since 1970:

As you can see, gold can be a volatile asset class. While its value does tend to increase over time, it can go long periods of time without much price movement at all – in some cases even losing value for decades.

What gold has typically done well is help protect against inflation and currency fluctuations over the long-term. Gold bullion prices typically keep pace with or exceed rates of both price inflation and monetary inflation – at least over very long periods of time (during shorter periods, gold is volatile and doesn’t necessarily keep pace with short-run inflation). Gold is also useful in preserving value when currency valuations fluctuate.

It’s also useful quite useful for adding further diversification to your investment portfolio. It’s typically not very correlated with other asset classes, which means adding gold to your investment mix can help smooth out volatility.

We’ll discuss more about the benefits of gold investment further down the page. Now, we’ll cover the best way to invest in gold for beginners and experts alike.

How to Invest in Gold

If you want to invest in gold, you have a few options.

  1. Buy physical gold bullion or coins from a trusted dealer like Bellevue Rare Coins
  2. Invest in gold ETF funds like the SPDR Gold Trust (GLD) or iShare’s Gold Trust (IAU)
  3. Invest in gold mining companies, or ETFs that track an index of gold miners

Additionally, you could also buy gold jewelry, gold certificates, futures contracts, or invest in gold streaming/royalty companies.

Each method has its own pros and cons. We tend to prefer physical gold, but there are some considerations to keep in mind with any method.

Additionally, you may be interested in investing in other precious metals such as silver, platinum and rhodium. See our full guide to precious metal investment for more information.

 

Investing in Gold for Retirement Savings

If you choose to invest in precious metals as part of your retirement portfolio, there are some tax implications to consider. Gold is taxed differently than most investment classes, so you’ll want to speak with a tax adviser for advice on the best way to invest in gold from a tax perspective.

One way to ensure ideal tax treatment is to invest in gold via a self-directed IRA account. These accounts allow you to invest in physical gold bullion, while enjoying the same tax benefits of a normal IRA retirement account.

Click here to learn more about our self-directed IRA program!

 

Physical Gold vs “Paper” Gold

There is an ongoing debate over the “right” kind of gold to hold – physical bullion/coins, or “paper” investments in ETFs/gold trusts like GLD or IAU.

There are pros and cons to each. Physical gold has the obvious benefit of being actual gold. It can be bought and sold quickly for cash, you can physically transport it easily, and it helps protect you from certain natural disasters and economic shocks. And most importantly, you actually own it and can hold it in your hand. That said, you must find a safe place to store it, which is the biggest potential downside to physical gold.

Gold trusts and ETFs have similar investment perks – they track the price of gold bullion, are highly liquid, and provide a powerful portfolio diversification tool. You also don’t have to worry about gold storage and safety – although you will pay some sort of management fee to hold the ETF.

But with gold ETFs, you can’t actually redeem your holdings for physical gold. Those who are looking to diversify out of fiat/paper currencies will find some irony in owning “paper” gold stocks. And in an extreme worst-case-scenario financial collapse, owning gold on paper may not do you much good!

For most people, physical gold bullion will likely be a better choice than gold ETFs. Although, a mix of both may make sense for some investors.

 

Gold vs Gold Mining Stocks

Some people like to invest in the shares of gold mining companies. Gold miners are levered against the price of gold, so their share prices can be quite valuable. A 10% increase in gold prices could cause a 30%+ movement in the price of a gold miner stock – but this trend works in reverse, as well.

Overall, gold mining companies have historically been mismanaged as a group, and have performed quite poorly. This chart shows the performance of GLD (which tracks the price of gold itself) with the performance of a popular gold miner ETF.

                                                                       GLD vs GDX – source: Google Finance

As you can see, gold miner stocks have significantly underperformed the actual price of gold. Thus, we do not recommend investing in gold miners unless you are a highly sophisticated investor or an active trader. Of course, some individual miners have bucked this trend and have been fantastic long-term investments – but their highly leveraged nature makes them quite volatile and difficult to predict.

For buy-and-hold investors, gold bullion is likely a better choice than gold mining stocks.

How to Invest in Gold Bullion

If you’ve decided to invest in physical gold bullion, here are some things to keep in mind.

 

Popular Gold Bullion Investments

There are many different products to invest in, but these are some of the most commonly available.

 

Gold Coins

investing in gold coins

 

Investment-grade gold coins are usually produced by an official government mint. They come in various sizes, with 1oz being the most popular. Smaller sizes like 1/2oz, 1/4oz, 1/10oz and even smaller are also available. Sizes over 1oz are rare. These investment gold coins will typically carry a higher premium over spot than a standard gold bar, but they are highly liquid and trusted globally.

American Gold Eagles – the Gold Eagle is the US Mint’s official gold bullion coin. It’s available in 1oz, 1/2oz, 1/4oz and 1/10oz sizes, and is easy to trade at any bullion dealer or coin shop. We always carry American Gold Eagles at Bellevue Rare Coins.

Canadian Gold Maple Leafs – Canada’s official gold coin is the Maple Leaf. It’s available in 1oz, 1/2oz, 1/4oz, 1/10oz and 1/20oz sizes. Maple Leafs are usually a bit cheaper than Gold Eagles (i.e. they carry less of a premium over gold spot value). We typically have Gold Maple Leafs at Bellevue Rare Coins.

South African Gold Krugerrand – South Africa’s primary offering for the gold bullion market is the Krugerrand. At one point, these coins made up the vast majority of the global gold bullion trade – and they remain quite popular to this day. The Krugerrand is available in 1oz, 1/2oz, 1/4oz and 1/10oz sizes. We generally have Gold Krugerrands in stock.

Other Gold Coins – Other popular options include Gold Pandas, Britannias, Philharmonics, Buffalos, and pre-1933 US gold coins of various types. Different coins will carry slightly different premiums over spot value. We offer a wide variety of gold investment options at BRC!

 

Gold Bars

investing in gold barsGold bars are usually produced by private mints and dealers, although some government-owned mints produce them as well. They are available in a huge variety of sizes, from as small as 1 gram to as large as 100oz. Smaller bars provide an easy way for someone to get started with gold investing with a very small amount of money. And for sophisticated investors, gold bars offer the benefit of a (generally) lower premium over spot price, when compared to gold coins.

Private Mint Gold Bars – Various private mints produce and market gold bars. Some popular options include Credit Suisse, APMEX, JM, Engelhard, Valcambi, and Pamp Suisse. These gold bars typically have a low premium over spot value, and are widely available in all sorts of sizes. We always carry a good selection of gold bars at BRC!

Government Mint Gold Bars – Less common but still widely available are gold bars produced by government mints. The Royal Canadian Mint, Perth Mint and Austrian Mint all produce gold bars, as do some other government-owned refineries and mints.

 

Tips for Buying Gold Bullion

Before getting started with investing in gold, you’ll want to consider all your options. These are some things we recommend keeping in mind:

Proper Sourcing – Buying physical gold entails some risks. First and foremost, it’s vital to work with a trusted gold dealer. Do not try to buy gold off Craigslist or at a pawn shop – there’s a high likelihood that it will be fake gold or a scam! Bellevue Rare Coins is a trusted Seattle gold dealer that has been in business since 1979. When you buy gold at BRC, you can trust that you’re getting a legitimate product at an honest price.

Safe Storage – Even after the buying process, you need to keep the safety of your investments in mind. Where you store your gold is an important consideration. You may want to consider getting a safe deposit box or another type of secure, off-site storage solution. If you opt to keep your gold at home, this guide goes over some home storage tips.

Liquidity – You’ll want to consider the liquidity of your investment choices (essentially, how easy it is to sell when you want to). Various factors influence liquidity, including the item’s gold content and the brand/mint that produced it. Generally speaking, smaller sizes are more liquid – so a 1/2oz gold coin will be much easier to sell than a 10oz gold bar. And usually the more popular gold coins, like American Gold Eagles and Canadian Maple Leafs, are the most widely traded and therefore the most liquid.

Premium Over Spot – All gold products will carry some premium over spot value. What this means is that if gold is trading at $1200 per troy oz, gold coins and bars will likely be trading at $1210-$1260+ per troy oz. See our live pricing page to get an idea of what some popular items trade for (this page lists our sell price for popular gold coins & bars). Some investors like to stick with low-premium gold bars, while others prefer the more liquid and trusted coins like American Silver Eagles (which carry a higher premium). This is a personal choice for every gold investor to make.

Numismatic Value – All gold products carry intrinsic value – or the value of the gold they contain. This is also referred to as “melt value”. Some gold products also carry numismatic value, meaning that to a coin collector, they may be worth more than the actual melt value. Pre-1933 US gold coins are a good example of this – their overall worth is a hybrid of their melt value and collector value.

The Benefits of Investing in Gold

Those new to gold investment may wonder about the potential benefits of gold as an asset class. It’s a somewhat complicated (and even controversial) subject, but these are what we consider to be the primary benefits of investing in gold:

 

A “Safe Haven” Asset

Gold is widely seen as a global “Safe Haven” asset. What this means is that investors tend to flock to gold in times of economic uncertainty. This tends to drive the price of gold up during crisis events and times of geopolitical uncertainty.

For investors, this proves to be a valuable aspect of gold investment. While during the “good times” gold may underperform as equities and the dollar rise, gold often catches up during times of uncertainty.

 

A Powerful Portfolio Diversification Tool

Gold should be viewed as an asset class, just like equities and bonds. And as portfolio construction experts continually stress, diversification is key to long-term investing success.

By constructing a well-balanced, diversified investment portfolio, investors can increase risk-adjusted returns while improving their odds of surviving downturns.

Gold is useful for diversification because it is not very correlated with equities or other asset classes. In other words, gold prices often move in the opposite direction of equity and fixed-income prices. For example, take a look at some recaps of US-based investment results in past decades:

  • In the 1970’s, gold greatly outperformed stocks
  • In the 1980’s and ‘90s, stocks greatly outperformed gold
  • In the 2000’s, gold greatly outperformed stocks
  • In the 2010’s, stocks greatly outperformed gold

As you can see, it is often the case that gold moves in the opposite direction of global equities. This is useful for diversification, as it helps to smooth out the ups and downs of a volatile market environment. In the long run, a small allocation to gold may also help to increase risk-adjusted returns while hedging against downside risk.

 

A Currency of its Own

Gold is unique in that it’s both an asset and a currency of sorts. Gold has value worldwide, irrespective of movements in various fiat currencies. Thus, it can help store and preserve wealth regardless of economic conditions in your own country.

American investors will tend to think of the price of gold in terms of its value in US dollars – which makes sense. And gold prices tend to move in the opposite direction of the US dollar. So, when the US dollar is strong, gold prices typically underperform. When the dollar slumps, gold rises – helping to preserve buying power during times of currency devaluation.

To understand gold’s global appeal, it helps to adopt a more worldly perspective. The chart below shows the yearly price movements of gold in a variety of currencies.

Source: GoldPrice.org

As you can see, the returns are wildly different depending on the currency you look at. For instance, in 2018, gold lost 2.1% of its value when measured in USD, largely due to a strengthening US dollar. But for our neighbors up north in Canada, gold gained 6.3% in CAD terms during 2018.

What does this mean? It means that gold is a store of value that may help protect against currency fluctuations. It can help preserve buying power when your own country’s currency weakens or experiences hyperinflation.

In more extreme examples, having some gold holdings can literally be life-saving. Take the recent crisis in Venezuela, where inflation rates recently exceeded 1 million percent. As the local currency, the Bolivar, became practically worthless, those prudent enough to hold some gold saw their investment surge millions of percent, helping to preserve buying power when it was needed most.

An extreme example, to be sure – but the point is this: gold helps investors diversify away from various risks, including currency devaluation, inflation, geopolitical risks and currency shocks. For this reason, many see gold as more of an insurance policy than an investment. It may be both.