The time of ancient civilizations to the modern era, gold has been the world's currency of choice. Today, investors buy gold mainly as a hedge against political unrest and inflation. In addition, many top investment advisors recommend a portfolio allocation in commodities, including gold, in order to lower overall portfolio risk.
We'll cover many of the opportunities for investing in gold, including bullion (i.e., gold bars), mutual funds, futures, mining companies, and jewelry. With few exceptions, only bullion, futures, and a handful of specialty funds provide a direct investment opportunity in gold. Other investments derive part of their value from other sources.
So, you've decided to buy some gold for your investment portfolio, but how should you go about doing that?
The most direct way to own gold is to purchase physical gold bars or coins, but these can be illiquid and must be stored securely.
ETFs and mutual funds that track the price of gold are also popular, and if you have access to derivatives markets in your brokerage account you can also use gold futures and options.
To get at gold indirectly, you may also want to consider investing in gold mining stocks, although these companies' share prices do not track gold's value very well over the long run.
Gold Bullion
This is perhaps the best-known form of direct gold ownership. Many people think of gold bullion as the large gold bars held at Fort Knox. Actually, gold bullion is any form of pure, or nearly pure, gold that has been certified for its weight and purity. This includes coins, bars, etc., of any size. A serial number is commonly attached to gold bars as well, for security purposes.1
While heavy gold bars are an impressive sight, their large size (up to 400 troy ounces) makes them illiquid, and therefore costly to buy and sell.2 After all, if you own one large gold bar worth $100,000 as your entire holding in gold, and then decide to sell 10%, you can't exactly saw off the end of the bar and sell it. On the other hand, bullion held in smaller-sized bars and coins provides much more liquidity and is quite common among gold owners.
Gold Coins
For decades, large quantities of gold coins have been issued by sovereign governments around the world. Coins are commonly bought by investors from private dealers at a premium of about 1% to 5% above their underlying gold value, but it jumped to 10% in March 2020.3
