What is the Best Way to Invest in Gold?

What is the Best Way to Invest in Gold?

New customers wishing to invest in gold have a number of options to take advantage of the bull market in 2011. With prices having already risen by 5.9% in the first half of the year, many analysts are predicting the price could even reach $2,000 per ounce in the near future.

Right now there are two main reasons why you might want to invest in gold.  The first reason is because gold has traditionally been viewed as the best safeguard against further currency devaluations or an economic recession.  Gold is also a great hedge against the US Dollar.  When the value of the US Dollar deteriorates (which is bound to happen as the US prints more money to fulfil its $14.6 trillion debt), not only does it increase the US demand of gold but it also makes the price of gold go up.

The second reason for investing in gold is because of the strong returns which have been seen over the last 5 and half years.  In this period, gold investments have proved a higher return than the stock market, shares and commodities (36% over the last 10 years).  With extremely low bank rates in the UK, the opportunity cost of investing in gold is also avoided.  Many internet gold dealers such as Bullion Vault can also store the gold for you in remote safe houses for minimal annual charge.

Investing in Gold: Funds, Bullion, Coins or ETCs?

Although gold has an international spot price, which is currently at a record high of $1605.40, there are a number of different ways to go about investing in gold.  Each of these contains a different set of risks, ROI and appeal.

Gold funds such as the JP Morgan Natural Reserves Fund and Blackrock World Mining Investment Trust invest in businesses involved with the production and marketing of gold.  Although these funds can be traded with ease at your local stock broker, they don’t tend to provide as strong a return as gold bullion during bull markets.  In addition to this, you’ll have to pay up to 2% management fees per year to your broker which can massively reduce potential earnings.  In short, this isn’t the best method for investing your future in gold in my opinion. You don’t get a set allocation of gold or anything.

Gold bullion is the most popular form of investing.  Bullion is easy to buy and sell online, and is usually traded in bars of 1g, 10g,50g, 100g or 1kg in weight.  At APMEX you can also buy bars of 1 ounce or even 10 ounce in value which can set you back more than $15,000. The biggest advantage of buying gold bullion rounds or bars is that they have the lowest premiums, usually only 1-2% above the spot price.  At Bullion Vault, you can even buy gold at just 0.8% premium. The only downside to buying gold bars online is that they can be difficult to sell (requires examining and certification) and heavy/difficult to store.

Gold Coins such as the British Sovereign are very popular these days.  Although you should expect to pay a higher premium on British gold coins compared to others (5-10% premium for Sovereigns compared to 2% for gold bullion or 5% for South African Krugerrands), the fact that they are rarer with a rich history makes them an excellent investment.  Unlike dull gold bars, gold sovereigns can also be used as a fancy decorative piece.  The best place to buy gold sovereigns and other British coins is the London Mint Office.

ETCs (Exchange Traded Commodities) are the last method for investing in gold.  These allow you to invest in Exchange Traded Funds, which track the spot price of gold, without having to actually own any gold yourself.  Gold ETFs are available from the Barclays ETF arm, Ishares or the SPDR Gold Trust (GLD).  The main advantages are that you can invest directly into the precious metals market and take advantage of any increases in price – they’re also perfect for short term speculative investors looking to take advantage of a price hike.  The downside is that if the markets do crash, you could lose all of your investments, and you wouldn’t have a set allocation of gold.  That’s why investors usually recommend investing 75% or more of your gold assets in pure bullion/coins, and only 25% or less in ETCs.

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