As a means to diversifying your portfolio a gold investment can be extremely useful. Gold tends to hold its value very well because it is both a finite resource and relatively rare. In addition, the price of gold isn’t directly correlated with many other asset classes, meaning its price tends to move differently than that of equities, bonds, real estate or other types of assets. You could consider a gold investment to be insurance for your portfolio.
An allocation of 10-15% of gold in your investment portfolio will help provide protection and diminish the volatility of your overall returns. This weighting doesn’t have to be in physical gold, though some physical gold provides other types of protection. There are several other ways you can get the diversification benefits of gold. Take a look at the gold investment training and learn the different methods to invest in precious metals
This brings us to the key question that will be answered in this article, and that is “how can you invest in gold“?
Physical Gold Investments
The best reason to hold physical gold is that it is a universal store of value that can be carried with you and will always have value for goods and services, no matter what happens to the fiat currencies of the world’s countries. This is proven by the fact that the world’s largest savers, the central banks, hold the majority of their reserves in gold. What’s good for the central banks savings is probably good for your own savings as well.
Physical gold, whether in the form of bullion, bars or numismatic coins can be considered your financial insurance in the event of unexpected events. It isn’t so much an investment as a nest egg, and as such there is rarely, if ever, a good reason to sell or trade your gold unless some unexpected event makes it necessary. In the same way that you wouldn’t sell your insurance policy, you also shouldn’t sell your gold, but instead should add to your holdings over time to increase your protection as your wealth grows.
Anyone who is considering investing in gold should begin with an investment in physical gold. It is a great way of maintaining your wealth and passing it along to your heirs. Below we’ll discuss the different types of physical gold that you can add to your portfolio, and following that will discuss some alternate investments you might consider once you have a basic foundation of physical gold in your portfolio.
Bullion Bars and Coins
The biggest advantage to owning bullion bars and coins is that it allows an investor to hold investment grade gold at a small premium to the market price of spot gold. Because there is very little fabrication that goes into the manufacture of the bullion bars and coins the price is determined almost exclusively by the current spot price of gold, and follows the market price closely.
Those interested in precious metals in general will be glad to know that in addition to gold bullion bars and coins, you can also get silver and platinum in bullion bars and coins. All three precious metals have bullion coins minted in many countries, including the U.S., Canada, Australia, the U.K., South Africa, China, and many countries throughout Europe. Bullion coins come in various weights from 1/10 ounce up to 1 kilo, but the most well known and popular is the South African Krugerrands. These one ounce gold bullion coins are highly prized by small investors and high-net worth investors who appreciate the advantages of owning gold bullion coins that are both legal tender and divisible. Also popular among precious metal investors are the U.K. Britannias, which are available in a variety of sizes and are minted in both gold and silver.
Many brokers offer gold bullion bars and coins to learn more about gold broker rates and fees, take the HarvardGEO FREE gold investing training course HERE.
Numismatic Gold Coins
Numismatic gold coins are those minted for collectors. They can be older and rarer coins, or they can be newer coins that have been minted as much for their aesthetic appeal and rarity as for the value of the gold they contain. In general, numismatic gold coins will gain value more quickly than the spot price of gold. This is especially true of the older and rarer coins. On the downside, numismatic coins are typically priced at a premium to the spot price of gold, even the new varieties that may have been minted just a few years ago.
We don’t recommend numismatic gold coins for a beginning gold investment, simply because of the premium to spot gold commanded by these collector’s coins. If you truly have an interest in collecting gold coins once you have a foundation of gold in your portfolio by all means go ahead, but understand that you will be paying a premium to the spot price of gold. Also note that a study of th
e value of these coins is essential to ensure that you don’t overpay when buying these collectibles.
Australian Gold Certificates
Currently the only government backed program for buying unallocated gold, the Perth Mint Certificate Programme allows you to own investment grade gold that is stored at the Perth Mint in their own vaults. In addition to being stored and backed by the government of Australia, the gold is also insured by Lloyd’s of London.
Because this is an unallocated gold program, you aren’t actually buying the gold per se, but are buying a promise from the Perth Mint to give you your gold if you ask for it. This has its benefits as there are no holding fees paid to the Perth Mint. In addition, if you ask for the gold you can either pick it up at the Perth Mint, or you can have it shipped to you anywhere in the world without any import or export fees in Australia.
The bullion bars stored by the Perth Mint are accredited by the New York Mercantile Exchange (COMEX), the London Bullion Market Association (LBMA), and the Tokyo Commodity Exchange (TOCOM). Gold Corporation owns the Perth Mint and provides complete transaction confidentiality under the Gold Corporation Act of 1987.
Many investors enjoy the benefits of an unallocated account as it allows them to own the rights to gold bullion without paying custodial fees and insurance. Additionally there is great flexibility in the unallocated account and the investor can always opt to take delivery of the gold at their own location, or at a storage facility of their choice. And if you simply wish to sell your certificates you’ll find that the certificates are highly liquid and can easily be sold.
Allocated Gold Accounts
In contrast to the unallocated account provided by the Perth Mint Certificate Programme, an allocated gold account allows an investor to buy, ship and store gold bullion coins and bars. The investor has complete ownership of the individual physical gold products, and can store them at a bank or depository in their name.
Obviously the upside here is that the gold investment is owned 100% by the investor and it is in specific gold coins an
d bars. You can go see your gold or have it delivered to you if you wish. The downside is that you will have to pay insurance and custodial fees to the bank or depository holding your gold.
Additionally it is very important that the investor verify the allocated gold provider before working with them. Credit ratings, security of the depository, net worth and history of the provider are all important elements to research before purchasing allocated gold. The account should also provide regular audits to ensure that each gold bar and coin is accounted for.
Paper Gold Investments
Another way to invest in gold is through the stocks of companies that either mine gold or explore for new gold deposits. Once you have a solid base of physical gold this can be a way to leverage your gold investment further. Because the stocks of these companies can be quite volatile, especially those who are exploration focused, it is a good idea to diversify when investing in gold equities because they will be riskier than the physical gold.
Those who are extremely sophisticated when it comes to investing could even consider investing in gold through the futures market or through options.
All of these paper gold investments are speculation on the future price of gold. You don’t own any physical gold, though with futures and options you could potentially exercise the right to own the gold. This is highly unlikely though as a NYMEX futures contract is for 100 ounces of gold.
Unlike physical gold, where you are buying and holding the gold as a type of financial insurance, these paper investments are speculative. You are speculating on the future price of gold, and because of that you could stand to lose money. With physical gold you have no plans to sell, so you will never have to take a loss, and because gold continues to increase in value over time you can be sure that your gold will be worth more in the future than it is today.
Gold Exchange Traded Funds (ETFs)
To further diversify you could purchase a gold ETF. There are several different kinds and you will have to decide which one best meets your needs. Some hold physical gold only, while others invest in companies that mine and explore for gold, while still others are a combination of the two. With an ETF you get instant diversification if you are interested in buying stocks of gold companies. The downside is that the ETFs come with an administration fee that is typically no more than 0.5%.
The Bottom Line on Gold Investment
As you can see there are numerous ways to do gold investment. The best is still buying physical gold, whether you hold it yourself or in an allocated account. Even if you plan on diversifying your gold investment it is best that you start with physical gold and build a solid foundation before branching out into other gold investment vehicles.
Planning for an approaching retirement can be a daunting task. Making investment decisions that will affect your lifestyle and your comfort during retirement are often difficult. This difficulty becomes particularly acute for investors (Gold Investment) who are approaching retirement age and are making the transition from wealth acquisition strategies to wealth preservation strategies. It is at this stage that investors seek to avoid the volatility of uncertain markets and find safe, stable investment assets.
Gold has been that type of safe haven for centuries. Known for its ability to weather the storms that often wreak havoc in other markets, gold offers stability in these chaotic times. Investing in precious metals is an excellent addition to a retirement plan portfolio.
Investing in gold through an Individual Retirement Account (IRA) is a popular method for adding gold to a portfolio. Using a gold IRA avoids the risky nature of trying to personally store physical gold and also preserves the tax advantages of having an IRA.
The process of implementing a gold investing strategy using a gold IRA is pretty straightforward, but there are a few terms an investor should know.
You can open a gold IRA account directly, however, most gold IRAs are formed by “rolling over” current IRA assets into a new gold IRA. These rollover IRAs are also used when investors chose to retire or when they move to a different job. Of course, a rollover gold IRA will retain the same tax-deferred standing the original IRA had.
Direct and Indirect Rollovers.
Rollovers are generally one of two types. A direct rollover is the least complicated option. A direct rollover occurs when the IRA custodian transfers the IRA assets to a gold IRA. This method has the benefit of avoiding the IRS 20% withholding requirement.
An indirect rollover occurs when the investor, rather than transferring assets directly to a new plan, instead takes possession of the IRA assets. This can trigger the IRS 20% withholding requirement and therefore reduces the value of the assets available to be transferred into the gold IRA. Additionally, the investor must place the assets into a new plan within 60 days to avoid other penalties.
Choosing an IRA Custodian
Gold IRA accounts (and all other IRA accounts, even self-directed IRAs) must be administered by custodians. This means that the choice of custodian for your gold IRA is an important one. While custodians can be banks, credit unions, brokerages and insurance companies, not all custodians are the same. You should consider the following issues before choosing a custodian for your gold IRA.
How good are they at customer service? Are they difficult to reach, or is contacting them easy? Are they courteous? Are they experienced and able to answer your questions? How easy is it to monitor your account?
Do they have competitive fees? Custodial fees vary widely, so it’s important to know at the beginning what you will be charged. Be particularly careful about fee structures based on portfolio size. This can mean your fees will up as your portfolio grows.
Are they quick, competent and accurate? Inaccuracies, delays and mistakes can cost you money. Make sure that your custodian is experienced, skilled and able to handle your gold IRA with the care and expertise you deserve. Consider Harvard Gold and Economy Observer gold investing training to learn more about choosing a precious metal IRA custodian.