Are you interested in investing in gold, but aren’t sure where to start? With 2024 promising a dynamic landscape for precious metals like gold, there’s no better time than now to gain a foundational understanding so you can invest wisely. This detailed beginner’s guide covers everything you need to know about investing in gold in 2024 specifically.
Why Invest in Gold: Core Benefits and Investment Thesis
Diversification for Your Portfolio
The key reason most experts recommend allocating at least a small portion of your portfolio to gold is diversification. Gold tends to have a very low correlation with most other major asset classes like stocks and bonds, meaning it doesn’t always move in sync with those other investments.
For instance, during the 2008 financial crisis gold prices rose even as stocks plummeted. Having even 5-10% of your assets in gold can significantly lower the overall risk profile for your investments when volatility strikes other asset classes.
Hedge Against Inflation
Gold has an extensive track record of holding its value and acting as a long-term hedge against inflation. While inflation may be lower in developed countries like the United States, it still averages around 2% per year – meaning cash tucked away will lose buying power over time.
In contrast, gold’s purchasing power tends to be very steady over decades. When high inflation hits like in the late 1970s, gold can significantly appreciate to counter those rising prices. Simply put, allocating to gold offers assurance that a portion of your nest egg will withstand inflation erosion.
Portfolio Diversification and Safe Haven Status Drives Investment Demand
Investment and portfolio diversification demand for gold is what really sets it apart from other alternative assets or commodity investments. Global market uncertainty, extremely low bond yields, and quantitative easing policies continuing to devalue currencies are all factors that drive strong institutional demand for gold as a way to balance portfolios and protect against tail risks.
In 2024 and beyond, most analysts expect this robust investment demand from central banks, hedge funds, pensions funds, sovereign wealth funds, exchange traded funds and retail investors to persist – if not increase further. That backdrop provides a very attractive setup for gold investment returns over the mid and long-term horizon.
Getting Started With Gold Investing
Given gold’s portfolio diversification abilities and inflation hedging power, it makes sense to allocate part of your investment strategy directly to gold itself. But once you’ve decided to invest in gold, an immediate question arises: what’s the best way to gain that exposure for your specific situation?
Unlike stocks that trade on public exchanges, there is no single “gold market” where investors directly buy and sell the precious metal itself in a standardized way. Instead, several different investment avenues have emerged that offer exposure to gold prices. Each has their own pros and cons.
Gold Investment Options Comparison
The primary ways to invest in gold include:
- Gold Bullion – Bars, rounds and coins made of pure gold
- Gold Jewelry – Necklaces, rings, watches and more made with gold
- Gold Exchange Traded Funds (ETFs) – Funds that directly track gold prices
- Gold Mining Stocks – Shares of companies that mine and produce gold
- Gold Certificates – Receipts for gold stored with a custodian or bank
- Gold IRA – Allow gold ownership within your retirement account
- Gold Futures and Options – Speculate directionally on gold prices
There are upsides and downsides with each approach that come down to factors like:
- Direct Ownership – Do you directly own physical gold?
- Counterparty Risk – Does your investment rely on another entity?
- Tax Treatment – What are the tax implications and rules?
- Liquidity – How easy is it convert back to cash when needed?
- Transaction Costs – What are commission rates and spreads?
- Storage – Is storage secure and insured?
Getting the right blend of these attributes to match your personal investing style and portfolio goals is key to success in gold investing. Below we break down the core differences in more detail.
Buying Physical Gold Bullion
For many gold investors – especially beginners – owning physical gold bullion in the form of bars, rounds and coins is the most direct way to gain exposure. The benefits of direct physical gold ownership include:
- No Counterparty Risk – You directly own the gold with no reliance on any institution
- Portability – Since gold is very valuable by weight, storing or transporting physical gold is manageable
- Pure Ownership – You know exactly what gold products you own down to the serial number
- Inflation Hedge – Gold bullion holds purchasing power no matter what happens to paper currency
- Strong Liquidity – Large gold bullion products can be sold easily across global markets
- Loaned Against – Gold bullion can be used as loan collateral if immediate cash is needed
The downsides to watch out for with physical gold bullion investing include:
- Premium Costs – Production, distribution and dealer margins increase costs
- Storage Overhead – You must arrange secure storage and insure your holdings
- Tax Treatment – Special tax accounting may be required on physical gold investing
What is Considered Gold Bullion?
Gold bullion refers to pure gold in the form of coins, rounds and bars that meets the minimum fineness requirements for trading on commodities markets. This includes:
- Gold Coins – Government issued gold coins like American Gold Eagles and Canadian Maple Leafs that contain a guaranteed purity of .999 fine or better gold.
- Gold Rounds – Privately minted gold rounds like those from PAMP Suisse that contain at least .999 fine gold or better.
- Small Gold Bars – Refiners like Valcambi and Perth Mint offer gold bars in sizes as small as 1 gram that carry an assurances of .9999 fine gold.
- Large Gold Bars – 400 oz gold bars by refiners like Heraeus offer the lowest premiums but are more difficult to sell privately.
The most popular sizes of gold bullion for individual investors are 1 oz gold coins and bars since they balance affordability with good portability and liquidity.
Purchasing Gold Bullion
Once you decide to buy physical gold bullion, you’ll need to actually make a purchase through reputable dealers. Your options include:
- Local Coin Stores – Brick and mortar shops allow you to see products in person.
- National Dealers – Large online gold and silver dealers offer buying/selling directly with live support.
- Auction Sites – Sellers across the country list gold and silver coins for auction style purchase.
- Precious Metals Brokers – Individual agents assist high net worth investors source large volumes of precious metals internationally.
For most individual gold investors or beginners, the two best options are local coin stores and national online dealers like Advantage Gold:
- Local stores allow you to see products before purchasing which builds trust
- National online dealers offer wider selection and often the best pricing through economies of scale
- Using both together allows you to compare pricing andbuy with confidence
Be sure to closely compare pricing across dealers and verify they have provided accurate details on the gold bullion products being offered. Reputable gold bullion dealers stand behind what they sell and offer guarantees.
Storing Your Gold Safely & Securely
An often overlooked aspect of investing in physical gold bullion is making proper arrangements for storage of your holdings. Since gold bullion is highly concentrated value by weight, it requires secure storage to protect against theft or loss. Your options include:
- Home Safes – Security rated floor or gun safes can securely hold smaller gold bullion holdings within your residence.
- Safe Deposit Boxes – Bank safe deposit boxes offer protection against home theft or disaster, but have limits on insurance and accessibility.
- Public Storage Units – Self-storage locations often have climate controlled and very secure units for protecting valuables, but no outright insurance on contents.
- Specialized Storage Firms – Companies like Advantage Gold Storage offer state-of-the-art vault storage facilities, insurance against theft/loss, and FAQ coin viewing access.
- Offshore Vaults – For investors with substantial gold holdings, storing gold in secure offshore jurisdictions can provide geographical diversification.
For most mainstream gold investors, keeping some holdings at home for easy access with the bulk of their collection stored securely with a specialized storage firm is the best approach. The infrastructure is already set up specifically to protect precious metals at competitive costs.
Investing in Gold ETFs
Gold exchange traded funds (ETFs) offer investors exposure to gold prices without requiring direct ownership of physical bars, coins or jewelry. The assets behind the ETF directly track gold prices and shares of the ETF trade throughout market hours like regular stocks.
Here are the advantages of choosing gold ETFs as your primary gold investment vehicle:
- Extreme Liquidity – Gold ETFs trade seamlessly like stocks with tight spreads and continuous pricing.
- Tax Efficiency – Special structures like granting Physical Gold funds avoid IRS collectibles taxes.
- Transparency – Direct gold ETFs disclose holdings regularly to confirm metal backing.
- Low Initial Investment – Gold ETF shares can be purchased one share at a time with no minimums.
The main drawbacks of investing in gold ETFs include:
- Management Fees – Annual fund fees lower your total returns.
- No Direct Ownership – You rely on the fund provider to store gold properly on your behalf.
- Possible Tracking Error – Direct gold ETF returns may diverge slightly from spot prices.
Overall gold ETFs offer compelling advantages like simple trading, tax efficiency and low initial costs that make them ideal vehicles for new investors to gain gold exposure. As holdings grow larger, transitioning toward some direct physical gold ownership makes sense for increased control and lower costs.
Most Popular Gold ETFs
The largest and most heavily traded gold ETFs include:
- SPDR Gold Shares (GLD) – The first US-listed gold ETF with over $50 billion in assets.
- iShares Gold Trust (IAU) – Very popular lower cost alternative to GLD with similar structure.
- Sprott Physical Gold Trust (PHYS) – Grantor trust structure avoids certain IRS collectible taxes on gold.
- Aberdeen Standard Gold ETF Trust (SGOL) – Cost effective way to gain gold exposure.
- GraniteShares Gold Trust (BAR) – Lowest expense ratio gold ETF at just 17 basis points.
These major gold ETFs all directly hold physical gold bars in allocated, segregated custody and publish regular audit reports to validate holdings. They also utilize best practices like inspector examinations and in-person validations to ensure integrity of the underlying assets.
Buying Shares of Gold Mining Companies
Another route for investing in gold is buying shares in publicly traded gold mining companies. These stocks aim to provide leveraged exposure to movements in the price of gold itself. It works because:
- Mining firms directly benefit from increasing gold prices which boosts revenues.
- Profits often increase even faster due to largely fixed mining costs on higher sales.
- Share prices tend to rise greater than the increase in gold prices due to the earnings leverage affect.
The advantages of buying gold stocks over direct physical gold ownership includes:
- Built in leverage amplifies gains relative to gold prices.
- No storage/insurance costs avoids those fixed overhead expenses.
- Liquidity since gold mining stocks seamlessly trade intraday like any public stock.
The tradeoffs to consider when investing in gold mining shares rather than physical gold include:
- Management risk from poor operating decisions can hurt returns.
- Environmental mining risk that increases costs or limits production.
- Financial risk from excessive debt loads on mining balance sheets.
With research into sound gold mining management teams, environmentally responsible operations, and healthy balance sheets, one can mitigate these risks of choosing to invest in gold miners. Using both physical gold and strategic positions in mining stocks allows investors to diversify these unique risks across vehicles.
Notable Gold Mining Stocks
While there are small upstart gold miners, larger established companies with long operating histories tend to have proven staying power through ups and downs in gold prices over decades. Some of the world’s largest gold mining companies by annual gold production include:
- Newmont Corporation – Based in the United States with a broad global footprint mining gold across North America, South America and Africa among other regions.
- Barrick Gold Corp – Canada based senior gold producer with core mining assets located primarily in the Americas and operations also in Africa and the Middle East.
- AngloGold Ashanti – Primarily focuses on Africa with mining operations situated in regions like Continental Africa, Americas and Australasia.
- Kinross Gold Corporation – Primary mines are in Russia, Brazil and West Africa but is based in Canada.
- Gold Fields Ltd – Operations located in Australia, West Africa, South America and South Africa.
Beyond the top tier of global mega cap gold miners, there are smaller mid-cap mining stocks that offer more targeted regional exposure and often faster growth. Performing due diligence by analyzing financial statements, production costs per ounce and mining reserves across these various gold stocks allows investors to strategically allocate positions based on their outlook for what firms will benefit most from long term gold price appreciation.
Gold Investment FAQs
For beginners, investing directly in gold does raise lots practical questions around topics like storage, security, taxes and management. Here we answer some of the most frequently asked questions:
Is Gold a Good Long Term Investment?
Gold has historically performed well as a long-term investment. While prices fluctuate year-to-year, gold has demonstrated a remarkable ability to preserve purchasing power over multi-decade periods. That helps offset risks that broader markets or currencies will underperform over the long run making gold excellent for strategic portfolio allocation.
What Percentage of My Portfolio Should Be in Gold?
Most financial advisors suggest allocating 5-15% of your total portfolio to gold. The optimal allocation depends somewhat on your personal risk tolerance and investment timeframe. More conservative investors, or those with shorter timeframes may lean toward 10-15% allocation whereas younger investors can likely allocate closer to 5%.
What Drives the Price of Gold?
The key drivers of gold prices include factors like real interest rates, the relative valuation of global currencies, inflation expectations, gold supply and demand fundamentals and market risk sentiment. While short run price swings can be pronounced, these underlying macroeconomic forces determine long term price appreciation.
Is Investing in Gold Risky?
Investing in gold carries lower risk compared to investing in single companies or stocks but higher volatility than bonds. Considering gold’s negative correlation to stocks and positive correlation to inflation, adding gold exposure to a portfolio significantly reduces overall risk by diversifying across asset classes.
How Can I Invest in Gold With Little Money?
Gold ETFs like IAU offer the most cost effective way to gain gold exposure with minimal investment. You can purchase fractional ETF shares steadily over time. That allows you to benefit from dollar cost averaging. For direct physical gold ownership, fractional gold rounds and bars bring minimums down to around $70 allowing steady accumulation.
In another related article, Top Gold Investment Tips for 2024