Gold can be a challenging investment, and while it may seem appealing, it’s not always profitable. In 2023, the metal has started strong and is predicted to continue surging due to growing concerns over bank solvency, global recession, and stock market turbulence. However, investing in physical gold can be costly due to unexpected expenses such as insurance and secure storage. Although gold is considered a recession-friendly investment, it does not produce cash flow like other assets and should only be added to investment mix in a limited quantity with caution.
There are four ways to invest in gold, which are physical gold, gold stocks, gold funds, and gold futures. Physical gold, also called bullion, includes gold bars, coins, jewelry, and pure gold. Buying, storing, and selling bullion can be challenging. Gold stocks offer complete control over specific companies that mine or process gold, while owning stock in a gold-mining company means you have an asset that you can sell at any time. Gold funds and exchange-traded funds offer diversification that a single stock cannot provide. Gold futures are an agreement to buy or sell gold on a later date and offer more liquidity than physical gold. However, trading futures contracts involves risks, and it is not suitable for inexperienced investors.
Investing in a gold stock, ETF such as Goldman Sachs Physical Gold ETF (AMEX: AAAU), or a mutual fund is often the best way to gain exposure to gold in your portfolio. A brokerage account is required to buy a gold stock or fund, which can be opened with an online broker. The minimum investment requirement for mutual funds is usually $1,000 or more. Gold investments can help diversify your portfolio, but if your entire portfolio is made up of gold investments, it won’t be diversified at all.
Investing in physical gold requires finding a reputable dealer, watching out for fees, finding secure storage, considering purchasing insurance, and knowing that your investment is illiquid. Despite gold’s age-old allure, it is not always a strong investment, and investing in gold in the form of a tradable security is a much easier and cheaper way of incorporating it into a portfolio. When stock market fluctuations make you nervous, taking a long-term view and sticking to your investment plan is often the best strategy.
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