How to Start Investing in Gold for Beginners

Gold is a popular choice for investors seeking to protect their portfolios from a stock market rout or high inflation — which means the precious metal is especially hot right now. The price of gold is hovering right around $2,000 an ounce, up roughly 10% since the beginning of the year, driven by demand from investors fretting about the Federal Reserve’s interest-rate hikes and a slowdown in economic activity in the first quarter of 2023.

Gold has been bought and sold for millennia, and today, there are more ways than ever to add gold to your portfolio. But gold investing isn’t for everyone, and there are certainly risks involved. Read on to discover everything a beginner needs to know about investing in gold.

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What is the Best way to Invest in Gold for Beginners?

If you’re just beginning your foray into gold investing, the array of options might seem daunting — and more than a little confusing. But while there are financial instruments best suited for professional traders, there are plenty of less-intimidating ways to add gold to your nest egg.

The best way to buy gold as an investment depends on your personal finances and goals. You also need to consider your willingness to devote time and energy to researching and managing your positions, particularly if you choose a more complex type of investment structure.

Gold IRAs

Gold individual retirement accounts (IRAs) let you own physical gold in a tax-advantaged retirement account. Also called precious metals IRAs, gold IRAs are referred to as self-directed IRAs by the IRS.

Gold IRAs appeal to people who want to invest in physical, tangible gold bars and coins.

How to Invest in Gold IRAs

Gold IRAs are commonly funded with pre-tax dollars rolled over from another retirement account. Gold IRA companies then sell you IRS-approved gold, silver, platinum and palladium for storage in retirement accounts. The companies also help facilitate the IRA setup and coordination between you, the account custodian (an administrator required by IRS regulations) and the storage facility where your gold will be held.

When you reach the age of 59 ½, you can start taking withdrawals, but you aren’t required to. Once you reach 73, you must take minimum distributions. You’ll have the choice of liquidating your gold or have it shipped to you. If you liquidate it, keep in mind that the buyback price you’ll receive from the company will likely be lower than the current price at which your gold would sell. Depending on the type of gold, that difference can range from around 2% to 35% lower (and possibly even lower for very rare coins), but it can vary. If you choose to have your metal shipped to you, you may have to cover transportation costs, and you’d have to store it safely, plus pay for insurance.

Pros and Cons

Gold IRAs primarily appeal to people who want the peace of mind of holding the physical asset, or who want to purchase their precious metals with pre-tax dollars.

Administering these accounts in accordance with IRS regulations, as well as the costs to insure and store your gold, make these a more expensive option than other methods of investing in gold.

Some gold IRA companies have a minimum investment of $50,000, which may be impractical for some retirement savers, as most financial advisors recommend holding no more than 5% to 10% of your investment portfolio in precious metals.

Be wary that some gold IRA companies use scare tactics in their marketing to exploit fears of a catastrophic and unprecedented meltdown of the U.S. financial system.

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Gold ETFs and Mutual Funds

Gold exchange-traded funds (ETFs) and mutual funds might be the easiest way for somebody who already has a retirement or brokerage account to invest in gold. These instruments, which hold gold-backed assets, operate in a transparent and liquid market. You don’t have to invest a lot to get started, thanks to the ubiquity of online trading apps that offer commission-free trading and fractional shares, which let you invest in “slices” of shares for as little as $1.

Some gold ETFs and mutual funds hold physical gold, while others hold stocks of gold-mining companies and sometimes the stocks of firms called streaming companies that provide financing to gold miners.

How to Invest in Gold ETFs and Mutual Funds

Investing in gold mutual funds and ETFs is similar to investing in other mutual funds and ETFs that capture an index or an industry sector, like technology.

You can buy gold ETFs and mutual funds through major brokerage firms and trading apps. Take advantage of the research on fund performance that brokerage companies offer for educational purposes and study your options before buying. Look for low expense ratios — the fee you pay for fund management — when you evaluate the holdings and performances.

Pros and Cons

The biggest benefit of gold-backed funds is their convenience: It’s easy to buy them with an ordinary brokerage account, and you might even be able to buy some gold ETFs or mutual funds through a retirement account, depending on your investment company. If you buy into a fund that holds stocks of gold companies, you may get some diversification because you’re holding the stock of multiple companies instead of just one.

Be wary of leveraged gold funds, though. These rely on complex financial trades and aren’t well-suited for newer investors because they can multiply your losses as well as potential gains.

Both ETFs and mutual funds charge fees, but those of ETFs tend to be lower.

Physical Gold

For novice investors, buying gold bullion bars or collectible coins might be appealing since you can see and touch your investments, as opposed to other assets like stocks and bonds.

But there’s also a learning curve when it comes to buying actual gold as an investment. You should acquaint yourself with how precious metals are traded and priced before you take the plunge.

How to Invest in Physical Gold

Gold bullion — gold bars or coin-shaped “rounds” — is a common way to invest in physical gold. Investment-grade gold has 99.5% (995) purity and the price of bullion correlates to the value of the metal itself. You can buy bullion coins and bars in various denominations, from a single gram to 400 ounces.

Gold coins are minted by a government mint; they have a face value — although the actual value of the metal is likely to be far greater. The price any particular coin commands is determined by its condition, rarity and how much pure gold is in it.

You can buy bullion and gold coins from government and private mints and online metals brokers. You can also buy in person from pawn shops or numismatic retailers. Some jewelry stores may offer small gold bars for purchase, although buying jewelry as an investment is not recommended because gold jewelry prices reflect more than just the value of the metal.

The gold content in jewelry is lower because it’s mixed with other metals to make it sturdy enough to wear. For instance, 14K gold — the type you’re most likely to see in jewelry stores — consists of just 58.3% gold, according to the Gemological Institute of America. The remaining 41.7% is composed of metals like copper and silver.

Pros and Cons

While you won’t have to pay brokerage or fund fees if you buy physical gold, online dealers do mark up the gold they sell. Be sure to research the dealer and the spot price of gold before making a purchase. There’s also an opportunity cost to holding gold: It doesn’t generate income and there’s no guarantee it will appreciate like real estate or a stock portfolio does.

Keep in mind that physical gold can be bulky, so you have to factor in the cost of storing it in a secure place — which means either investing in a safe or renting a bank safety deposit box — as well as insuring it.

You also have to consider the liquidity factor. Bullion — especially smaller bars — is easier to sell quickly than coins, especially rare coins. If you plan to depend on your investments for retirement income, holding physical gold could put you in a position of having to accept a lower price if you need cash quickly.

Gold Futures

Gold futures are essentially contracts in which a trader agrees to buy gold at a predetermined future time. When the deadline comes, that contract is said to “settle,” and the transaction takes place. Most often, each one is for 100 troy ounces of gold, and priced per ounce in U.S. dollars.

Futures are generally used by investing pros as a way of hedging their positions. They’re not recommended for entry-level investors due to their high level of risk.

How to Invest in Gold Futures

If you want to buy and sell gold futures contracts, you need an account with one of the few full-service brokerage firms that supports futures trading, or with CME Group, the corporate parent of commodity futures exchange NYMEX. Big brokerage companies that do support buying and selling futures include E*Trade and TD Ameritrade. However, if you’re not a professional trader, you might have to apply or meet additional qualifications before you can start trading futures.

Pros and Cons

Speculators who buy and sell derivatives like futures contracts are essentially betting that the value of gold will go up or down by the settlement date. The key to both the appeal and their risk is that you only need to pledge or “stake” a small amount of the contract’s total value to buy or sell futures.

On the plus side, you could make money. Still, there’s a big, big downside: Collateral requirements of futures exchanges mean they can require you to increase the money you’ve already committed if the futures contract rises or falls rapidly. This could lead to you being responsible for more — potentially a lot more — than your initial investment.

Gold Mining Company Stocks

In addition to buying mutual funds or ETFs that hold gold company stocks, you also can buy the stocks directly.

How to Invest in Gold Mining Company Stocks

You can buy gold company stocks through a stockbroker or online platform. The rise of fractional shares among digital brokerage tools lets you invest as much or as little as you want.

Pros and Cons

Buying gold stocks is a way to get exposure to gold without the hassle of owning the actual metal, especially if you’re a fan of stock-picking and following the performance of the companies in which you invest.

However, keep in mind that financial advisors tend to recommend not concentrating your portfolio in a few individual stocks. Unlike gold ETFs or mutual funds, you won’t get as much diversification with individual stocks. Even if gold mining stocks are booming, if your pick runs into fiscal or operational trouble, the value of your investment could go down.

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Beginner Tips for Investing in Gold

Once you’ve narrowed down what type of gold investment you want to make, there are a few other things you should consider; namely, when and how much to invest.

Best Time to Invest in Gold

Investing experts advise against trying to time the market — it’s an exercise even professional traders struggle to master. If you’ve decided to invest in gold, instead of waiting for the “perfect” moment to buy in, you can use dollar-cost averaging — investing small amounts on a regular basis for a period of time — to accrue a position in gold gradually.

Gold is considered a long-term investment since it can experience price fluctuations or lose value despite its reputation as a safe-haven asset. If you’re within a few years of retirement, consult with a financial professional to determine if it’s feasible for you to hold your gold for long enough to earn the kind of yield you want.

Minimum Amount for Investment

You can buy gold bullion in increments as small as one gram. A popular size is the troy ounce, which weighs roughly 31.1 grams. While some mutual funds do have investment minimums, ETFs generally do not. If you have a brokerage account that facilitates trading fractional shares (which many today do), you can buy small slices of stocks — and certain mutual funds — for as little as $1.

Financial advisors tend to say your precious metals investment should equal no more than 5% to 10% of your overall portfolio. This includes physical gold, silver and all other precious metals as well as investments in gold-related instruments like ETFs.

Be leery of metal dealers that try to get you to load up on gold, or use scare tactics to try and convince you that your money will only be safe in gold. Seek out investment advice from someone who isn’t getting paid to sell you gold assets, such as a fee-only retirement advisor or certified financial planner (CFP). You ideally want to work with a fiduciary, since they are legally obligated to recommend money moves that are in your best financial interest.

Advantages of Investing in Gold

Advocates of investing in precious metals tout a few unique benefits of gold. Alternative assets like gold or cryptocurrency grow value over time and can help you balance out your portfolio and hedge against inflation and volatility.

Portfolio Diversity

Portfolio diversification is one of the most dependable ways for ordinary people to grow their wealth, save money for retirement and soften the impact of a market downturn on their nest egg.

Investing in gold is one way to diversify your portfolio, and it can help mitigate the bite inflation takes out of the purchasing power of your savings. It also tends to increase in value during bear markets when stocks fall.

Liquidity

It’s important to make sure your nest egg has some liquidity, particularly when you reach retirement age and need to begin drawing down your portfolio for income. (This is why financial experts advise against having all your wealth tied up in your home, for instance.) You don’t want to have to sell your gold for far below its market value if you need the cash flow immediately.

Some types of gold investments are easier to sell quickly than others. Physical gold — especially rare or collectible coins — is the least liquid. That said, you should consider gold a long-term investment and plan to hold it for a minimum of three to five years. Gold prices can be volatile in the short term, and you don’t want to have to sell it at a loss.

Disadvantages of Investing in Gold

One primary drawback of holding gold is that it does not generate income the way other investments, such as stocks or real estate, can. Thanks to the power of compounding, income generation is a primary reason the balance in your 401(k) or IRA grows over time.

Other disadvantages include that there is no guarantee your gold’s value will increase over time, and that it can experience a lot of volatility in the short term.

Again, most retirement-planning pros advise holding no more than 5% to 10% of your investment portfolio in precious metals.

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Investing in Gold for Beginners FAQs

Is gold a safe haven for investment?

Many gold investors gravitate towards precious metals because they may mitigate some of the losses you experience in your stock or bond allocations during periods of market volatility. Gold’s appeal as a safe haven is one reason the price tends to rise when the market suffers a downturn.

Having exposure to alternative assets like gold in your portfolio can counterbalance portfolio losses. The values of these types of assets often move inversely to stocks.

When determining if gold is a good investment for you, consider your retirement income needs, time horizon and risk tolerance. If you’re trying to determine the best way to invest in gold, consider fees, storage expenses and other costs. Also consider your cash flow needs, which is a key factor when comparing the relative liquidity of various gold assets.

Seek out investment advice from a trusted source such as a fiduciary. Don’t rely on the marketing materials published by gold dealers — their priority is their bottom line, not yours.

Is gold a safe long-term investment?

For the average investor, gold should only be taken into consideration as a long-term investment. As a rule of thumb, gold typically holds its value during market downturns. However, like any asset, its past performance is no guarantee of its future price. Gold can experience volatility or even lose value, so you should not view it as a short-term investment.

How much should I invest in gold?

How much you may invest in gold will depend on your overall portfolio allocation and your long-term investment strategy. When you make investment decisions around gold, keep in mind that most financial advisors recommend holding no more than 5% to 10% of your portfolio in alternative assets like precious metals.

If you plan to buy gold coins or bars, remember that gold does not generate income like a portfolio composed wholly of stocks and bonds. Factor that opportunity cost into your calculations, along with the cost of storing and insuring physical gold.

What is the minimum amount of money I should invest in gold?

If you plan to invest in gold, you could start small: Physical gold can be purchased in increments down to the gram, and fractional trading offered by many big brokerage platforms means you can start investing in gold stocks or ETFs with virtually no minimum.

Summary of How to Start Investing in Gold for Beginners

Gold may be a useful addition to your nest egg, provided that you incorporate it strategically into your overall financial plan and consider the risks.

Owning physical gold — either by buying it outright or through a gold IRA — means you’ll have expenses for storage and insurance. In addition, gold IRAs have account administration costs. Keep in mind that precious metals dealers mark up the gold they sell. Rare coins in particular carry a high premium and might be difficult to sell if you need money quickly.

ETFs and mutual funds for gold-backed assets can expose you to gold without owning physical gold. These instruments can hold physical gold or shares of gold company stocks. They are more liquid and can be purchased via an ordinary brokerage account. You should research fees, expense ratios and performance before buying.

Another option is buying whole or fractional shares in the stock of gold-mining companies or their financing partners. Gold futures contracts and other esoteric derivatives might seem like an opportunity to leverage a small investment, but be aware that these instruments are highly complex and expose you to a high risk of loss.

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