Four Ways To Invest In Gold
Investing part of your portfolio in the yellow metal is one thing, deciding how is quite another. These are four popular options.
Let’s Get Physical
Pros: Buying bullion or gold coins is the most direct exposure to the physical asset an investor can get.Cons: In anything but very small quantities, the need to store and insure physical gold, and the transaction fees associated with buying and selling it, represent hidden costs than can really add up, particularly for high net worth investors trying to put a portion of their portfolio in the metal.
Crystal Ball Bets
Pros: No counterparty risk (The CME Group’s CME Clearing, for instance, matches and settles all metals trades on the exchange and guarantees the creditworthiness of every transaction in its markets), and huge liquidity.Cons: Cost is once again a factor, and leverage can also be a concern. A $5,000 margin account gets the right to buy or sell futures on up to 100 oz. of gold (miNY and E-mini gold futures are other options that are smaller and require less margin) at 25 times leverage.
Digging For Winners
Pros: Mining stocks are a way to leverage higher gold prices through corporate operations. The cost of extracting an ounce of gold from the Earth varies by country and company, but is generally well below the current trading prices.Cons: Buying shares of a company rather than the metal itself, futures or ETFs, exposes an investor to operating risk and the possibility that management mistakes, an acquisition gone bad or some type of mining snafu will cause share prices to decline even while gold itself climbs.
Pros: GLD and its ilk are a less-expensive way to get gold exposure than holding the physical metal and more suitable for inexperienced investors than futures markets. Separately, funds like the Market Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) are a more diversified way to bet on miners than single stocks.Cons: Skeptics have raised concerns GLD’s secrecy surrounding its hoard of gold in HSBC’s London vault, while the mining ETFs are just as subject to the whims of the broader equity market as they are to the price of gold.