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All That Glitters: 5 Ways To Invest In Gold

 -- Published: Thursday, 24 April 2014 | Print  | Disqus 

By Paul Shaefer


You love the pretty yellow metal, and you can't get enough of it. But, you also can't think of very many ways to cram it into your investment portfolio. Fortunately, this isn't a real problem. In fact, the only real problem you have is over-concentration. Pick one or two buys and then diversify out of precious metals for your long-term financial health.


Direct Ownership


Direct ownership means that you own gold bullion - yes, the actual physical gold. Being nearly indestructible, it's easy to see why wars have been fought over the stuff. It's survived 5,000 years as a store of value and it will probably endure 5,000 more. Gold brokers are the prime source for the metal, and they usually charge a spread or earn a commission on the sale. So, compare dealers and buy on price because, really, it's almost all the same regardless of where you go. The only difference is in what you buy.


For example, American Buffalo coins are the only pure .9999 24-karat gold coin in existence. It's fabricated by the U.S. Mint, and guaranteed pure by the government. The Turkish Republic coin benefits from one of the biggest covered markets in the world - the grand Bazaar. Here, there are over 3,000 shops, most of them buying and selling (as well as fixing) gold and gold jewelry. It virtually guarantees a liquid market for their gold and also pushes the premiums lower than almost anywhere else in the world.

The Canadian Maple Leaf is another popular choice for gold buyers. The most popular is the 99.99 percent 1oz coin, but there is actually another coin with the same name that's of a slightly higher purity: 99.999 percent.


Gold ETFs


Gold ETFs have become very popular in recent years because of the ease of getting into them. They're ETFs, and so they function like mutual funds because, well, they are mutual funds. The only difference is that an ETF trades on a stock exchange just like an ordinary stock.


While you don't own the physical gold, you do own rights in a mutual fund that invests in gold, so it's a sort of indirect ownership. The two funds in the U.S. are GLD and IAU.




Gold IRA investments aren't new, but they are gaining in popularity after being pushed to the back seat for a while. One of the reasons investors haven't been too keen on IRAs in the past is because of the potential double-taxation issue. If you buy gold inside of an IRA, it's best to keep it there. Why? Because, when you remove it, the IRS assesses ordinary income tax on the value of the gold as you remove it. Then, it becomes a physical asset.


That means, when you sell it, the IRS taxes you on the capital gains you earn. What a nasty one-two punch. If you keep the gold inside the IRA, however, you'll avoid the capital gains tax. You will, however, have to pay ordinary income tax on any money that is withdrawn from the account. This could actually be a good thing, however, if you invest in a Roth IRA as there is no income tax due. So, you avoid the capital gains altogether.


Gold Mutual Funds


Gold mutual funds are a good investment if you're hesitant to invest in physical gold but you still want some exposure to the precious metals market. Gold mutual funds work just like other mutual funds in that the fund holds portfolios comprised of gold stocks, as opposed to the actual metal. Usually, the mutual fund invests in established mining operations, like Newmont Mining, GoldCorp, Barrick Gold, and CitiGold.


Mining Stocks


Of course, if you're really hungry for gains, you can always invest directly in gold mining companies. While they can be risky, a lower risk option is to invest in an established mining operation that only digs proven reserves out of the ground.


If you want explosive gains, go with junior miners and exploration companies. Exploration companies are essentially startups that are comprised of geologists looking for gold - yes, they're modern-day gold explorers. Instead of heading out west with a pick-axe and a shovel, however, they take a computer and sophisticated drilling equipment.


Core samples are taken, and analyzed, to prove reserves. When a junior exploration company finds a whopper, a large mining company usually buys them up. When that happens, the stock explodes and investors tend to make hundreds, even thousands, or percentage points on their investment.


Of course, these investments are like burning matches. Because it's so expensive to go exploring, there's always a very real risk that a junior mining operation will run out of money before it hits the motherload. In fact, most mining operations fizzle out before they find anything. That's the risk - and it's huge. So, if you decide on this option, do your research.

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