Investing in gold can be an excellent way to hedge against inflation and a chaotic stock market, but buying physical gold can be very costly. The markups on collectible gold coins can be extremely high, and buying either gold coins or gold bars means additional costs for insurance and storage. Fortunately, there are a number of ways investors can get the security of gold for an affordable price, including gold mining stocks, mutual funds and exchange-traded funds (ETFs).
An exchange-traded fund works much like a mutual fund, in that it pools the resources of many different investors and uses those funds to purchase the commodities it holds. One of the easiest, and cheapest, ways to invest in gold is with the ETF that trades under ticker symbol GLD. This stock tracks the price of gold on a daily basis, rising when gold prices go up and falling when they go down.
Gold Mining Companies
Buying shares in gold mining companies can be an excellent way to play the price of gold. As the value of each ounce of gold goes up, the fortunes of the companies that extract that gold from the ground tend to rise as well. If you have a brokerage account, you can use the stock screening tools that broker provides to find companies in the gold mining industry. You can also find information about gold mining stocks in the financial literature, both on your local newsstand and on the Internet.
Precious Metal Mutual Funds
Mutual funds that invest in precious metals can be a good and low cost way to profit from a rise in gold prices. You can find mutual funds that invest only in gold, allowing you to make a pure play on the price of the metal. You can also choose to invest in more diversified mutual funds, which often include other precious metals, including silver, platinum and rare earth metals, among their holdings. Most large mutual fund companies include at least one or two precious metal funds.
Gold Content Coins
If you prefer to have physical gold instead of mutual funds or shares in gold mining companies, look for coins that you can buy based on their pure gold content, rather than on their collectible value. The value of collectible gold coins can vary widely, meaning that your coins could go down in price even if the price of gold rises. But if you buy a gold content coin, the value of the coin is tied directly to the price of gold. You still have storage concerns if you buy gold content coins, since you need a safe or other secure place to keep those valuable commodities.