The increase in stock market volatility and political uncertainty is driving an increasing number of investors to precious metals as a way to diversify their investment portfolios. Gold, in particular, has historically maintained its value even during significant stock market fluctuations and has proven to be an effective hedge against inflation.
One benefit of gold investments is that they can help diversify your portfolio.
Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.
In general, investors looking to invest in gold directly have three choices:
Average investors, for example, might buy gold coins, while sophisticated investors implement strategies using options on gold futures.
For long-term investors, owning physical gold is often preferred over owning gold receipts, gold mining stocks, or gold ETFs.
So, the gold market is highly liquid and there are a number of ways in which investors can gain exposure to this precious metal, including holding physical gold (i.e., gold coins and bars) and exchange-traded funds (ETFs).
Physical gold provides the most direct exposure to gold. Gold in bulk form is referred to as bullion, and it can be cast into bars or minted into coins. Gold bullion’s value is based on its mass and purity rather than by monetary face value. Even if a gold coin is issued with a monetary face value, its market value is tied to the value of its fine gold content.
Investors can buy physical gold from government mints, private mints, precious metal dealers, and jewelers. Because different sellers may offer the exact same item at different prices, it is important to do your research to find the best deal. When you purchase physical gold, you must pay the full price.
Physical gold ownership involves a number of costs, including storage and insurance costs, and the transaction fees and markups associated with buying and selling the commodity. There can also be processing fees and small lot fees for investors making small purchases. While collectively these costs may not significantly affect someone looking to invest a small portion of their portfolio in gold, the costs may become prohibitive for investors seeking to gain larger exposure.
Unlike physical gold, ETFs can be purchased like shares on a stock exchange. ETFs allow investors to access gold while avoiding the costs and inconvenience of markups, storage costs, and security risks of holding physical gold. An investor will lose a percentage of his or her investment’s value each year to the fund’s expense ratio. An expense ratio is the recurring annual fee charged by funds to cover its management expenses and administrative costs. The largest gold ETF – the SPDR Gold Shares ETF – for example, has an expense ratio of 0.40%. That means an investor would pay $80 per year in fees for a $20,000 investment.
Investors will also pay a commission for buying and selling an ETF. While most online commissions run under $10, the commissions can really add up if you are an active trader. In addition, brokers typically charge a higher commission that can be upwards of $25 per trade for broker-assisted trades, automated phone orders, and special order types.
When you’re a beginner investor, the right brokerage account can be so much more than simply a platform for placing trades. It can help you build a solid investing foundation — functioning as a teacher, advisor and investment analyst — and serve as a lifelong portfolio co-pilot as your skills and strategy mature.
What are stock brokers?
Stock brokers are people or firms licensed to buy and sell stocks and other securities via the stock market exchanges. Back in the day, the only way for individuals to invest directly in stocks was to hire stock brokers to place trades on their behalf. But what was once a clunky, costly transaction conducted via landline telephones now takes place online in seconds, for a fraction of what full-service brokers used to charge for the service. Today, most investors place their trades through an online brokerage account.
To address investors’ concerns regarding ETF commissions, some brokerages now offer commission-free online trading for a specified suite of ETFs. For example, you can trade the Aberdeen Standard Physical Gold Shares ETF (SGOL) for free at the Schwab ETF OneSource platform.
There are more than a dozen gold-specific exchange-traded products available today, including inverse and leveraged ETFs.
Transaction costs associated with gold ETFs are often lower than the costs related to the purchase, storage, and insurance of physical gold. It is important to research the various costs, fees, and associated expenses of each type of investment to determine the one that is both affordable and suitable for your portfolio.
Keep in mind that you do not own any physical Gold even if you invest in a physically-backed ETF: you cannot redeem or sell shares in exchange for Gold.
Investors looking to enjoy the touch, feel and security of owning gold may wish to buy gold bars instead of intangible investments such as gold exchange-traded funds (ETFs).
Physical, investment-grade gold, also referred to as gold bullion, can be purchased at spot price, which is the price of un-fabricated gold plus additional costs, which vary depending on the seller. Physical gold can be liquidated in the unlikely event of a total economic collapse.
Buying physical gold bars online is a fairly simple process. Browse gold bar products on reputable retail websites such as APMEX, JM Bullion, and WholesaleCoinDirect. Select the gold bars you wish to buy by weight, quantity, and price.
Choosing a reputable online gold dealer can be daunting, considering the proliferation of sellers who claim to have the lowest prices. When evaluating gold dealers, there are many factors to consider, including their track record, reputation, price transparency, payment options, absence of commissions and fees, shipping speed, and customer service.
While all forms of pure gold have significant monetary value, not all investment-quality gold is equal. From an investment perspective, investors wanting to add the physical product that tracks the price of gold may wish to avoid gold coins. These coins often feature attractive designs, have historic value, and contain a lower quantity of gold, but still, cost more due to their numismatic value.
In addition to costing more, gold coins sometimes skew the value of an investor’s portfolio. For example, the highly regarded American Eagle coin produced by the U.S. Mint contains 91.67% gold but costs more than plain gold bars because of its value as a collector’s piece. Some investors may want collector's items, while others may want plain gold bars, which typically are the easiest to hold long term and convert to cash.
Gold is fairly easy to buy, but prices vary greatly as sellers include their desired profit margin plus additional costs such as authentication certificates, shipping and handling, and payment processing fees. A price comparison including the different sellers' charges is key to getting the best price on gold bars.
Physical gold ownership involves a number of unique costs, including storage and insurance costs, and the transaction fees and markups associated with buying and selling the commodity. There can also be processing fees and small lot fees for investors making smaller purchases.While collectively these costs may not significantly affect someone looking to invest a small portion of their portfolio in gold, the costs may become prohibitive for investors seeking to gain larger exposure.
All gold dealers offer different methods of payment for bars and coins (Bank wire, Personal/ Business check, Bank check (draft, certified, cashier, money order), Credit card, PayPal, Funds on Account (FOA), Online Bill Payment).
However, only a few of them offer a payment method using Bitcoin and other cryptocurrencies:
Diversify your investment portfolio, convert some of your digital assets into reliable, highly liquid, steadily growing in price physical assets - Gold or Silver, preserve your crypto assets, reduce the risks of volatility in the cryptocurrency market, the Vaultoro Gold and Silver exchange offers.
Vaultoro allows you to buy and sell physical Gold and Silver with bitcoins and other cryptocurrencies without the need for a fiat currency or bank account.
In the context of the instability of the global economic system, diversification of the personal investment portfolio and its supplement with gold assets is a necessity. It is advisable to supplement the portfolio with assets in the form of gold ETFs or physical gold. At the same time, it is necessary to study the markets and use the services of first-class dealers and brokers. Gold assets can be purchased not only through traditional payment methods, but also through Bitcoin and other cryptocurrencies. The risks associated with the volatility of the cryptocurrency market can be minimized by converting cryptocurrency assets into physical gold.