Investing in Gold: What You Need to Know

Investing in gold can be a great way to diversify your portfolio and protect your assets during a recession. There are several ways to invest in gold, including buying physical gold, gold stocks, gold ETFs and mutual funds, and gold futures and options contracts. Each of these methods has its own advantages and disadvantages, so it's important to understand the differences before making an investment. Physical gold is the most direct way to invest in gold.

It can come in the form of bullion, coins, or rounds, and is usually purchased from online gold retailers. Bullion is the purest form of gold, with a high purity level, while coins and rounds are often confused with coins due to their circular shape but are closer to gold bars as they are not legal tender and do not differ from year to year. Gold bars and cartridges are usually sold and then mailed through online gold retailers, who can offer discounts for members of the military and to buy in bulk. Gold stocks refer to shares of companies that mine or process gold.

These investments can benefit not only from the increase in the price of gold but also from the company increasing its profits. However, it's important to remember that the value of gold stocks may not fully match the market price of gold, and these investments may not have the same return as physical gold. Gold ETFs (exchange-traded funds) and mutual funds are another way to invest in gold. ETFs are similar to mutual funds in that they pool the money of several investors, but they are traded on stock exchanges like stocks.

The SPDR Gold Shares ETF (GLD), for example, holds physical gold and deposit receipts, and its price follows the price of physical bullion. Gold mutual funds are actively managed by professional investors and often invest in shares of gold mining or refining companies, although some also own small amounts of bullion. Finally, investors can also choose to invest in speculative futures and options contracts. These contracts allow investors to speculate on the future price of gold without actually owning any physical gold.

Gold futures are more liquid than physical gold and have no management fees, although brokerages may charge a trading fee (also called a commission) per contract. Adding gold to your portfolio can help you diversify your assets, which can help you better cope with a recession, but it's important to remember that gold does not produce cash flow like other assets. Therefore, it should be added to your investment mix in a limited amount and with caution. Government title to all gold coins in circulation and put an end to the minting of any new gold coins.

Rochelle Paker
Rochelle Paker

Personal finance specialist. Areas of expertise Banking, business, real estate, consumer credit, retirement accounts.

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