An overview and look at the pros and cons of investing in gold bullion, coins, and stocks.
Gold, that most malleable of metals, comes in as many forms as it can be melted, hammered and shaped into, but for the purposes of the investor, it comes in three main forms – one of them made of paper. Here’s a quick guide to the pros and cons of gold bullion, coins, and stocks.
Image by Liz West via Flickr
Gold bullion – generally defined as bars or ingots that are at least 99.5% pure – has plenty of advantages, especially if you’re a serious investor with a lot of money to put into precious metals. Bars come in a variety of sizes and represent an efficient way to make a large investment in gold, though of course few homes are as secure as Fort Knox, so storage can be an issue for people who don’t want shiny bars of gold lying around their home. But many options for highly secure storage in bullion vaults and other facilities exist, and one of gold’s many advantages as an investment is that it provides an extremely compact way of storing wealth. Bullion investments are split into two kinds: Unallocated gold, in which the investor receives a certificate from a bank stating that they own a certain amount of gold – effectively lending their gold to the bank – and allocated gold, in which the investor has title to specific gold. Many investors opt for the former kind due to the flexibility it provides, though allocated gold is a popular option for those who want the security of actually owning the gold outright, insuring themselves from the potential insolvency of banks.
Whether you’re at a museum in Europe displaying the treasures of ancient civilisations or at a pawn shop in Melbourne, gold coins of all varieties and ages can be found in many places – but that diversity and the variation in premiums for rarity and historical interest can make investing in coins a complicated business. Some coins are still issued for collectors but for the purposes of most investors, bullion coins represent a solid and safe investment. The best-known – and for many, the most trusted – gold coins include the South African Krugerand, the Canadian Maple Leaf, and the American Eagle, but other varieties like the Turkish Republican Gold Coin, the Chinese Panda, and the Austrian Philharmonic Gold Coin are more popular and more prevalent, than many realise. The sheer variety of gold coins, and the associated variation in purity, is confusing enough to be a downside for some investors, but unlike gold bars, coins represent an easy way for the smaller investor to slowly accumulate possessions a sizable stockpile of gold – and to spread out the risks. They are also supremely easy to transport and sell.
“Paper gold” – like any other kind of stock investment – is generally considered a much riskier place to stash your cash than in the metal itself, but it also has the bonus of dividends, and sometimes dizzying rewards for investors with the right combination of brains and luck. Investing in companies that mine gold or search for new deposits – or companies that can do both – is a bet on the company itself and on future movements in the gold price. When the company you invest in strikes it rich, you will be able to share in the rewards, but if it goes bust, you’ll be out of luck, which is why investment experts recommend spreading any investment in gold stocks across several companies, and to explore other gold investment opportunities like futures and options as part of a diversified portfolio. Though like the metal itself, gold stocks have a tendency to stay strong in times when other investments start shedding value.