- With prices increasing 9.1% YOY in June, many investors are seeking investments that offer diversification and a hedge against inflation
- Gold ended the first half of 2022 0.6% higher; though it’s since dropped, it still offers a “safe haven”
- Learning how to invest in gold for beginners can help you make smart commodity investments in our turbulent markets
Last month, consumer prices soared 9.1% year-over-year, while data shows producers paying 11.3% more than a year ago. With inflation soaring, many investors are turning to assets like gold to hedge against high prices and market volatility.
Learning how to invest in gold for beginners may seem silly, advanced or time-consuming. But with the right investment strategy, adding gold can provide the edge (or hedge) you’re looking for.
Recent price movements
Even with high inflation and market volatility, gold ended the first half of 2022 0.6% higher, around $1,817 per ounce. The metal initially rallied as the Russia-Ukraine conflict unfolded and investors fled to safer pastures.
But recently, gold has seen mixed price movements, declining and rising in waves as the U.S. dollar has strengthened amid rate hike bets and healthy U.S. employment data. (In fact, the dollar – which usually moves inversely to gold – recently achieved parity with the euro.) The latest inflation data has also bumped gold slightly lower.
As a result, August’s gold futures dropped from around $1,725 an ounce to just over $1,710 an ounce. That puts gold prices at an 11-month low as of this week.
Still, gold continues to hold the line over $1,700 an ounce. And as inflation rages on, the precious metal remains of interest to many investors.
Gold as a “safe haven”
For thousands of years, cultures have relied on gold jewelry and coins to drive trade. As paper currencies developed, notes often corresponded to a set weight in gold. While this is no longer the case in many countries, including the U.S., gold’s historic importance keeps the commodity valuable.
Gold’s enduring value makes it a solid investment for investors seeking additional diversification. Because gold prices generally move opposite stock and bond prices, many investors rely on the metal to hedge against downturns. Gold also tends to benefit from government stimulus, such as we’ve seen in the Covid-19 pandemic.
Gold is also used as a hedge against inflation. While inflation reduces the value of currency over time, commodities like gold have historically enjoyed a positive correlation with high inflation. In other words, when inflation spikes, commodity prices do, too.
These trends have led many investors to turn to gold as a safe haven investment to protect their finances.
Buying gold: the down and dirty
We’ll look at how to invest in gold for beginners in a moment. First, here’s what to know about gold as an asset.
It’s important to note that there are two basic ways to invest in gold: directly and indirectly. Direct investments involve buying and storing physical gold, such as bullion or coins. Indirect investments generally involve buying gold-related securities or funds that buy gold for you.
If you invest in physical gold, you’ll first need to find a reputable seller and determine your karat preferences. (Karats measure the proportion of gold to other metal in physical items on a scale of 0 to 24. The higher the karat, the purer the gold.)
For investment purposes, 21 karats or higher is seen as most desirable, as purer gold is less likely to tarnish. On the other hand, higher-karat gold can be less durable and more prone to damage and scratches.
Once you’ve sorted that out, you’ll need to find a safe place to store your gold, like a safety deposit box or in-home safe. Lastly, you’ll need to take out an insurance policy to protect your investment from loss or theft.
How to invest in gold for beginners
Both retail and institutional investors buy gold for investment and hedging purposes. But with the rise of precious metals-based funds, you can invest in assets that buy gold on your behalf – without fussing with storing the metal yourself.
Now that you have an idea of what these investments require, let’s look at six ways to invest in gold yourself.
Gold jewelry accounts for around 50% of global gold production, making it the most frequently purchased form of gold. Generally, jewelry rated 14 karats or higher is considered an “investment.”
While buying jewelry is relatively simple, you may struggle to flip rings and necklaces for a profit later. You’ll also pay a markup relative to the value of the metal itself to cover labor costs and retail margins.
If you decide that gold jewelry is the way to go, be sure to keep your receipt and accompanying paperwork to make evaluation and resale easier down the road.
Gold bullion refers to any “pure” gold, such as gold bars. These items vary in size and must be certified for weight and purity. Many also come stamped with a serial number for security purposes.
Some investors consider gold bullion the…ah…“gold” standard of gold investing. However, it can be difficult to find a safe storage location, and trading bullion can be more difficult than other gold-based investments.
Gold coins typically contain less gold than bullion but may be more convenient to trade. You can often purchase coins from collectors, private dealers and coin shops and flip them for profit when prices rise.
That said, many coins come with a markup to account for manufacturing costs. Some, like the American buffalo and Canadian maple leaf coins, have even higher markups due to their collector status. These added costs can hike prices higher than the value of the metal itself.
Gold ETFs and mutual funds
Gold ETFs and mutual funds are accounts that buy gold on investors’ behalf and trade like stocks. Gold-based funds make investing in gold easy, as you can benefit from gold price fluctuations without worrying about the costs of physical ownership.
That said, you’ll still pay some fees for trading ETFs and mutual funds. And many gold-based funds trade in other commodities, too. While this provides automatic diversification, it may remove your ability to invest purely in gold assets.
Gold futures and options
A future is a contract to buy and sell a commodity, like gold, at a set point in time. Each contract represents a set amount of gold and may pay out in physical bullion or the relevant dollar amount.
Options on gold futures provide another derivative-based investment avenue. Options provide the right, but not the obligation, to buy gold futures contracts at a set price and time. While you can use options to leverage your investments, you’re generally required to pay the full underlying value to own the option.
Both gold future and options can come with high price tags and increased volatility, and they require a deeper understanding of investment markets. As such, they’re generally best suited for advanced investors who can afford the financial risk.
Gold mining companies
Another way to invest in gold for beginners is to combine physical assets with traditional stocks. By purchasing shares in companies that work with gold, you can profit off the metal without having to store the physical asset. Mining investments can mitigate some of the risks of buying gold, such as the possibility of flat prices. They may also pay high dividends to boost your long-term returns.
On the other hand, investing in mining companies requires doing due diligence to ensure you’re making a wise choice. And the mining industry comes with unique risks that may interfere with gold production, profits or human and environmental rights.
How to invest in gold for beginners: quick FAQs
With so many options to choose from, investing in gold can be a bit overwhelming. Before you start, consider your capital commitment, desired returns and long-term goals.
Why invest in gold?
Investors are often drawn to gold for its diversification and hedging potential. And though it’s a physical asset, it’s generally easy to convert to cash, making it more tangible than some other physical investments like real estate. Additionally, while gold doesn’t always outperform other assets, it’s proven to have high long-term returns.
Is gold a good investment?
If you’re looking to strike it rich with gold investments, you may have to wait a while. But if you’re looking for a non-correlated asset to hedge against inflation and market volatility, then gold can make a good investment.
That said, gold, like all other assets, can be volatile and isn’t a “guaranteed thing.” Consider also that commodities like gold may be subject to unusual pricing factors like weather, natural disasters and mine collapses.
How much gold is a good investment?
The right amount of gold for you depends on your risk tolerance, goals and portfolio makeup. Since investors often turn to gold for diversification and hedging purposes, you don’t want to bet too much of your capital on the asset. The goal should be to minimize risk while still returning a profit on your investment.
When should you invest in gold?
While you can buy some assets in one chunk – like real estate – it’s often wise to buy instruments like stocks, bonds and gold in smaller amounts. Think of it like dollar-cost averaging for precious metals. The goal is to build up your stores over time, allowing you to counteract price fluctuations.
How to invest in gold for beginners: rely on AI
Diversification is the mark of a strong portfolio, and when times get tough, it doesn’t hurt to have a historically reliable hedge on your side. But instead of fussing with finding reputable dealers and ethical stocks, why not rely on the ease and expertise of data-backed artificial intelligence?
With Q.ai’s Precious Metals Kit, you can invest in gold, silver and other commodities without spending tons of time on research. And for an added hedge, consider our Inflation Kit to buffer your returns at the source. We make it fun, quick and easy to invest in assets of all stripes.
Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $50 to your account.