Invest in Gold

Investors have many different investment choices, and the option to invest in gold is just one of them. Gold is an investment option that is near and dear to our hearts, as we launched the United States’ first gold fund back in 1968. As part of our series on investing for beginners, let’s take a look at the following about gold and investing in gold:

  1. Advantages of investing in gold
  2. Breakout of the gold price in 2019
  3. How to invest in gold
  4. Overview of the advantages and disadvantages of various gold investment products
  5. Investing in gold according to your own time frame
  6. Investing in gold with gold mining shares
  7. Invest in gold miners via ETFs

Okay, let’s get started.

Advantages of investing in gold

Gold offers a number of advantages compared to other asset classes (stocks, bonds, etc.):

  • Since the very beginning of history, gold has been used as money or as security for money.
  • Gold has a diversification effect with respect to shares, bonds, and real estate. In the past, when there were large drops in the equity markets, the gold prices have dropped much less or even increased.
  • Gold has attractive fundamental characteristics: Demand for gold has been increasing for years, while the annual supply remains stable.

Of course, as with all investments, there is always a risk factor and there is no guarantee that gold will keep this role in the future.

Breakout of the gold price in 2019

Bull markets can be classified as either secular (long-term) or cyclical (bull phases in an overall bear market). Before the June 2019 breakout of $1,400 per ounce, technical analyses indicated that gold was in a cyclical market. A longer, sustained rally is now likely – perhaps similar to the secular gold bull market of 2001 to 2008.

Gold price breakout in 2019
Source: VanEck, Bloomberg. Data as of 8 January 2021.

How to invest in gold

There are various ways to invest in gold: bullion, gold miners, jewelry, coins, futures and options.

There are several ways to obtain exposure to the gold price. We will explore:

  • Gold bullion or gold coins
  • Gold jewelry
  • Gold certificates
  • Shares in gold miners (or a more diversified option like a gold miners ETF)

Let’s take a look at each of these options.

Gold bullion

This is an investment in actual physical gold. Bullion is the word that describes gold or silver that is 99.5% pure or more. You can purchase bars of gold bullion or coins (these are not as pure) and keep them in a safe at your home or perhaps in a bank or depository. If you hold the gold at a bank or depository, you will have to pay storage costs for your bullion. It’s also crucial that you do some research and purchase bullion from a reputable dealer such as APMEX, JM Bullion and others. There are many reputable dealers around the world, and you can even purchase coins and bullion online.

Gold jewelry

Gold jewelry tends to hold its value, but this can be a risky investment. For one thing, you have to ensure that the gold jewelry you purchase is of the highest quality. You also need to ensure that you don't overpay for the jewelry. Keep in mind, you aren't just paying for the gold but also the craftsmanship that went into creating the jewelry. Additionally, you will need to store the jewelry in a secure place. In general, this is only a good investment if you get a good price or you simply love to wear gold jewelry.

Gold certificates

A gold certificate is simply a paper document that indicates you have a claim on a specific amount of gold. Basically, if you want to purchase physical gold bullion but don't want to store it, you can opt to buy gold certificates. Obviously, you will need to purchase these certificates from a highly reputable dealer.

Gold mining stocks

Another option would be to purchase shares of a gold mining company. This might be a company that actually mines for gold and other precious metals or perhaps a company involved in exploring for gold and other natural resources such as copper and platinum. It is essential that you research each company carefully, as buying shares in a single company carries more risk than a mutual fund or ETF, which is diversified with multiple holdings.

Overview of the advantages and disadvantages of various gold investment products

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  Advantages Disadvantages
Bullion and gold coins
  • Tangible asset
  • Crisis currency
  • Easy to understand
  • High buying rates
  • No interest/dividends
  • Expensive storage
  • Possible theft
  • Minimum amount
Gold certificates
  • No physical storage requirements
  • No direct ownership
  • No interest/dividends
  • High fees
Gold ETCs
  • No physical storage requirements
  • Extremely liquid
  • No interest/dividends
Gold mining shares
  • No physical storage requirements
  • High upside potential
  • Dividends
  • Extremely liquid
  • High price fluctuations
  • Equity risk
  • Equity analysis required
Gold mining ETFs
  • No physical storage requirements
  • High upside potential
  • Dividends
  • Extremely liquid
  • High price fluctuations
  • Equity risk

Investing in gold according to your own time frame

The different gold investment options also vary in terms of time frame, liquidity and their suitability for certain types of investor.

Investing in gold according to your own time frame
Source: VanEck.

Investing in gold with gold mining shares

Mining shares from companies like Newmont Corp or Barrick Gold Corp are an indirect way of profiting from developments in the gold price. Their prices usually correlate with the price of gold and offer the following advantages:

  • You avoid the storage costs of bullion. These costs can be considerable with respect to the necessary security measures.
  • Gold mining companies can pay dividends, which can influence your yield on investment. In the case of bullion, the yield is derived solely from the price gain (or price loss). Needless to say, a price gain cannot be guaranteed.
  • Gold mine shares may increase in value without the gold price increasing. This may occur, for instance, if the company carries out operational improvements that improve profitability. Note: the value can also decrease due to unsound management.

Historically, the share prices of gold miners have increased disproportionately when gold prices increase. The reason is that their profitability increases disproportionately if revenue increases while costs remain the same. Conversely, the opposite is also true: When gold prices drop, the share prices may drop disproportionately.

Risk factors

Investing in gold miners is subject to a number of specific risks. The most important one is sensitivity to the price of gold. Additionally, there is the risk of investing in the natural resources sector: companies can be negatively affected by numerous factors, such as political and economic circumstances, exchange rate fluctuations, import restrictions, and exhaustion of natural resources.

Invest in gold miners via ETFs

If you want to broadly invest in gold mining shares, you can turn to gold mining ETFs. This instrument eliminates the need to search for promising individual shares and allows investors to buy across the entire sector on a broadly diversified basis.

VanEck offers two gold mining ETFs that invest in shares of gold mining companies:

Please contact us for more information: