Investors can invest in gold through exchange-traded funds (ETFs), buy shares in gold miners and partner companies, and purchase a physical product, The Best Strategy for Gold. These investors have as many reasons to invest in metal as there are methods to make those investments. From the time of ancient civilizations to the modern era, gold has been the world's preferred currency. Nowadays, investors buy gold mainly as protection against political unrest and inflation.
In addition, many top investment advisors recommend portfolio allocation in commodities, including gold, to reduce overall portfolio risk. Of all the precious metals, gold is the most popular investment. Investors generally buy gold as a way to diversify risk, especially through the use of futures and derivative contracts. The gold market is subject to speculation and volatility, as are other markets.
Compared to other precious metals used for investment, gold has been the most effective safe haven in several countries. There is too much room between the price of most jewels and their gold value to be considered a real investment. With few exceptions, only bullion, futures and a handful of specialized funds provide an opportunity for direct investment in gold. And while it may be the most exciting way to invest in gold, it's also the hardest way to buy, store and sell.
The SPDR Gold Shares ETF (GLD), for example, holds physical gold and deposit receipts, and its price follows the price of physical bullion. Alternatives to investing in gold include buying shares in gold mining companies or gold exchange-traded funds (ETFs). An alternative to buying gold bars directly is to invest in one of the gold-based exchange-traded funds (ETFs). Often, the best thing you can do for your portfolio is to stick to your investment plan, not rush to buy gold bars.
VanEck Vectors Gold Miners ETF (GDX), on the other hand, is a passively managed fund that tracks an underlying basket of shares of gold mining and refining companies. With inflation rising and stock prices well below their highs, some investors are looking for a safe asset that has a proven record of earnings, and that is gold. If you decide that investing in physical gold is the right thing for you, here are a few things to keep in mind. Throughout history, few investments have rivaled gold in popularity as a hedge against almost any kind of problem, from inflation to economic turmoil to currency fluctuations and war.
Lastly, if your primary interest is to use leverage to profit from rising gold prices, the futures market could be your answer, but keep in mind that there is a considerable amount of risk associated with any leverage-based holding. The goal of ETFs like these is to match gold price performance minus the ETF's annual expense ratio. Investing in stocks of companies that extract, refine and trade gold is a much simpler proposition than buying physical gold. In other words, the coins that were used as money simply represented the gold (or silver) that was currently deposited in the bank.