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Ah, gold. It's rare, accepted everywhere, and governments can't print it at will. These are the reasons that some folks — fondly known as "gold bugs" — have always invested heavily in the honey-hued metal. And in times of financial chaos, they're not the only ones.
Buying gold is another appealing option for many investors because it represents the "purest" way to invest. You own the actual, yellow metal — a commodity that can't be erased or hacked and survives catastrophic events that destroy paper currency and/or digitized financial accounts.
Let's dig into buying and investing in physical gold.
Not only is gold largely immune to inflation, instead hewing closely to the cost of living, but gold also serves as a hedge against economic disaster. When the rest of the stock market falls, gold often goes the other way, appreciating in value and protecting the canny investor against major losses in other financial assets.
"History has shown that during economic slowdowns, from the Great Depression to the COVID-19 pandemic, gold appreciates in value," says financial analyst James Jason of Mitrade.
Investing in gold can be a smart way to diversify a portfolio — especially one that includes stocks, bonds, and mutual funds. No matter what the state of the economy, gold offers a good way to diversify your assets. Many financial advisors recommend keeping anywhere from 5% to 10% of your portfolio in gold — perhaps up to 15% in times of crisis.
Individuals have two main ways to invest in gold: physical gold (aka bullion) or gold securities (stocks, funds, and futures).
Physical gold comes in many forms and sizes, each with its own characteristics and costs.
Bullion often refers to gold in bulk form, usually bars or ingots. Typically, gold bars are poured and ingots are pressed (a cheaper production method). As a result, bars command a higher premium, or added cost, over the daily spot price of gold than ingots.
Ranging in size from quarter-oz. wafer to a 430-oz. brick, bars, and ingots are stamped with purity, origin, weight, and where the bullion was minted. Not all gold is equal, especially when it comes to purity and weight. Investment-grade gold is at least 99.5% pure.
Bullion bars and ingots are sold by banks and gold dealers. Banks often offer physical gold at a lower markup than dealers but finding a branch that actually has it may be harder.
Minted coins are another common way to buy physical gold. Not to be confused with old rare coins that numismatists collect, these coins are new, minted by governments for investors. The prices they fetch are based on their gold content —aka their "melt value"— plus a 1%-5% premium.
Although several governments issue gold coins, for maximum liquidity, most buyers stick with the most widely circulated and recognized:
Minted bullion coins are available from major banks, coin dealers, brokerage firms, and precious metal dealers.
For many people, the whole point of owning gold is to own the physical stuff. It's the actual metal that has most of the inherent investment advantages.
Gold is priced by the troy ounce, a special unit 2.75 grams higher than a traditional ounce. The amount it's fetching on the open market is known as the "spot price."
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But equipping yourself to purchase gold means knowing more than just the price. Here are some tips:
Since the price of gold moves in opposition to the stock market, the best time to buy gold is when a recession or financial crisis is looming. That advice is so popular, however, that demand tends to shoot up in such moments, depleting gold reserves faster than they can be refilled.
So another good rule of thumb is to buy gold when things have calmed, at least temporarily — the eye of the storm, so to speak. But many think the long-term outlook for gold remains good, so now might be the time to jump in.
The price of gold is determined by the cycle of supply and demand, so if you're buying at a busy time, all that competition drives up the price. Also note that when you purchase gold, you'll be paying for the asset itself, plus a premium of 1% to 5%, so make sure you budget for the full amount.
Your regular brokerage or financial services firm probably doesn't deal in gold. Bullion is typically only sold at banks and gold dealers, while minted coins can be purchased at coin dealers, brokerage firms, and precious metal dealers as well. Wherever possible, try to purchase from a bank first, as they often offer lower markups than dealers.
Banks won't always have the exact coins or size bars you're looking for, however, so if you do turn to a dealer, do your research to find someone reputable. That means looking closely at online ratings in trade journals and sites and checking the dealer for complaints.
Stashing large amounts of gold in your home leaves you vulnerable to theft, so insure it, and locate an off-site storage location where you can rest assured it's protected. In fact, if you want to hold gold in an IRA account, the IRS mandates that gold can be stored with a metals-specialist custodian through a gold IRA.
Check out our guide to the best gold IRAs
Given the hassles and limits of bullion, gold securities — in the form of stocks, funds, or options — are often a better choice, especially for novice investors.
They may not be as pretty, but they're infinitely more practical:
Buying shares of companies in the mining, refining, or other aspects of the gold production business is one way to play. About 300 of these companies, aka "miners," are listed on major stock exchanges. Their share prices generally reflect the movement of the metal itself.
However, "the growth and return in the stock depend on the expected future earnings of the company, not just on the value of gold," notes the World Gold Council, an industry trade group.
More conservative investors can buy shares in gold-oriented mutual funds or exchange-traded funds (ETFs). These funds have varying investment approaches: gold-backed ETFs tend to invest directly in physical gold, while mutual funds favor gold mining stocks.
Some funds invest in both. But all offer a liquid, low-cost entry into the gold market that is more diversified, and so lower-risk, than buying equities outright.
More seasoned investors might consider an option on a gold futures contract. Like any financial option, these represent the right — but not the obligation — to buy or sell an asset (gold in this case) at a specific price during a specified window of time. You can buy an option to bet on whether gold's going up or going down, and if the market moves the opposite way, all you've lost is the small amount you've paid for the option.
Gold options trade on a division of the Chicago Mercantile Exchange (CME) known as COMEX. Gold options can be bought on gold bullion or on gold ETFs.
Like any financial asset, gold securities have both benefits and drawbacks.
Along with some of the general benefits of gold ownership, securities offer:
More sophisticated investors might consider purchasing an option on a gold futures contract. An option gives its owner a window in which to buy or sell a particular asset at a particular price (it's an opportunity but not an obligation).
Buying an option is basically a bet on which way an asset — in this case, the price of gold — will move. Correct guesses trigger a payout. And if you guess wrong, the option just expires worthless and all you're out is the option cost.
Is it a good idea to invest in gold? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
It's a good idea to invest in gold as it not only diversifies your portfolio, but gold also acts as a hedge against inflation and acts as a counterfeit to other equities that are more susceptible to the economy.
How do beginners buy gold? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Beginners can easily invest in gold securities such as gold ETFs, gold stocks, gold mutual funds, and gold options. Gold securities, although more volatile than physical gold, are more accessible and affordable for beginner investors.
Can I invest $1,000 in gold? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Yes. You can invest $1,000 in gold but depending on the form of gold, you may get more or less out of it. $1,000 in gold bullion, for example, may get you about 0.5 oz of gold bullion. But you can get around four 1/10 oz American Gold Eagle coins for $1,000.
Should you invest in physical gold? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Though it usually becomes part of the conversation during times of economic crisis or political uncertainty, gold as part of your portfolio makes sense anytime — as a diversifier of your holdings, if nothing else.
But how much to invest, and what form to invest in, depends on your own tolerance for risk and desire for convenience.
A freelance writer and editor since the 1990s, Jim Probasco has written hundreds of articles on personal finance and business-related content, authored books and teaching materials in the fields of music education and senior lifestyle, served as head writer for a series of Public Broadcasting Service (PBS) specials and created radio short-form comedy. As managing editor for The Activity Director's Companion, Jim wrote and edited numerous articles used by activity professionals with seniors in a variety of lifestyle settings and served as guest presenter and lecturer at the Kentucky Department of Aging and Independent Living Conference as well as Resident Activity Professional Conferences in the Midwest.Jim has served on the boards of several nonprofit organizations in the Dayton, Ohio area, including the Kettering Arts Commission, Dayton Philharmonic Education Advisory Committee, and the University of Dayton Arts Series. He is past president of an educational foundation that serves teachers and students in the Kettering (Ohio) City School District.Jim received his bachelor's from Ohio University in Fine Arts/Music Education and his master's from Wright State University in Music Education.
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