Gold is a popular hedge against a declining dollar, inflation and a variety of adverse market events. One of the challenges investors face is not whether to own gold, but how to own gold.
You can buy bullion and bars direct from a dealer, which some investors like because they are in physical possession of their assets. However, storing gold bars to protect them agains theft or damage can be tricky or, if a bank safety deposit box is used, costly.
Gold exchange traded funds actually own and hold gold relieving shareholders of the burden of storage. Some investors don’t like this however, as they don’t physically hold their assets. On the plus side, gold ETFs, such as the SPDR Gold Trust (GLD) can be bought and sold quickly and easily anytime the market is open.
Buying gold stocks overcomes one of the chief drawbacks of owning gold directly, which is the absence of income. For instance, one of the world’s largest miners Newmont Goldcorp (NEM) pays dividend of about 1.5%. However, gold is often mined in dangerous places in the world, and gold stocks can buffeted by geo-political events.
Buying gold mutual funds, such as Fidelity Select Gold Portfolio (FSAGX), overcomes some of the risk of buying individual companies by diversifying among several gold miners. Many funds further diversify by buying precious metals mining companies, which mine silver and copper as well.
Not for the feint of heart are gold futures contracts. A small margin requirement gives investors significant leverage in controlling large amounts of gold. However, this leverage can deliver outsized losses as well. Don’t try this at home kids.
