Gold Investing 101: A Beginner's Guide

Since time immemorial, gold has been the world's currency of choice. Today, gold is bought mainly as a hedge against political unrest and rampant inflation because of the metal's low correlation with the prices of other asset classes. Many also invest in gold to lower overall portfolio risk.

There are numerous ways to invest in gold, such as bullion, coins, mutual funds, ETFs, and jewellery. Apart from a few of these, most derive their value from other sources rather than providing direct investment in gold.

Gold Bullion

Bullion is the best-known form of direct investment in gold. Although many people think of it as large gold bars, it is any form of pure gold certified for its purity and weight.

They are costly to buy and sell despite their physical attractiveness because of their large size. However, this problem is solved if the bullion is bought in smaller-sized bars as it will make it possible to sell parts of it.

Advantages:

• Requires no special knowledge

• Easy to maintain

• No expense ratio

Gold ETFs

Investing in gold-based Exchange Traded Funds (ETFs) is an alternative to directly investing in gold bullion. A unit of these instruments represents a fixed amount of metal. One gold ETF is usually equal to 1 gram of gold bullion. These instruments combine the flexibility of stock investment and the simplicity of gold investments.

As ETFs are purchased and sold just like stocks, they are bought through any brokerage account. Moreover, this method is much more effective than bullion for small investors who are only willing to invest a small amount in gold. However, one needs to keep in mind the expense ratio that is charged on these investments.

Advantages:

• No making charges

• Can be bought in smaller denominations

• Higher Liquidity

Gold Jewellery

Around half of the global gold is used in the production of jewellery and this ratio is increasing due to the increasing demand for jewellery worldwide. Despite the high markup of retail jewellery, it provides an enjoyable way to own gold even when it is not very profitable from an investment standpoint.

Advantages:

• Increased Utility

• Good resale value on valuable pieces

Gold Mutual Funds

Gold mutual funds are like any other type of mutual fund. They primarily invest in gold reserves. These investments are in physical gold or stocks of gold mining companies.

Advantages:

• High Liquidity

• Flexible Investment amount

• High Safety

How should beginners invest?

Investing in jewellery or gold bullion are options that require no specialized knowledge. However, Gold mutual funds and ETFs are far better options due to their flexibility and safety. As they can be purchased in much smaller denominations and have much higher liquidity than bullion and jewellery, they are a good choice for beginner investors who are looking forward to investing in gold.