Investing in gold can help maintain the value of your investment portfolio as a barrier against economic pressures like inflation. You will find gold investing options to meet just about any level of risk tolerance or available funds.
Whatever method you choose to invest in gold, learn about tax implications and understand how the type of investment you prefer fluctuates in response to market conditions.
In this article, we are going to discuss 8 tips to buy and invest in gold for ultimate profit. So, let’s talk
1. Gold savings schemes
Gold or jewelry savings schemes come in two forms. A typical one allows you to deposit a fixed amount every month for the chosen tenure. When the term ends, you can buy gold (from the same jeweler) at a value that is equivalent to the total money deposited, including a bonus amount.
This conversion is done at the gold price prevailing on maturity. In most cases, the jeweler adds a month’s installment at the end of the tenure as a cash incentive or may even offer a gift item.
2. Sovereign Gold Bonds
Sovereign Gold Bond is another way of owning paper gold. They are issued by the government but availability is not ‘on-tap basis’. Instead, the government will intermittently open a window for the fresh sale of SGBs to investors. This could typically happen every 2-3 months and the window will remain open for about a week.
For investors looking to purchase SGBs anytime in between the only way out is to buy earlier issues (at market value) that are listed in the secondary market.
3. Gold ETNs
An ETN is an exchange-traded note, and this instrument combines some aspects of ETFs with bond securities. Gold ETNs may track a gold index or may move opposite of the value of gold, which is useful for the contrarian investor. Like buying non-interest-bearing bonds, a bank issues Gold ETNs with a maturity date.
When the ETN matures, the bank pays the investor back with a profit depending on gold futures. With great risk comes great reward, and Gold ETNs can pay a handsome return. However, you also can lose your entire investment.
4. Gold Coins or Bars
You can buy physical gold from a variety of gold and precious metals brokers who sell the gold in the form of coins, bars, and bullion. While owning actual gold sounds thrilling, storing it in your home can be a safety issue if anyone learns you have the gold in your possession. A relative or friend may mention to others that you have gold in your home, which can lead to theft.
Gold storage companies securely store your gold for a fee or a small annual fee. Look for a dealer offering free shipping and compare offers from multiple brokers to see if you can reduce costs and increase your profits when you sell the gold.
5. Digital Gold
Many Fintech platforms now offer the option to buy digital gold. You can start purchasing digital gold with as little as 1 penny to start with. You can start making digital transactions on gold at market prices and redeem it when you sell. Usually, the investment in digital gold is backed by actual physical gold, as these platforms tie up with traders or gold manufacturers.
In these transactions, you can either redeem your investment return value or avail of physical delivery of gold for that value. It is important to note here that not all platforms provide an option to choose physical gold. This is one of the popular gold investment options out there in the market nowadays.
6. Gold Mining Stocks
Just as the movement of crude oil price impacts share prices of oil refiners/marketers, the changes in gold prices impact shares of gold mining companies. If gold prices rise, the miner’s profit will rise. Its revenue will also go up if production is increased. A double whammy. However, like any equity investment, especially individual stocks, there is high volatility and risks associated with the company’s management.
You may have to invest in global markets as most precious metal mining companies are listed across Canada, the US, Australia, and the UK.
7. Gold IRA
You can buy physical gold while reaping tax benefits by setting up a Gold IRA. Many gold brokers have Gold IRA programs with specialists who are ready to assist in the process of setting up this self-directed IRA. Gold IRA specialists ensure you buy IRS-approved gold, help you with completing a Gold IRA rollover, and provide other assistance while you make all final decisions.
Gold IRAs hold physical gold, which must be stored by a facility approved by the IRS. You can buy more gold to add to the IRA but you can’t sell without paying taxes and penalties until you reach age 59-½. You are required to take minimum distributions from a Gold IRA once you turn 70-½ years old.
8. Gold ETFs
Gold Exchange Traded Funds is a great way of owning gold on paper. It is as easy as buying stocks of companies, readily exchangeable for cash. The purchase and sale can be done using your trading account. You can buy and sell during market hours within the comfort of your home. There isn’t much to think about on the choice of gold ETFs in India as all of them have gold as the underlying asset and returns will be almost similar.
You could pick an ETF based on the expense ratio and other costs, convenience, and reputation of the asset management company. As mentioned before, gold ETFs are like stocks, therefore the movement in their rates, on some days, can be as volatile as stocks. However, since you have the advantage of exiting from the investment at any time, you will be able to decide on the right time to sell and act fast.
Investing in gold is not for everyone, and some investors stick with placing their bets on cash-flowing businesses rather than relying on someone else to pay more for the shiny metal.
That’s one reason legendary investors such as Warren Buffett caution against investing in gold and instead advocate buying cash-flowing businesses. Plus, it’s simple to own stocks or funds, and they’re highly liquid, so you can quickly convert your position to cash if you need to.