The benefits of owning gold are are numerous, even if just for diversification. While there is no substitute for holding physical gold, in this post we’ll go over the pros and cons of each of these common ways to get exposure to gold (and other precious metals).
Note: We’re excluding gold-tangent assets like mining stocks and other vehicles that are not directly tied to gold ownership.
Exchange-Traded Funds (ETFs) 📈
A popular and convenient way to buy gold is via an Exchange-traded fund (ETF). As the name implies, an ETF is simply a fund that is tradable on an exchange so that you can buy shares of the fund. If you’re already set up with a stocks brokerage account, you can start investing in ETFs right away.
The liquidity of many of these ETFs is attractive, as you can more easily buy and sell shares through your broker to take advantage of price movements. That said, the convenience does come at a cost. In addition to potential commissions paid to your broker for each transaction, funds carry an expense ratio. The expense ratio is usually less than one percent, or less than $10 per $1000 invested.
Another drawback to ETFs is that you don’t technically own the gold in the fund directly. If planning for a post-apocalypse scenario isn’t your priority, this may be a worthwhile trade-off for the convenience.
Precious Metals Custodian 🏦
A custodian is an intermediary that deals with the ordering, storing, record-keeping, and insurance of precious metals. Certain retirement accounts, like IRAs require a custodian as an intermediary, who will store the physical gold on your behalf in a qualified vault that you directly own.
While you still have fees to deal with, you don’t have to sort out storage on your own, which can be considered a perk over physical ownership.
We’re partial to GoldMoney, which has many great features, such as the ability to take physical delivery of your gold, or to convert your holding into various different currencies. The fees charged are reasonable, and clearly stated, and their web platform is feature-rich and easy to use.
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Jewelry 💍
Jewelry may be the most common way for the average person to own precious metals. Rings, bracelets, necklaces, etc. In some ways, jewelry is a very pragmatic way to own gold. Not only is it a form of direct physical ownership, but you get the added value of having something you can wear.
The ubiquity and appeal of jewelry also means there is a relatively liquid market for you to buy and sell in: individuals, jewelry stores, pawn shops, etc.
On the other hand, jewelry also tends to be a very expensive way to buy gold. The markup you pay at a jewelry store if many times higher than the value of the actual gold content in the item (jewelry is not generally made from 100% pure gold.)
One jewelry brand stands out from the rest in that they offer 100% pure gold jewelry at a low and fixed markup–Mene. Financials aside, the jewelry itself is beautiful and well-designed.
Bullion (Coins, Bars, etc.) 💰
Last, but not least, we have bullion. This includes gold coins, gold bars, and other pure gold items. As the most direct, physical form of ownership, this is the most stable way to own gold. The value of your portfolio is easily tracked by its weight times the current spot price of gold. While some form factors, such as coins have more liquid markets, they’re all relatively easy to buy, sell, or trade due to the universally-recognized value of pure gold.
With physical bullion, it’s up to you to store and safeguard your precious metals. While you can store it at a bank or other security deposit location, you do give up some of the freedom and security of having the gold in your possession. As such, a well-built safe and good insurance go a long way if you want to retain physical possession of bullion.
Concluding Thoughts
There is no one-size-fits-all answer to how to get started with gold ownership, but if you’re looking to diversify your portfolio, or simply add some real money to your net worth, the options covered in this article should give you an idea of where to start.
