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    How To Invest In Gold - 5 Best Ways To Invest In Gold For Beginners

    0 Minutes
    Updated Apr 14, 2023 02:32

    Investing in gold can be more value-preserving when the economy is unstable, what is the best way to invest in gold? If you're looking to make money off of gold, make sure you read on.


    Gold is one of the most traded assets in the world. According to the World Gold Council, gold has an average trading volume of $130 billion. The yellowish metal is a value-preserving and hence a suitable investment when the economy is unstable. Historically it has been used as a hedge against currency devaluation, inflation, or deflation. It is a safe haven during a crash or crisis in the market.


    You may want to add gold to your portfolio, fortunately, investors can invest in gold in many ways, not only the common physical gold coins, but also gold ETF, gold futures, and other gold derivatives that track the gold price movements. 


    This article is going to talk about how to invest in gold effectively as a beginner.


    Why is Gold Investment Popular?

    Gold has been perceived as a symbol of wealth for years. However, it has numerous uses making it a popular commodity in the trading market. The biggest demand for gold is in jewelry production, followed by direct investment, including coins, bullion (a bar or coin stamped with its value and purity), medals, and standard gold bars. Gold is also a vital industrial metal because it is a good conductor of electricity. It’s also used to make dentistry items and technological gadgets. 


    The luxe metal is viewed as a “safe haven” to store value during periods of uncertainty, insecurity, economic or political turmoil, wars, and devaluation. This is one of the main reasons why the price of gold increased in 2022.


    Gold is historically a valuable commodity

     Gold is a global currency

     Gold is an excellent tool to hedge against inflation. 

     Gold is a valuable addition to a diversified portfolio.


    Therefore, gold becomes the object of pursuit whenever the world economy is unstable, and the global situation is turbulent. 


    What Determines the Price of Gold?

    The Forces of Supply and Demand 


    Like any other commodity, gold trades based on supply and demand, and that interplay ultimately determines what the spot price of gold is at any given point. Economic downturns usually see the price of gold rising as demand from investors increases. 


    The supply of gold in the world is quite large but is often hard to extract. According to the World Gold Council, there are about 190,000 metric tons of gold being used above the ground with 54,000 metric tons located below the ground that can be mined using modern technology. 


    The Value of the US Dollar


    The price of gold is usually inversely proportional to the dollar's value since gold is denominated in dollars. A stronger dollar tends to lower the price of gold, while a weaker dollar may drive the price higher by increasing demand.


    Investment Demand


    Gold is viewed as a safe-haven investment and a store of value, so gold and silver offer ample trading opportunities and high liquidity. 


    How To Make Money From Gold Investment?

    Right off the bat, investing in gold is highly profitable. But here is an interesting fact. No matter how you invest in gold, it will not generate dividends as stock! 


    Gold isn't a company, and there is no way to generate profits. Therefore, you won't get any dividends because no one wants to borrow gold for use. In fact, everyone buys gold to hold or sell high. The only way to profit from gold is to "buy low and sell high to make a profit."


    Well, what are the ways to invest in gold? Before investing in gold, it is imperative that you first understand the "cost of trading gold"


    The Cost of Trading Gold

    Gold is a liquid asset. However, it has a cost of a transaction, which is the difference between buying and selling prices.


    Buying price- the price the other party quotes to buy gold from you.

    Selling price - This is the price the other party is willing to sell gold to you.


    The cost is the difference between the buying and the selling price.


    Currently, a gram of gold at Gold Bullion Australia is selling for $3,001.53 while the buying price is $2,878.17. The transaction cost is, therefore, 4.2%. Therefore you incur a loss of 4.2% every time you purchase gold.  


    Besides the exchange rate loss, there is also a risk of exchange rate cost. To give you perspective. Gold is priced in US dollars. Therefore, if you buy in Aussie dollars, you need to exchange it for the US dollar. As a result, you incur exchange losses. Besides the exchange and exchange rate costs, you might also incur management and handling fees. 


    Different Ways have Different Costs

    Type

    Examples

    Cost per trade

    holding cost

    Physical Gold

    Coins, Bullion, Bars

    Gold jewelry with 14k+ content

    1%~5%

    None

    Futures

    GOLD (NYMEX: GC)

    0.08%~0.15%

    swap cost

    CFDs

    XAUUSD CFD

    None

    Overnight fee

    Gold Stocks

    ASX:NCM. Newcrest Mining Limited

    ASX:EVN. Evolution Mining Limited

    0~0.1%

    None

    Gold ETFs

    SPDR Gold Shares (NYSEMKT: GLD)

    VanEck Vectors Gold Miners ETF (ASX: GDX)

    0~0.1%

    Management fee

    Gold Investment Ways Summary


    Each option of trading gold has its own trade-offs. Like any other investment, there's no standard option for investing in gold. However, researching how gold price works and learning about the pros/cons of each type of gold investment will help you make the right decision.


    1. Buy Gold Jewelry, Gold Bullion, bars, and coins


    Investing in physical gold is the most direct gold investment. Its market value is tied to the value of pure gold. You must pay the full price when you buy physical gold, including storage, markups, and related transaction fees. Physical gold is easy to buy, but high markups make it a poor option for gold investment. Pure gold is 24 karat (how purity is measured).    However, jewelry can have much low purity.


    Overall, buying physical gold is not recommended: The handling fee is too expensive, storage is very troublesome, and there is a risk of storage. The cost of other methods is much cheaper.


    2. Invest In Gold Based Exchange Traded Funds (ETFs)


    Exchange-traded fund (ETF) is an ideal option for investors wishing to have direct exposure without necessarily holding physical gold. According to the    US Securities and Exchange Commission, SPDR Gold Shares is the first gold-backed ETF specifically to track the price of gold launched in 2004. There are other types of funds, like Mining-focused ETFs and Vectors Junior    Gold Miners ETFs. In addition to gold, some ETFs also have exposure to other metals.


    ETFs usually have management fees and transaction fees. The handling fee is about 0~0.1%. Each brokerage is slightly different. The management fee is   0.25%~0.4% per year.


    You can research various costs and fees of each ETF to determine what is affordable and appropriate for your portfolio.


    3. Trade Gold Futures


    Gold future refers to the future contract that takes a future gold price as the trading target. Investors don’t trade the actual gold. The profit and loss of investing in gold futures depend on the gap between the gold price at the time of entering and exiting the market.


    If the position is not closed halfway, we must continue renewing the futures contract after expiration. it is necessary to switch positions to a new month every 2 months. In other words, there will be a transaction cost.


    Many people trade international gold futures, and there are two common commodities, namely


    Gold futures (GC) on the New York Mercantile Exchange (NYMEX), 1 point is  worth 100 US dollars,

    Micro gold futures (codenamed MGC) of the Chicago Board of Trade (CME), 1 point is worth 10 US dollars,


    Based on the current gold price index of more than 1800 points, A GC contract is $180,000, and an MGC contract is $18,000. The transaction cost is about 0.008~0.015% for GC and about 0.08%~0.15% for MGC.


    If you want to hold for a long time, it will be more suitable to use gold ETF, and futures or CFDs will be more suitable for short-term trading.


    4. Trade Gold Contracts For Difference (CFDs)


    Gold CFD and Gold Futures are similar. The common feature is that they use margin trading, so the transaction cost will be much cheaper. These two ways are the only instruments suitable for short-term frequent tradings among all gold investments but care about the problem of leverage.


    A CFD contract for gold is an agreement between a buyer and a seller to exchange a specified amount of gold at a date in the future. The value of the contract fluctuates as the price moves up and down, adjusting the seller and buyer accounts accordingly. Gold CFDs are a kind of derivative that enables traders to track the gold price movements and use leverage    (i.e., credit) to magnify the profits and losses.


    CFDs resemble futures but with some notable differences:

    • - A CFD has no expiry date – it's possible to allow the position to run as long as desired

    • - CFDs can be very much smaller than futures or options – one single unit is possible in a CFD

    • -The universe of CFDs can encompass any underlying asset which has a  changeable price – even cryptocurrencies

    • - CFDs are not traded through an exchange but over the counter (OTC)  with a CFD broker


    The cost of CFD is the bid-ask spread and overnight charges, At present, taking Mitrade broker as an example, The bid-ask spread is about 0.02%~0.04%, and the cost of buying and selling is extremely low. The overnight interest is about 0.00685% a day


    Gold CFDs will suit traders who wish to speculate on the price of gold without owning any of the underlying assets. CFDs also allow substantial leverage. This allows the risk-tolerant to make short-term trades in a straightforward manner on the future direction of gold prices.


    5. Buy Gold mining stocks


    Mining stocks are an excellent way to invest in the gold industry rather than owning physical assets. You can make gains in the increased value of gold (because the stock values go up accordingly).


    There are still risks to owning gold mining stocks. Sometimes the company underperforms, the workers go on strike, and disasters like a mine collapse or gas leak can occur. These factors can cost lives and halt production,    ultimately driving prices down.


    Is It Still Worth Investing in Gold for 2023?

    Gold is the world's most actively traded commodity, meaning there's liquidity to ease trading. The price is also volatile – it changes rapidly- and trading is about being on the right side of price changes. So, yes, there is a potential for profitable trading in gold.


    Trading gold in short term can be exciting and rewarding, but also risky and stressful. You need to have discipline, patience and a good money management system to succeed.


    Trade XAUUSD-Gold online with Mitrade!

    Sell    Buy  


    10 Tips for Investing in Gold Wisely

    There are many expert opinions throughout the gold investment world. Here are our top 10 tips to help you make the best decision.


    1. Purchase some physical gold and silver 

    Gold functioned as money for 5000 years, and it was only in 1971 that the gold standard stopped being used. Having said that, experts recommend that you have some gold as insurance against the monetary system crash.


    2. Dont invest solely in indirect ownership over the long term


    Certain paper products do not guarantee that you actually own the gold and often include cash settlement clauses that will pay you out in cash instead of physical metals. A harsh monetary crisis or war may cause an investment loss.


    3. Ensure it is under your direct and unencumbered ownership

    If you buy physical gold, experts recommend that you store it close to where you live in a jurisdiction that has strong private property rights so it can’t be pledged, hedged, or leased out. 


    4. Purchase only the most liquid coins and bars

    Experts recommend investing in coins as much as possible because they are easier to use than an entire gold bar. Ensure that the coins are legal tender with a low fabrication fee.


    5. Build up stocks over time

    Gold is a traditional store of value and monetary insurance that will help you build up savings over time. In hard times of war and famine, when currencies lost value, gold, and silver were used to purchase homes and provide food for weeks. 


    6. Avoid using credit and buy gold with savings

    Experts recommend saving before investing so that any gold bought with savings is fully yours. This should apply to all types of investments.


    7. Only invest money you don't need for five years

    According to some analysts, gold returns are best realized over long time frames, so investing all your money in gold right now may mean missed short-term investment opportunities. Since markets are volatile, they advise that you use gold investment as a security for the long term and have some capital on hand to invest in current opportunities. 


    8. Set short and long-term objectives

    Experts recommend that you set objectives and review them often, avoiding any quick decisions that might compromise your overall strategy. 


    9. Invest only what you can afford

    Most investment advisors recommend the use of dollar-cost averaging to buy small amounts over time to spread the purchase cost and build a sizeable position. 


    10. Allocate Gold to 10-15% of Your Investment Portfolio

    Analysts recommend investing 10-15 % of your investment portfolio in precious metals, including gold. According to many experts, the best portfolios are diverse portfolios protected from any sharp fluctuations in the value of any asset type.


    Bottom Line

    We introduce 5 popular ways to invest in gold. Many beginners prefer investing in physical assets like gold coins, bars, or bullion. Experienced investors prefer a more liquid and low-cost way to invest, like mutual funds and exchange-traded funds that invest in the shares of mining companies. Advanced investors may trade gold futures or CFDs. This is a risky investment and not suited for beginners.


    Whatever form of gold investment you choose, you can rest assured that gold investment has been around for thousands of years and is unlikely to disappear anytime soon. So, do your research, invest responsibly, and invest wisely!


    At Mitrade, you can invest as little as $100 in gold CFD. And since you're not actually owning the physical gold, you can invest in their rising value OR their drop. Practice trading with a demo account! 



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    * The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

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