Almost 50% of worldwide demand for gold originates from jewelry, which is mainly attributed to its ease of access and people’s inherent affinity for it. However, jewelry is a comparatively expensive form of gold investment because it involves high markups and workmanship costs. Jewelry can also be of lesser quality than gold bars and may not reflect the global gold price. Owning jewelry may be pleasurable, but it is not the most profitable form of investment.
Investing in gold bullion is perhaps the most common and well-known form of gold investment. Gold bullion is a bar consisting of the purest form of gold, certified for its weight and purity. More seasoned investors turn to gold bullion to diversify their portfolios. Furthermore, demand for bullion represents almost 30% of total worldwide gold demand. Gold bullion can come in denominations as low as 1gram to as large as 14kilos. Thus, lower denominated bars can easily be stored and are more liquid compared to larger bars. Investors can store gold bullion privately or keep its custody within bank volts. Gold bullion also costs less than jewelry, is more liquid, and may be of higher quality. In addition, gold bullion represents the actual spot price of gold and can be easily purchased and sold. The disadvantages of physical bullion may arise from storage and insurance fees and its direct exposure to the gold price. In addition, storing gold privately poses security limitations and the inability to liquate it for cash quickly. Therefore, vaulted gold is more secure and provides much higher liquidity.
Gold coins are also a simple way of investing in gold. They can easily be bought in retail stores and certified dealers worldwide. Gold coins may be more convenient compared to gold bars as they often come in smaller sizes. However, gold coins are sold at premiums above the actual price of gold and are a less profitable investment option compared to bullion.
Digital gold allows for fractional investment in gold bullion through digital platforms. Investors can invest in a fraction of the gold bar in a minimum denomination and accumulate their gold holdings over time. The advantage here is that digital gold provides access and exposure to investment-grade gold without the need to physically buy and store it, as the gold will be stored securely in a vault insured by the seller. Moreover, the investor can redeem their gold holdings in physical denominations at any time. Digital gold has quickly become a popular investment tool, owing to its ability to provide customers and investors with liquidity, wealth protection, and risk aversion.
Gold Backed Securities
Gold-backed securities are an indirect way of investing in gold. GBS allows investors to gain exposure to gold through investing in financial instruments backed by the physical asset, which tracks the price of gold, gold stocks, or indexes. GBS caters to either short-term or long-term investors and can be bought at smaller dollar amounts compared to bullion. GBS may also have less direct price exposure compared to bullion.
Gold Exchange Traded Funds
Gold ETFs are the most common form of gold-backed securities. An Exchange Traded Fund is a type of security that holds a commodity or index as its primary underlying asset but can be traded like a stock and purchased in any brokerage account. Gold EFTs hold gold as their underlying asset, allowing investors to gain exposure to gold without investing in the physical commodity. Gold ETFs are a less expensive method of owning gold compared to other instruments, as the minimum purchase corresponds to the price of one share of the ETF, and ETFs generally have lower fees and expenses.
Gold Mutual Funds
Gold mutual funds consist of a mixture of bullion and stocks of companies involved in gold mining, production, and distribution. Again, the investor here is exposed to the value of gold without holding the physical asset. Gold mutual funds like ETFs have comparatively low costs and can be easily purchased through a brokerage account.
Sovereign Gold Bonds
Other well-established innovations in gold trading in international markets include sovereign gold bonds, which are government bonds denominated in gold, offering investors gradual capital appreciation and earning interest over time. They eliminate several risks associated with physical gold and can be bought through digital platforms.
Investors can invest in stocks of listed gold mining, production, and distribution companies. The gold mining and distribution sector may be less volatile than other sectors of the economy, as the supply of gold through mines has proven to be stable regardless of the world's economic state. Mines have a finite production volume and run production until capacity is fully utilized, regardless of gold prices, returns, and demand trends. However, investing in the stock market can be risky and cater to more seasoned risk-tolerant investors.
Gold Options & Futures
Investing in gold options and futures is a more sophisticated form of investment and caters to seasoned risk-tolerant investors looking to speculate on the future of gold prices. Gold futures and options are contracts that allow an investor to either buy or sell a specified amount of gold in the future or have the option to trade a futures contract. The benefits of gold futures, in general, are that costs and margin requirements are low compared to other investment tools. However, due to their volatility and the high risk involved, futures and options may not be suitable for many investors.