The Best Ways to Invest in Gold

by Joseph Nicholson ; Updated July 27, 2017
The U.S. Mint produces several investment grade gold bullion coins, including the American Gold Eagle.

Gold is considered one of the best hedges against inflation and a declining dollar. Everyone in America has dollars, but too few have gold--a fact that some think will continue to force the price up for years. The U.S. Mint produces several investment-grade gold bullion coins, such as the instantly recognizable American Gold Eagle. But besides direct ownership of gold, there are several ways to get a piece of the action, such as stocks, ETFs and mutual funds.

Bullion

There's no substitute for owning gold you can hold in your hand. Gold bullion is one of the oldest stores of value, and those who've felt the heft of a one-ounce gold bar understand why. The best way to build a position in physical gold is to avoid rushing in and buying all at once -- instead making regular small purchases over a long period. Find a local dealer that offers fair prices on investment grade (24 karat or .999 fine) gold. Buy recognized names such as Pamp Suisse, or coins minted by the national governments of nations such as the U.S., Canada, Australia and South Africa.

ETFs

The relatively new gold-back exchange traded funds (ETFs) are a popular way to gain gold exposure. For a variety of reasons, however, ETFs are not designed for long-term investment. The ease with which they can be traded, however, makes them very useful for traders and those looking to take relatively short-term positions. The most widely traded gold ETF is the StreetTRACKS Gold Trust (GLD) and the iShares COMEX Gold Trust (IAU).

Mining Stocks

Investment in the companies that mine gold and other metals is a long-recognized way to invest in the underlying value of those commodities. But the due diligence required to identify sound investment opportunities in individual mining companies (those expanding their production and reserves while minimizing costs) can be prohibitive for some investors. Those who choose wisely can be well rewarded, with miners often outperforming the yellow metal itself. The other side of the potential reward, however, is that investing with individual mining stocks carries a high level of risk, mining itself being an industry susceptible to a number of unexpected expenses and delays.

Mutual Funds

Those who don't want to take the time to study the mining industry can let a professional do it for them by investing in a gold mutual fund. While the composition of these funds varies, they usually contain a combination of individual miners and commodity futures, or ETFs. By spreading capital over a broad segment of the industry, mutual funds are able to hedge company-specific risks. Some mining mutual funds might have a greater exposure to junior miners, those unproven and highly volatile small caps that carry greater risk and reward potentials, so be sure to read the prospectus.

About the Author

Joseph Nicholson is an independent analyst whose publishing achievements include a cover feature for "Futures Magazine" and a recurring column in the monthly newsletter of a private mint. He received a Bachelor of Arts in English from the University of Florida and is currently attending law school in San Francisco.