This article will deal with the pros and cons of the many ways an investor can invest in gold.
Pros and Cons of Investing in Gold Bullion
An investor can acquire it physically (the gold itself) called bullion, in the form of small bars, or coins like American Eagles or Krugerrands. Bullion dealers provide this service. There is a lot of this going on; last year purchases of bullion almost doubled.
There are some disadvantages to this way of investing in gold:
- It can be stolen.
- Insuring it can be costly.
- Gold does not pay interest or dividends like bonds or stocks.
- Gold is not a liquid investment in the sense that if a gold holder needs just a small portion of cash right now, the holder can’t just break off a piece of the gold bar.
- Gold can kill an investor tax-wise. The IRS doesn’t consider gold an investment, but only as a collectible, so an investor misses out on the 15% cap on the federal capital gains tax- gold is taxed at 28%.
On the upside, it’s comforting to own gold; it’s tangible, it’s right there in the home safe or safe-deposit box. It brings a feeling of stability in a financial crisis.
Gold Investment Through Buying Gold Mining Stocks
Another way to invest is through buying mining stocks. Some disadvantages are that these companies have some huge costs, and can waste money on digs that don’t produce.
Investment in Gold ETF's
Exchange traded funds are similar to mutual funds in that they hold a basket of stocks, offering a diversified portfolio with just one purchase. But unlike mutual funds, they are traded on exchanges, buy and sell them throughout the day, like stocks, and usually track indexes, such as the S & P 500 index.
A gold exchange-traded fund is a special type of exchange-traded fund that tracks the price of gold. Investors like this sort of investment class since it makes tracking gold prices easily, and much easier to trade than bullion. Ask a stock advisor about this.
Investing in Gold Futures
Lastly, an investor can play the commodity futures market, and, considering the weakness in the dollar, speculative trading is on the rise. For just 10% down, an investor can control a large share of gold. The downside is that futures can very volatile, and the investment can easlily be lost.
Experts are mixed on gold as an investment. Some think it’s ok as a long term investment, while others believe that since gold only performs well in times of crisis, unrest, inflation and war, it's an investment vehicle these experts won't touch.
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