There are many ways to buy gold. Different products can be used to achieve a variety of investment objectives.
Investors should consider the options available in their market, the form of investment that is appropriate to their circumstances, and the nature of professional advice they will require.
Deciding how to invest in gold involves reviewing the various gold-related investment products The various gold-related investment products, all of which have different risk and return profiles, liquidity characteristics and fees. Typically, an asset allocation strategy will consider long-term versus medium-term returns, and how gold investment products perform in positive or negative correlation with other assets.
Buying physical gold (bars and coins)
Small bars and coins accounted for approximately two-thirds of annual investment gold demand and around one quarter of global gold demand over the past decade. Demand for bars and coins has quadrupled since the early 2000s, and the trend covers both the East and the West. New markets, like China, have been established and old markets, like Europe, have reemerged.
Buying gold-backed ETFs and similar
Physically-backed gold exchange traded funds (ETFs), exchange traded commodities (ETCs) and similar funds account for approximately one-third of investment gold demand. These funds were first launched in 2003 and, as of March 2016, they collectively hold 2,300 tonnes of physical gold on behalf of investors around the world.
Gold-backed ETFs and similar funds allow investors to generally track the price of gold, giving them access to the properties and security of owning physical gold without the need to arrange for storage and insurance separately. These gold-backed funds seek to combine the flexibility and ease of stock-market trading with the benefits of physical gold ownership.
Buying into allocated gold accounts
Bullion banks offer their institutional or high net-worth customers allocated gold accounts consisting of gold deposits and resembling currency accounts. The holder of an allocated account is the legal owner of a specific quantity of gold. Bullion banks also offer unallocated accounts. In an unallocated account, a customer does not own specific bars or coins, but has a general entitlement to a set amount of gold. The investor is not the legal owner of any physical gold, but rather is a creditor of the provider.
Internet Investment Gold
An increasingly common way of accessing the gold market is through Internet Investment Gold. Internet Investment Gold allows investors to buy physical gold online, have it stored in professional vaults and take possession of it should the need arise. As such, Internet Investment Gold offers investors a convenient way to benefit from outright ownership of physical gold.
Buying gold derivatives: futures, forwards and options
Investing in derivatives requires more knowledge of financial securities than other forms of investing and may not be suitable for all investors.
Derivatives trade over-the-counter (OTC) and on exchanges. Derivatives traded on exchanges settle in a central clearing house that matches buyers and sellers. OTC derivatives are bilateral contracts that have more flexible structures but include additional counterparty risk. While there are many types of derivatives, the most common ones include futures, forwards and options. These contracts often allow settlement in-kind, as well as in-cash.
Buying gold mining stocks
Investors can invest in shares of gold mining companies. Gold mining company stocks may correlate with the gold price. However, the growth and return in the stock depend on the expected future earnings of the company, not just on the value of gold.