Gold trading: how can you invest in gold?

In times of crisis investing in gold is often very popular. When the uncertainty in the stock markets rises, many investors manage to find gold again. But how can you actually invest in gold yourself? And what are the biggest advantages and disadvantages of trading in gold? In this article you will read everything you need to know before you start investing in gold!

How can you invest in gold?

There are roughly two methods to invest in gold: physically and not physically. When you invest in gold physically, you actually buy gold. However, most investors choose for non-physical ways to invest in gold.

How can you indirectly invest in gold?

We will first discuss the non-physical ways in which you can invest in gold.

Trade in gold actively using CFD’s

You can actively trade gold by using an online broker. With an online broker you can trade in gold in an attractive way. You are not the physical owner, but you do benefit from price rises and falls by trading CFDs on the commodity.

CFDs are very suitable for speculating on price rises and falls in the price of gold in the short term. With CFDs, you can apply leverage, which makes it possible to invest in gold with smaller amounts of money. Read more about investing in CFDs in this article.

You can try the possibilities of trading in gold for free with a demo at an online broker. Would you like to get started with a free demo account at a broker? Use the button below to open a free gold demo:

gold demo

invest in gold now

Using an index fund

There are several index funds or ETFs that track the price of gold. You can trade ETF’s without effort at a broker. This allows you to sell your investment in gold without a hassle. When you invest in physical gold, selling it is more difficult. There are two types of gold ETFs:

  • Bullion-Backed: These funds hold physical gold.
  • Nonbullion-backed: these funds use financial securities as collateral.

SPDR Gold Shares is a physical fund in gold noted in dollars and ETFS physical gold is a physical fund in gold noted in euros. Please note that funds charge a fee percentage on an annual basis. This cost percentage is used for the administration and storage of the gold.

A good broker where you can invest in gold funds is eToro. At eToro, you can buy these funds without commissions. With the button below, you can immediately open a free (demo) account with this broker:

eToro sign up

Gold options

With options, you have the possibility (but not the obligation) to buy (call option) or sell (put option) a certain amount of gold. For an option you pay a premium. A gold option always has a certain duration. Within this term you must exercise the option, otherwise it will become worthless.

With options, you can use rather complicated constructions. A big advantage of gold options, is the fact that you are never obliged to exercise them. Do you want to know more about investing in options? In our course you learn everything you need to know:

options course

Gold futures

Futures are binding agreements for the delivery of gold at a specified price & time. Because of the leverage and the obligation, you can quickly lose a lot of money with futures.

The gold account

There are two types of gold accounts. These are the allocated account and the unallocated account. A gold account is an account that follows the gold price one by one. When you open a gold account, you buy a set amount of gold ounces. In the allotted account, the gold is the full property of the account holder. The serial numbers of the gold bars are known and the gold may not be traded without permission.

In the unallocated account, the account holder will not be allocated any specific gold bars and the gold will be shared with other account holders. The advantage of this, is that the costs charged by the bank are lower. The disadvantage is that the account holder can not always withdraw all the gold. Especially in times of crisis, the account holder is dependent on the creditworthiness of the bank.

invest in gold at bank

Shares in gold mining companies

Another way to invest in gold is by buying shares of gold mining companies. The cost of mining gold is generally fairly stable. As an investor you can make a good profit with the right approach. It is important to remember that the value of shares in gold mining companies do not move one on one with the value of gold.

It is therefore important to investigate how the company performs. The company's results are influenced by other factors besides the price of gold. Some well-known gold shares are:

  • AngloGold Ashanti Ltd.
  • Goldcorp Inc.
  • Barrick Gold Corp.
  • Newmont Mining Corp.
  • Franco-Nevada Corp.

You can also trade in a combination of gold mining companies with an ETF. A good option for this is the Market Vectors Gold Minders ETF. Do you want to know more about buying shares? In our article 'how to buy shares' we give you an in-depth analysis of the process:

buy shares

How can you buy gold?

It is also possible to physically invest in gold. When you invest in gold physically, it is important to take the extra risks into account. You should be able to store the gold safely.

Investing in gold bars

Gold bars come in different weights. The lightest gold bars weigh only one gram, while the heaviest ones weigh over one kilo. This allows you to invest both small and large amounts of money in gold bars. The relative premium or production costs are relatively lower with the higher weights. After all, it is cheaper to produce a larger gold bar.

Investing in gold coins

It is also possible to invest in gold coins. The weight of a coin is usually one Troy or about 31 grams. The value of a gold coin mainly depends on the purity of the gold. Some coins are reinforced with copper. When trading gold coins, the type of coin can also determine the value. Rare coins have a higher value than the more regular gold coins.

invest in gold coins and bars

What do you want to know about investing in gold?

  • Risk: what are the risks of investing in gold?
  • Advantages: why is it smart to invest in gold?
  • Wise: is it wise to invest in gold?
  • Gold or Silver: What is the better investment?
  • Example: discover how investing in gold works.

What should you pay attention to when investing in gold?

It is important to use a reliable provider when you want to invest in gold. This of course applies to both trading gold securities and trading physical gold. For example, you can check whether the provider has a licence from a regulator. Often you have to pay for the gold in advance, so it is essential that the counterparty is reliable.

When you purchase gold for more than $10,000, you often have to make a copy of your identification. It is also important to check whether the gold is safe at home. Not every household insurance covers gold bars. You should therefore check whether it is wiser to store your gold in a safe deposit box at a bank.

What are the risks of investing in gold?

Every investment has its pros and cons. Also with gold there are many reasons why it’s better not to do it.

You will not receive a dividend on gold

When you put money in shares or bonds, you receive dividends or interest. When investing in gold you can only make a profit when the price rises. In the long term, an investment in gold can therefore be disappointing, especially in relation to investments in (gold) shares.

Poor returns with a good economy

Gold does particularly well in economically uncertain times. When the economy is doing well, it is better not to buy gold. Of course, you can always buy it as insurance to prepare for a potential future recession.

The gold market is volatile

The price of gold is very volatile. This volatility brings uncertainty.

Money in a savings account yields a fixed interest rate. Nevertheless, gold generally performs better in the long term. It is also possible to take advantage of volatility by taking a short position. By using a short position, you can also earn money when the gold rate falls.

Poor results at high-interest rates

At low-interest rates, gold does relatively well. However, when interest rates rise, gold often loses its shine. There are more relatively safe alternatives. Think for example of bonds or even a savings account. A rising interest rate can therefore be a good reason not to invest in gold.

Interest and gold price

What are the advantages of investing in gold?

Of course, there are also reasons why you should invest in gold. If they weren’t there, gold would probably have a much lower value.

Gold can protect you against inflation

Inflation is a natural phenomenon in which the value of money decreases over time. By investing in gold you can protect yourself against inflation. Over time, the value of gold rises along with inflation. At a later moment you can receive a comparable real amount of money for your gold.

Gold is scarce

Gold, like many other commodities you can invest in, is scarce. At some point, the raw material simply runs out. At the same time, global prosperity is increasing and more and more people are taking an interest in the raw material gold. It is therefore not unlikely that the price of gold will continue to rise in the future.

Good results at low-interest rates

When interest rates are low, investing in gold is a good idea. In this case, you will not miss out on a return on the money in your savings account. Moreover, the price of gold often rises at low-interest rates.

Spreading your risks

With gold, you can also spread your risk. Gold is a countercyclical investment product: when the economy is not doing well, gold often performs well. By buying gold, you can stabilize your portfolio and ensure that you achieve a positive return in both bad and good times.

Good results with a weak dollar

When an important currency such as the dollar falls in value, it can be attractive to invest in alternatives. Investors then look for a safe haven. When the world burns, gold rises.

Dollar and gold price

Is investing in gold wise?

Whether investing in gold is wise depends very much on your personal situation. It is important to remember that gold is by definition a risky investment. Therefore, only invest in gold with money you can spare for the longer term.

Then it's important to time your gold investment. It is not wise to invest in gold when there is a strong bull market. A good example of a good time to buy gold is a crisis. During the corona crisis of 2020, for example, you saw the price of gold rise sharply.

When you have decided to invest in gold, it is essential to draw up a good plan. Think for yourself at what price you will sell the gold again. You don’t make money on gold through interest or dividends. That’s why it's important to take your price gain at some point.

Investing in gold or silver?

Gold and silver are regularly mentioned together in one sentence. This is not strange, since they are both precious metals. Silver is often seen as the smaller brother of gold. However, it is questionable whether this is correct.

Silver certainly seems to outperform gold in bull markets. This is probably partly because there are more applications for silver. Silver is widely used in technological products and with the further digitalization of our society the demand for these kinds of products is only increasing.

An investment in silver can therefore be more interesting. Silver is still seen as a safe haven, but it can also do well in times of economic prosperity. Silver supplies are decreasing, while industrial demand is only increasing. In the long term, you can therefore achieve good results with an investment in silver!

How does investing in gold work in practice?

With two examples we discuss how investing or investing in gold works in practice.

A crisis!

It is the end of February 2020 and you realize that the coronavirus is spreading over Europe. The stock markets are plummeting and investors are selling their shares en masse. Therefore, you are looking for an interesting alternative to shares. After some research you finally end up with gold.

You decide to speculate on the price of gold with a CFD. You buy gold for an amount of 1400 dollars. In the beginning the price drops a bit more, but eventually the price rises again considerably. Eventually, you sell the gold for a price of 1550 dollars. You then achieve a positive return of 150 dollars per gold bar, which equals a return of more than 10%.

With a derivative, you can choose to apply leverage. If you had applied a leverage of 1:3 in this example, you would have achieved a return of 450 dollars per gold bar or 30% on your investment. If you apply a leverage, your loss can of course also increase considerably.

gold price investing

Gold price development, source goldprice.org

A new gold mine

You have received a small inheritance and you decide to invest a small part of it in a gold mine. You do this by buying shares in a gold mine at eToro without commission costs. A few weeks later you watch the news.

Unexpectedly an enormous supply of gold has been found somewhere in Africa. The global gold reserves are suddenly much larger than expected. Due to the larger supply, the value of gold is decreasing. Because of this, people are massively selling the gold mine share.

The share drops ten percent and you achieve a negative return. Is the company still making a profit? Then it might be smart to just hold on to the stock. Panic surrounding news facts often affects the price disproportionately. There is a good chance that the share will be back on a nice plus in the future.

Bitcoin as the new gold?

Gold has long been known as the safe haven. Today, however, a new player has arrived: Bitcoin. The Bitcoin also has no counterparty risk. When people are worried about inflation or the state of the economy, the Bitcoin's price is rising. Trading in Bitcoins can be interesting in uncertain times. Click here to learn more about Bitcoins.

What is the current gold rate?

Below you can consult the current price of CFDs on gold:

Conclusion investment in gold

Investing or trading in gold can be very interesting. The precious metal is no longer linked to the dollar one-on-one. Yet gold still functions as a safe haven. You can therefore see gold as an insurance against downward markets and inflation. This can make it attractive in both the short and long term to invest in gold.

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