4 Ways to Invest in Gold as Prices Soar to Record Highs

• As fears of economic volatility and deficits grow, investors and central banks are buying gold.
• Gold is often viewed by investors as a safe haven.
• Two gold experts reveal four ways investors can gain exposure to their portfolios.

Now it looks like a golden opportunity to invest in gold.

The yellow metal has been considered a safe haven for decades, serving as a hedge against high inflation and economic uncertainty due to its low correlation to stocks and bonds.

And there is certainly no shortage of economic uncertainty right now. The US presidential election is just around the corner, inflation concerns remain high, geopolitical tensions are high and US national debt is reaching unsustainable levels.

Both investors and central banks have snapped up gold. The asset’s price hit another record high of $2,739.40 an ounce earlier this week after rising over 30% this year, and some analysts are setting a price target of $3,000.

Investing in gold is slightly different than putting money into stocks or bonds. Below, two gold experts explain four ways investors can add gold to their portfolios.

4 Ways to Invest in Gold

For starters, investors can do this Buy the metal directly.

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You can buy gold coins online. You can buy gold bars at Costco. Those malls with a big “We Buy Gold” sign? You can also buy gold there.

Buying the physical commodity is a concrete way to invest in gold, but it also has some disadvantages. Jeff Muhlenkamp, ​​portfolio manager at Muhlenkamp & Company, points out that there are transaction costs when purchasing directly from a gold dealer. The investor must also ensure that the gold is certified for purity and weight. Buyers also need to consider secure storage solutions and insurance for their physical assets.

In general, physical gold is a less liquid way to own the asset and is quite costly. “When people buy gold coins, they tend to pay a large premium upfront and are likely to end up with a discount when they go on sale,” George Milling-Stanley, chief gold strategist at State told Street Global Advisors.

Investors can avoid the complications of investing in bars and coins by purchasing one Gold ETF instead.

Physical gold ETFs can be purchased through a brokerage account and are directly backed by gold bullion in bank vaults, so investors don’t have to worry about storage or liquidity issues. Examples include the iShares Gold Trust Fund (IAU) and the SPDR Gold Shares Fund (GLD).

Synthetic gold ETFs do not hold physical gold, but instead invest in gold derivatives such as futures and options. These ETFs can be cheaper than physically backed ETFs because they do not require storing the metal, but they involve counterparty risk, or the risk of loss if a contracting party defaults on its obligations. Examples include the SPDR Gold MiniShares Trust (GLDM) and the ProShares Ultra Gold Fund (UGL).

For investors who want to get as close to the real thing as possible without buying bars, physical gold ETFs tend to track changes in gold prices more accurately than synthetic ones, Muhlenkamp said.

Mining company are another option for more indirect exposure. The risk of these stocks can vary widely, so Milling-Stanley advises investors to approach these stocks with discretion. The multi-billion dollar mining companies offer the most liquidity and the most stable business models. Smaller mining companies, called junior miners, are in the exploration phase looking for mineral deposits and may not generate revenue, Muhlenkamp said.

Mining stocks are less directly correlated with gold prices than ETFs and can lag gold prices by several months, Muhlenkamp said.

In Milling-Stanley’s view, investing in mining stocks rather than investing directly in gold undermines some of the metal’s portfolio protection because mining stocks behave more in line with the broader stock market.

This investment area definitely carries more risk, but if enthusiasm for gold continues to grow, more speculative mining stocks will have the most upside potential, according to Muhlenkamp.

Examples of mining stocks include Agnico-Eagle Mines (AEM) and Newmont Mining Corp (NEM).

Gold royalties and streaming companies are another way to add gold to a portfolio. These companies finance gold mines and receive a percentage of the gold mined.

Royalties limit the risks the owner takes on direct investments in mines such as exploration, development and regulatory compliance. Licensing and streaming companies are a good way to get involved in junior miners and still retain liquidity, especially for investors who don’t have the ability or resources to conduct due diligence, Muhlenkamp said.

Examples of gold royalty companies include Franco-Nevada (FNV) and Wheaton Precious Metals (WPM).