How to invest in gold online and offline

Gold is a classic investment asset that has been around for ages. Today people have a lot more ways to invest in gold online or offline then ever before. If you decided to invest into precious metals, you can choose from a lot of different options: buy physical metal, invest in gold coins, invest in gold ETF, invest in gold or silver backed bank account, buy futures on gold, buy gold bonds (sovereign gold bonds), invest in gold stocks. For an aspiring investor it is easy to get lost in the variety of available options. For best or worst, there is no ultimate solution that will suite everyone. The best way to invest in gold or silver depends on the size of your capital, your risk tolerance and, in some cases, your location.

Invest in gold bullion

Gold bars
Some people turn to investing in gold bullion (buying physical gold bars) because it makes them feel more secure. Instead of purchasing a virtual asset, they put their money into a tangible object they have full control over. However, there is a lot of challenges awaiting people who choose to invest in gold bullion. First of all, you need to know about commission costs. Physical gold resellers carry a lot more expenses than brokers. The bars have to be stored somewhere in a secure place and they need to be transferred from one owner to another. These fees add up to cost. For safety reasons, most owners prefer to store precious metal bars at home – this would be too risky, so you will also need to pay to bank for storage. Second reason that makes investing in physical gold more expensive is the market size. It is a lot earthier to buy and sell gold securities, than actual pieces of the yellow metal. Unlike physical gold bars, securities can be sold globally. If you choose to invest in gold bullion your expenses will most likely “eat” your profit. This option may suite to very conservative people as a way to preserve their money, but for people whose goal is to create investment income other ways to invest in gold may be more attractive. Buying jewellery as investment may also be a mistake, as used jewellery pieces loose their value at the time of purchase and are extremely hard to resell unless they are very rare designer ones or collectibles.

Gold coins
Another way of putting money into physical gold is to invest in gold coins. Gold coins used to be circulation coins, but after the world has abandoned the gold standard at some point in 20th century most countries have almost stopped issuing them. Currently gold coins are stored as investment asset and instead of being used to pay for goods or services. To invest in gold coins you need to buy them from a trusted provider, such as bank or a reputable company. Bullion coins are usually fractions of 1 troy ounce and are more affordable than gold bars.

Invest in gold ETF

A popular way to invest in gold is by buying shares in a gold exchange traded fund (ETF). World’s most famous ETF is SPDR Gold Trust. Indeed, SPDR is as influential, that its financial reports can weight on the market price of gold. If investors are putting money into SPDR Gold Trust, the precious metal’s market price may rise following such news. If a lot of money flows out of the fund, it indicates that people are less interested in save-haven assets and the price of gold is most likely to fall (there is more info on save-havens and risk appetite at the end of this article).

ETFs are traded on a stock market the same way as regular stocks. To invest in gold ETF you need to open an account with a stock broker. Depending on your trading plan, your broker might charge commission on buying and selling ETF shares, a fixed monthly fee or a combination of both. Commissions vary significantly from one broker to another, but in most cases they are a lot lower then those on buying gold bullion.

Trade gold futures or options

Trading gold futures or options is another common way to invest in gold. Futures are standard contracts for assets (in our case gold, silver or other precious metals) to be delivered and paid for later at a specified price. Most futures today are electronic and are widely traded on a secondary market between people who don’t need actual product delivery. Options are financial derivatives that give holders an option to buy or sell underlying asset at a pre-agreed price at a later date. Both option and futures trading can be very good source of passive income online. These securities are great for short term trading and speculative trading. However, starting with options trading can be riskier and is not recommended for novice investors, because it requires more complicated hedging strategies. When you understand how to lower the risks, options can become a very profitable way to trade gold or silver online.  For people with little or no previous experience investing in gold futures or options, copy trading an experienced signal providing may be a safer starting point.

Invest in gold bonds

Although a lot of people search for ways to invest in gold bonds, currently this option is only available in India. Bonds are more stable securities than stocks or ETF shares because they have a fixed underlying value. Indian Governments offers Sovereign Gold Bonds Investment Scheme. This program was started to reduce demand for physical gold. Sovereign Gold Bonds are issued by The Reserved Bank of India and denominated in grams of gold. Primarily they are traded through local banks and post offices.

Invest in gold stocks

Investing in gold stocks is a non-direct way to make profit on the gold mining industry. To invest in gold stocks usually means to buy shares of companies working in this niche. These can be exchange traded gold mining companies from all over the world. There are American Barrick Gold Corp and Newmont Mining Corp, New Zealand’s Newcrest Mining Ltd and AngloGold Ashanti Ltd, Canadian Franco-Nevada Corp, British Freshnillo Plc and more well-known companies. To buy gold stocks you also need to have a brokerage account that allows trading stocks on the stock exchange of your choice. Alternatively you may opt for trading CFDs (contracts for future difference). CFDs are a modern alternative to stocks and are offered by many retail brokers. In case of CFDs trader doesn’t buy actual company shares, but CFD price changes accordingly to the underlying stock and holders even may be eligible for dividends.

How the price of gold changes over time

There are a lot of arguments among analysts whether gold is outdated and overvalued or whether the classic save-haven asset will never go anywhere. Some people indeed call bitcoin “the new gold”. But this statement is far from the truth. Largest institutional investors, such as most powerful Central Banks from around the world, still have solid gold reserves and keep investing in precious metals. There is no information about central banks amassing cryptocurrencies in their reserves. Demand for gold changes overtime under different factors, but because gold is limited in quantity and has relatively high production cost, limited supply has been keeping the prices high throughout the years. There are certain price patterns and factors you need to be aware of before starting to invest in gold online or offline:

1. Seasonality
Traditionally gold prices rise in January / early February supported by increased demand in China. The Chinese like to buy gold bullion as a traditional Chinese New Year gift. The day when Chinese celebrate new year depends on the lunar calendar and fluctuates year from year. Gold prices also get slight support during summer when there is a wedding season, as people in India often choose gold as a gift to new family. Summer price lift is less notable then effect of New Year celebration in Asia.

2. Risk appetite
Large investors don’t like to put their capital at risk. Whenever there is an unexpected event or some uncertainty in the world, the capital flows from risky assets to the so-called “safe-havens”. The most popular safe-have assets are gold, US treasuries and in some cases stable currencies such as Japanese yen, American dollar and Swiss franc. Any crises or threats lead to a fast rise of precious metal prices. Markets can be shaken by an unpredicted event, such as war in Syria or unexpected move of a central bank 1-2 times during a year. But there are also plenty of situations where increase in gold demand can be foreseen. For example, gold was clearly set to rise before Brexit referendum or US elections or an important OPEC meeting. Gold may even get a small lift ahead of a regular US Federal Reserve meeting, if the outcome is hard to predict. The tricky part is to determine when would be a good time to buy gold, how far it can rise and when is the best time to sell the asset to make money on reduced risk appetite of larger investors. This knowledge can be gained with experience either by watching others trade or trading yourself for a relatively long period of time.

3. Gold / USD correlation
Gold and American dollar prices usually move in opposite directions. The explanation to this phenomenon is very simple: gold is denominated in USD. When dollar rises an ounce of gold becomes more expensive for foreign investors. The demand starts to lower and the prices have to follow. But this logic only works when there are no factors boosting demand for safe-havens. Whenever safety becomes a top priority for investors and the reason of uncertainty is not coming from US, market participants may turn to both assets and prices of Gold and USD will rise simultaneously.

How to invest in silver

Gold usually serves as a benchmark for 2 other precious metals: silver and platinum. There is a slight time lag between gold and silver price changes, so trading the cheaper metal may be a suitable alternative for a conservative investor. Key point to remember when trading silver is to keep an eye on two things at the same time: factors affecting gold market and news relevant to production of silver. People can invest in silver using the methods we discussed above: purchase silver bullion bars and coins, invest in silver stocks or CFDs, buy silver ETFs, trade silver futures or options and even buy silver bonds. Silver bonds are issued by a Hong Kong Government and can be purchased through Placing Banks. Some well-known silver stocks are PAAS – Pan American Silver Corp., SLW – Silver Wheaton Corp., HL – Hecla Mining Company, SVM – Silvercorp Metals Inc., etc.  Those, interested in buying silver ETF shares, may want to examine performance of the largest and well-known ETFs to start with. Silver ETFs are less known and influential than gold ETFs. The ones worth checking are iShares MSCI Global Silver Miners ETF, iShares Silver Trust, PowerShares DB Silver Fund ETF.

From all the methods to invest in gold or silver listed above, futures trading and investing in ETF seem to be the most affordable ways to make money online. A lot of retail broker that support gold and silver trading have no minimum deposit requirements. However, you need to remember that futures trading and future-based ETFs are a risky investment. These assets can be highly profitable but are best suited for experienced investors. If you want to learn how to make passive income on the volatile precious metal market, you may want to start with hiring a coach or following trades of a more experienced user through social trading services like MyDigiTrade.