Gold has been considered a store of value for centuries, even millennia, and continues to be seen as an asset of value down to this day. Due to its consistent growth, investors continue to purchase gold as a hedge against inflation. Unfortunately, storing gold in large amounts can be difficult and expensive, making it unattractive for investors that only have a small amount available to invest. However, there are many opportunities to invest in gold without buying it directly than ever before.
Purchase a gold-backed cryptocurrency
A gold-backed cryptocurrency is a digital asset that derives its value from the price of gold and can be purchased on a cryptocurrency exchange like GoldExchange.com. Unlike other cryptocurrencies that have speculative value, a gold-backed token’s value is tied to a tangible asset that cushions its price against severe price fluctuations. Each token is said to have an equivalent worth of grams or troy ounces of gold that are held in a secure location. Investors can then theoretically exchange their cryptocurrency tokens for their gold equivalent at any time.
Most gold-backed cryptocurrencies like GoldCoin are ERC-20 standard tokens, which are supported on the Ethereum network and stored in an Ethereum wallet.
Gold mining stocks
Another option to gain indirect exposure to gold is by purchasing stocks of companies that mine and sell gold. Investors who purchase these stocks gain earnings in relation to the operating profit of the company. This profit is often based on the cost to mine for gold and what it is being sold for. Therefore when prices rise, these companies can increase their gold production and grow their total sales. The increase in sales indirectly goes into the profit of investors. Some examples of popular gold mining stocks include Franco-Nevada (FNV), Kinross Gold (KGC), and Barrick Gold (GOLD).
Options for purchasing a gold mining ETF include Market Vectors Gold Miners (GDX).
Gold ETF
An exchange-traded fund (ETF) is an investment vehicle where traders purchase shares of assets that track the underlying index. A Gold ETF is similar to a Gold mutual fund, except that it is listed on exchanges and can be traded similarly to an ordinary stock. Some common gold ETFs include Aberdeen Standard Physical Gold Shares ETF (SGOL) and SPDR Gold MiniShares Trust (GLDM).
Gold funds
Investors can also purchase a Gold Fund. Mutual funds are a type of investment in which a group of investors pool money to purchase gold, gold ETFs or other related assets. These funds are then traded like shares on a stock exchange.
Gold options contracts
When the price of gold is believed to increase, investors can purchase a call option. A call option gives investors the right but not the obligation to buy gold at a specified price. The intent is that the price will rise, and traders can purchase the asset at the lower price and sell at the prevailing market price. The difference is the investor’s profit. However, if the price does not increase, the option will expire worthlessly. In this case, investors just lose the price of the contract.
If the price of gold is believed to decrease, put options can be purchased. A put option gives investors the right to sell gold at the higher market price after purchasing gold at the predetermined strike price. Investors profit from the difference between the strike price and the prevailing market price within a specified time period. If gold never dips below your strike price at the expiry date, the contract expires worthless, and investors lose the price paid to purchase the option.
Futures contract
Futures contracts are legally binding agreements to buy or sell gold at a predetermined price in the future. Futures exchanges standardize the quantity, quality, time, and location of delivery. The only thing that can be changed is the price of the asset itself. This investment tool is used for those looking to hedge against uncertain future prices. In this case, these contracts can be used to manage potential price risk at a future date.
The bottom line is that owning gold can be costly. For investors who want to gain the benefits of purchasing gold assets, mutual funds, gold-backed cryptocurrencies, and call options are all ways to gain exposure as an investor. These options all give traders more direct exposure to the asset than a gold mining stock or gold mining ETF.