How to Invest in Gold:

7 Traditional Methods Plus One Platform to Rule them All

Are you ready to leverage gold for your portfolio?

Everyone knows the importance of gold in nearly every human culture over the last 10,000 years, but few know how to best utilize the reliable commodity today. The yellow metal is by far one of the strongest commodities on the market, which is why Vaulted broke the barriers to entry that once restricted the asset class to elite, wealthy investors.

Gold is uncorrelated with equities and serves as a hedge against the market, meaning the price goes up when everything else is falling. From October 2007 to October 2012 (the Great Recession), the S&P 500 and Dow Jones both returned approximately 0%. Gold thrived in this environment, returning 115.61%. Conventional investment advice acknowledges that gold’s unique trading patterns are essential for protecting your long-term wealth, but largely ignores the revenue-generating impact of gold exposure. This century, gold has returned 554.21%, while the S&P 500 has returned 163.20%.

Why don’t more people invest in gold?

Investors tend to underutilize gold as an asset class for several reasons. In some ways, the gold investing industry represents a relatively new, unregulated frontier (at least compared to equities markets). Private ownership of gold only became legal in 1974, and despite record performance and unique advantages over other asset classes, historical bias makes stocks and bonds feel more familiar.

Gold investing has traditionally come with a whole host of challenges, including large fees and spreads, large upfront investment requirements, and fears of shady dealers who take advantage of the lack of regulation to defraud investors. But don’t worry, we’re going to show you how to evaluate the best gold investing strategy and put you on the path to becoming an expert.

What are my options?

In this article, we will cover all 7 of the traditional gold investing methods, and then see how Vaulted measures up. The 4 factors we will use to compare different strategies are:

  1. Allocation (Do you actually own physical gold?)
  2. Exposure (What risks are impacting the value of your investment?)
  3. Transparency (What fees are you paying?)
  4. Security (What safety measures are being taken to protect your assets?)

If you need clarification on any of these factors, refer to the article The 4 Factors to Evaluate a Gold Investment Strategy.

Gold IRA

An IRA, or individual retirement account, is an investing tool that allows investors to save money for retirement in a tax-advantaged way. Regular IRAs can be allocated to cash, stocks, and bonds, whereas gold IRAs offer physical gold exposure in the form of coins or bullion.

Gold IRAs have surged in popularity since the financial crisis in 2008, which decimated portfolios that were unprepared to hedge against the market downturn. Like regular IRAs, gold IRAs have traditional or Roth options, depending on when and how the investor wants to pay taxes.

  • Traditional IRA: The investor gets a tax break up front and pays taxes when the money is withdrawn from the account.
  • Roth IRA: The investor pays taxes up front on deposits and then gets a tax break when the money is withdrawn after the age of 59½.

Gold in a gold IRA must be stored in an IRS-approved depository, whereas physical gold bought directly from a dealer can be stored anywhere – in a depository, bank vault, or under a mattress. As a result, gold IRAs give investors less autonomy over the storage location of their assets.

A brokerage company must serve as the intermediary between the investor and the depository. Brokerage companies charge a commission for purchasing precious metals, so finding a reputable broker that communicates fees and spreads with full transparency is the paramount concern of investors.

Pros

  • Physical and allocated asset
  • Direct gold exposure

Cons

  • High markups and commission fees
  • Requires large up-front investment
  • Must find a personal storage location and secure the assets, or pay additional storage and insurance fees
  • Difficult to liquidate

Collectible Coins

While bullion coins derive their value from their melt value alone, collectible coins are traded at a premium. Collectible coins have some historic or aesthetic value to coin collectors, which makes them more valuable than their raw metal content. Premiums can change drastically over time based on demand, giving investors the opportunity to profit when the premium rises.

The process of purchasing collectible coins is very similar to that of gold bullion. Investors can choose to store their assets at home or pay for external storage.

Pros

  • Physical and allocated asset
  • Direct gold exposure

Cons

  • High markups and commission fees
  • Requires large up-front investment
  • Must find a personal storage location and secure the assets, or pay additional storage and insurance fees
  • Difficult to liquidate

Jewelry

Jewelry serves many purposes in addition to investing. For that reason, you will pay a high markup on the metal’s raw value. The higher the purity, the higher the jewelry’s melt value, with 24 karats designating 100% gold. Design and manufacturing also have a big impact on price. Authenticity is a concern for all physical gold products, but it is often harder to confirm in jewelry.

As an investment, gold jewelry carries many additional risks as compared to other investment strategies.

Pros

  • Serves many purposes (in addition to investing)
  • Wide variety and availability

Cons

  • Expensive
  • Requires large up-front investment
  • Exposed to many risks on top of natural price movements of gold
  • Uncertain resale value

Gold Miner Stock

Gold miner stocks do not give investors exposure to gold, but rather partial ownership of companies who mine gold. Newmont Mining (NEM), Barrick Gold (GOLD), and Kirkland Lake Gold (KL) are all popular mining stocks.

These stock prices are correlated with gold prices because each company’s profitability increases when the price of gold rises. However, prices are also impacted by other factors such as mergers and acquisitions, management decisions, and company expenses. When investing in individual mining companies, investors can expect the same risks and rewards as any other stock.

Pros

  • Different upside potential based on company performance
  • Access through your brokerage account

Cons

  • No physical allocation (just an investment in stock)
  • No direct exposure
  • Many factors impact the value of the investment
  • Low diversification

Futures and Options

Futures and options are both forms of speculative investing, making them the riskiest investment methods. Both allow you to guess which direction the gold price is going to move, and then make bets accordingly. The upside and downside potential are both very large for speculative investing – high risk, high reward.

A futures contract is an agreement to buy or sell a particular asset at a particular price at a certain time in the future. For example, you could choose to buy an ounce of gold in exactly 3 months for $2,000. If the price of gold is $2,150 in 3 months, you win! But, if the price of gold drops to $1,600 in 3 months, you’re stuck overpaying.

An options contract gives the investor the right, not an obligation, to buy or sell a particular asset at a set price during the life of the contract. For example, say you open an option contract to buy an ounce of gold at a $2,000 strike price within the next three months. Gold is currently trading at $1,880/oz. If gold jumps to $2,150, you can exercise your right to purchase the ounce at the $2,000 strike price. You could then immediately sell the gold and make a $150 profit. If the price of gold drops to $1,600 in the next 3 months, you would let the option expire and lose the premium you paid to open the contract.

Pros

  • Liquidity
  • Large upside potential if market speculations are correct

Cons

  • No physical allocation
  • No direct exposure
  • Highly leveraged
  • Requires a lot of experience and attention

Vaulted

The founders of Vaulted noticed gaps in the gold investing industry and designed a platform to fill them. Allocation, exposure, and liquidity should not have to be mutually exclusive. Vaulted leverages cutting edge technology and over 50 years of precious metals expertise to provide full liquidity, direct gold exposure, physical and allocated assets, and incredibly low commission/storage fees on a simple interface that investors can access at any time. Consider Vaulted as an alternative to traditional investing methods to access the benefits of gold on your terms.

Allocation
Every Vaulted investment is directly allocated to 99.99% pure gold kilo bars with unique serial numbers. The Royal Canadian Mint manufactures every gold kilo bar sold by Vaulted and guarantees its weight and purity. Each serial number is tracked by Vaulted and the Mint.

Exposure
Vaulted investors are directly exposed to the price of their pure gold kilo bars and nothing else. Vaulted gold carries no additional risks, and the price movements of your investment are identical to the natural price movements of gold.

Transparency
Vaulted communicates fees with full transparency from the very beginning: 1.8% on buy and sell transactions (70% less than typical trading commissions) and a 0.4% annual maintenance fee for storage and security.

Security
All Vaulted assets are stored in the Royal Canadian Mint, an ISO-9001:2000 certified refinery. The gold in RCM’s vaults is insured and guaranteed against theft, damage, or other losses. With your permission, gold can be physically delivered to your home, business, or another vault in about a week.