The 4 Factors to Evaluate a Gold Investment Strategy

Investing in gold, like many alternative investments, requires a layer of expertise beyond that of stocks and bonds.

Breaking this layer is an essential step in protecting your portfolio against inflation, hedging against the market, and obtaining the unique benefits of precious metals.

Gold is a simple asset to understand, but the process of purchasing gold products is fraught with unique challenges. When compared to equities markets, gold represents a relatively new, unregulated frontier. However, cutting-edge financial technology has democratized gold investing strategies that were once restricted to the wealthy and experienced (more on this later).

Most investors utilize one of the following seven traditional methods for gold investment:

  1. Gold IRA
  2. Bullion
  3. Collectible Coins
  4. Jewelry
  5. Gold Miner Stock
  6. Gold ETFs and Mutual Funds
  7. Futures and Options

To take a deeper look into each method, refer to the article How to Invest in Gold: 7 Traditional Methods Plus One Platform to Rule them All.

But how do investors differentiate between these strategies? Traditional methods always come down to trade-offs. Before Vaulted, there was no “best way” to invest in gold, just different strategies exposed to different risks and rewards. Here are 4 things you should consider when investing in gold: allocation, exposure, transparency, and security.

Allocation

Do you actually own any physical assets? Is there any real metal allocated under your name?

One of the greatest advantages of gold is that you are investing in something tangible and real. Companies can fail or go bankrupt, stocks can plummet, currency can rapidly inflate, and bonds can default – but gold holds value forever. Gold has been the lifeblood of monetary exchange in nearly every human culture for centuries, giving it an inherent value that cannot be replicated in any other asset.

However, you only get the benefits of gold allocation if you actually own the metal. The only options that offer true allocation in the list above are a gold IRA, physical bullion, collectible coins, and jewelry. These strategies all require a large upfront investment, plus the investor often pays high commission fees, spreads, and premiums depending on the product.

The bottom line: Traditional methods of gold investing make true allocation very expensive. Before Vaulted, physical gold ownership only made sense for the upper echelons.

Exposure

Does the price of your asset follow the price of gold exactly, or is it impacted by other factors as well? What kind of risks are associated with your investment?

Like any asset class, gold investing comes with inherent risks. Price volatility sends the price up and down just like equities, although the price trends upward over time. Investors that own physical gold are only exposed to the natural risks and volatility of gold, whereas strategies without physical allocation (gold miner stocks, some mutual funds, futures, and options) carry additional risks.

Allocation and exposure have traditionally been a trade-off. Either you pay a high premium to own actual gold, or you forgo gold ownership for a cheaper option with additional risk. For example, investing in gold ETFs does not mean you own gold. It means you are buying shares of a fund that owns gold, therefore exposing yourself to the risk of business executives making bad decisions, liquidity risk, and counterparty risk.

The bottom line: Direct gold exposure means you own gold and the risks associated with gold – nothing else. Traditional methods of investing rarely offer both full allocation and direct exposure.

Transparency

What fees are associated with your investment? What premium are you paying over the spot price of gold?

The concern of transparency in the gold investing industry has been heating up for decades. The lack of industry regulation can be an advantage for consumers, but it also allows shady dealers to charge clients with hidden fees and exorbitant premiums over the spot price. For example, the Commodity Futures Trading Commission recently charged TMTE Inc. (Metals.com) and Barrick Capital $185 million for a scheme that defrauded thousands of elderly investors with grossly overpriced gold and silver products.

When engaging in traditional gold investing methods, it is the investor’s job to perform their due diligence and ensure they know exactly what they are paying. If your dealer or platform isn’t fully transparent from the beginning, it’s time to run away.

The bottom line: Transparency ensures your entire investment goes toward your asset instead of a swindler’s pocket.

Security

Is your gold insured? Are you confident in the safety and security measures taken to protect your assets?

Different gold investment strategies present different security concerns. If you purchase products directly from a brokerage firm, you usually have a variety of insurance and security options. Assets can be stored a vault across the globe, or you can take delivery and store the metal in your house. Some consider their home to be the most secure storage location.

ETFs and mutual funds each have different security protocols. Some allow you to exchange your shares for physical gold and some do not. When you purchase physical gold products, most brokerage companies and jewelers will either include insurance in the purchase price or allow you to insure your metal for an additional fee.

The bottom line: Security is a primary concern for any investment. The physical nature of gold gives the investor a variety of options for insurance, storage, and other levels of security.

Checking all the Boxes

Just like Robinhood has democratized the world of equities, Vaulted has cracked the code and democratized access to gold investing. The platform leverages cutting edge technology and over 50 years of precious metals expertise to fulfill all four of the factors listed below. Vaulted bridges the gap to allow any investor to obtain the benefits of gold.

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 kilobars 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 buying and selling 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.