While nothing quite matches the reassuring weight of gold bullion in the palm of your hand, physically owning bars and coins isn’t the only way to invest in precious metals. Let’s briefly explore why you might consider buying paper gold investments, such as certificates and allocated accounts. We will also touch on the most common types of non-physical gold investments.
…What’s Wrong with Bullion?
Nothing, if you have the time, space and money to store it. Small collections, a few thousand dollars say, are relatively easy to manage, but even then there are one-time costs, such as assaying and annual insurance expenses. While these costs may seem negligible at first glance, they can add-up fast. Apart from one-time costs, you will also have to incur continuous expenses as long as you hold onto your investment.
These costs have to do with keeping your gold safe and sound (home security and safety deposit box payments,) as well as the time and effort involved in selling your collection, should your patience and investment wisdom finally pay off handsomely. Apart from cost considerations, paper investments are more liquid, meaning you can convert your investment more easily to cash, compared to physical gold.
What, then, if not Bullion?
Paper investments, akin to owning stocks, are an excellent option and a great way to relieve yourself of the time and money burdens of keeping and insuring your own gold. If you are considering making a paper investment in gold, there are a variety of investment vehicles to suit every investor.
Gold Certificates via the Perth Mint
The Perth Mint is the world’s only government-backed precious metals certificate program and is one of the safest ways of owning bullion (outside of your own fortress strongbox.) Because these purchasable certificates are liquid and can be sold at any time, your ability to respond to changes in market price is much improved.
The gold you own is kept in unallocated accounts with thousands of other investors’ gold, and has been audited and accounted for. And not to mention, it is safely stored in high-security vaults at no additional cost to you.
Derivatives (gold futures, forwards and options)
If you’re willing to take on some risk, owning gold derivatives, primarily traded on the New York Commodities Exchange (COMEX) in the US, can be a very lucrative way of investing in gold without even touching bars or bullion.
Derivative trading can be a complicated matter, as there are many options available (of varying risks and projected return rates), so consider seeking professional advice before making any serious investments. Derivatives are high-yield, high-risk financial instruments, and may lead to a windfall, a complete loss of the investment amount, and everything in between.
Mining Company Stocks
If you’d rather invest in a business than a product, consider investing in gold mining operations. Like derivatives, mining investment is a complicated business and should only be undertaken with professional guidance. For more information on investing in mining companies, take a look at the resource titled “Mining Stocks.”
An ETF, or Exchange Traded Fund, is a financial instrument that is traded on a stock exchange. ETFs are liquid assets, and derive their value from a collection of different assets such as stocks, futures, derivatives, debt and more.
A gold ETF is backed by gold or the gold industry, and gives an investor the opportunity to invest in gold without actually owning any physical gold. Note that ETFs are not always backed by gold, and neither do they represent any gold ownership. It is just another vehicle to invest in the industry.
A gold trust is another potential investment avenue. Like other types of “paper gold,” a gold trust investment frees the investor from costs incurred in transport and safe-keep of physical gold. When you invest in a trust, you are usually investing in the total value of the gold held and owned by the issuer of the trust.
Gold trusts are always backed by physical gold, and are subject to stringent quality requirements. Noteworthy gold trusts include The Central Gold Trust, traded on the New York Stock Exchange under GTU, and the recently announced Gold Redeemable Trust from APMEX Precious Metals.
It is important to realize that no matter how unlikely the possibility of a threat, all investments are at risk. It is just the degree that differs. While it’s unlikely that a government-backed Perth Certificate will lose all value or that the COMEX will crash, having cash (and gold) in-hand may still be the safest of all investments.