In today's financial markets, investors are spoilt for choice when it comes to investing in gold. A variety of investment methods are available to gold investors of varying sizes, risk appetites and investment timeframes.
The most traditional way of investing in gold is to buy some gold bars or gold coins. Small quantities of gold coins, gold bars or gold wafers can be purchased for as little as $25 or less.
Gold bars are sold at very little premium above the gold value and they can be easily purchased or sold at major banks and bullion dealers all over the world.
Gold coins are another popular investment choice for the small gold investors. Two types of gold coins are available for the gold investor. They are gold bullion coins and collectible gold coins. Gold investors looking to invest purely in gold should buy gold bullion coins instead of collectible gold coins, which are more expensive as they carry numismatic value.
Owning physical gold such as gold bars and gold coins are a good way to make a small investment in gold. There is also no storage fee involved since they can be kept at home. There is also no risk of fraud unless it's a counterfeit gold bar or gold coin. Hence, always check your purchases and buy from reputable dealers.
However, for large investment amounts, it would be quite impractical and risky to own physical gold as transportation and storage becomes an issue. In this case, non-physical or paper gold would be a more convenient, safer alternative.
The earliest form of paper gold was the gold certificate. Each certificate gave its holder an entitlement to a specific amount of physical gold, redeemable upon demand against the issuer.
The issuer of the gold certificate, typically a bank or a major financial institution, provides a central depository where tons of gold bars are securely stored in a vault.
In the past, the US currency used to be a gold certificate until 1933 when America was taken off the gold standard.
Unallocated Gold Accounts
Many major banks offer what is known as a gold savings account which works just like a regular savings account except that the balance is denoted in gold grams or some other units of gold weight. However, unlike regular savings account which pays the depositor an interest, a gold savings account charges an administrative fee (in grams of gold) every month.
Unallocated gold accounts have some disadvantages which are not apparent until its too late. When you deposit gold into a bank, you automatically becomes a creditor of gold and not the owner. The bank owes you the gold but they remain the owner. In the event that the bank becomes insolvent, this gold will be sold to pay off all of the bank's creditors and not just you.
Allocated Gold Accounts
Alocated gold is different in that you are the owner of the gold and the bank or financial institution managing the gold account is only acting as a custodian of the physical gold. Unfortunately for the banks, they cannot put the allocated gold to work for them and hence a higher administration fee is charged for maintanence of allocated gold accounts.
Online Gold Accounts
Today, it is possible to buy and own gold in an allocated gold account over the internet via online bullion dealers such as BullionVault. Bullionvault offers the convenience of being able to buy or sell gold online 24 hours a day and operates in three major currencies - US Dollars, Euros, and pounds sterling. The allocated gold is securely stored in high tech vaults in three locations - New York, London, and Zurich - and you can choose where you want your gold to be stored.
Modern Financial Alternatives
The modern financial world offers the gold investor a wide range of means of gaining access into the gold market.
Gold Stocks, Mutual Funds & ETFs
Many gold mining firms trade in the public stock exchanges. Investing in gold by holding shares of a gold mining company is not as straightforward as buying gold itself. For more information on how this investment approach works, see gold stocks.
Alternatively, you can also participate in gold's long term appreciation by investing in gold mutual funds or gold ETFs.
Gold Options & Futures
For short term speculative bets, you can take up a position by buying gold options or futures contracts. These derivatives offer leverage to the gold investor, allowing him or her to control a large position in gold for a relatively small investment. On the flipside, the chance of losing one's entire investment is high, making them very risky investment options.