What is the Cheapest Way to Invest in Gold?

By Jonah Ellingson

Investing in gold has been a reliable financial strategy for hundreds of years.

It’s not going to double your investment overnight but it will provide you with a sense of security against volatile markets and unpredictable global events.

We’ve witnessed many people taking financial losses due to uncontrollable events like COVID-19 and the military conflict in Ukraine.

Gold is one of the few consistent investments that can protect against these types of disasters.

There are many different ways that you can invest in gold. Not all of these options are as reliable, consistent, or affordable as others.

For example, many new investors are tempted to purchase gold bars or collectible coins.

Purchasing physical gold may seem like the smartest option but other more affordable alternatives can provide an even greater level of security.

In this article, we’re going to look at several of the different ways that you can invest in gold. We’ll cover why physical gold may not be the best option.

We’ll also cover the cheapest ways that you can get started with your gold investments.

Most Affordable Gold Investment Options

a graph charting my gold investment portfolio

1. Consider a Gold ETF

A gold exchange-traded fund(ETF) is an alternative gold investment that has fewer fees and is significantly easier to buy or sell.

It is a much cheaper way to invest in gold and still enjoy all of the financial benefits that come from owning the security.

And since you don’t own the physical gold you do not have to worry about storage or insurance on the product.

An ETF is very similar to a mutual fund with a few minor similarities to traditional stocks. There are more than 1,300 ETFs available on the market today and we believe that gold is one of the most reliable.

If you don’t already have ETFs in your portfolio, then investing in gold ETFs is a great way to diversify, lower risk, and earn additional revenue.

A gold ETF will always contain only one asset, which, of course, is the gold itself. The ETFs can be traded on the market in the same way that a stock can. The fund is backed by the current value of gold but it does not include the ownership of that gold.

That means you do not actually own any gold when you invest in a gold ETF.

Many new investors prefer gold ETFs because it gives them experience and exposure to the movement of gold without the risks or additional fees.

Perhaps one day you would like to invest in a bulk purchase of physical gold. You can think of a gold ETF as a training ground where you learn how the value fluctuates and what moves the market.

The biggest benefit of this “training ground” is that you can earn a profit along the way.

This does not mean that gold ETFs are only for new investors. In reality, many long-term investors rely on these funds to hedge against economic turmoil.

When something happens that causes the dollar to decrease in value your gold investments will typically increase in value.

Purchasing an ETF helps protect against the decline of the dollar while selling them will allow you to benefit from the rise of the dollar.

There is more than one gold ETF on the market and it’s a good idea to familiarize yourself with the different options.

Ideally, you should work with a professional advisor who can explain the intricacies of ETFs in greater detail and help you find the particular ETF that would best suit your portfolio.

SPDR, GranitShres, VanEck, and iShares are considered the top funds for gold investment.

Are you tired of paying exorbitant fees for your investment choices? Do you want to avoid expensive storage and insurance fees for your gold investment?

Then an ETF may be your best choice.

In general, the only fee you will encounter is a brokerage commission. These fees rarely exceed $20. This makes gold ETFs one of the cheapest ways to invest in gold.

This isn’t the only affordable gold investment option. If your portfolio is already saturated with ETFs, then you might prefer an alternative.

Some of these alternatives are more confusing, yet can have a much higher return in the right circumstances.

2. Consider Investing in Gold Futures

Investing in gold futures has become another popular defense mechanism for savvy investors who want to protect their earnings against inflation.

It requires a better understanding of the market and the movement of gold.

Starting with gold ETFs and then moving to gold futures is a smart choice because the ETFs will help you better understand how the price of gold fluctuates.

Futures are very different from both physical gold and ETFs.

They carry a higher risk than either of those options because they require predicting the value of gold at a time in the future.

When you purchase a future you are buying into a contract where you agree to either buy or sell the commodity at a specific date for a specific price.

They can only be traded through specific future exchanges with the help of an approved brokerage firm.

Every gold future contract involves two parties. One person is the buyer and the other is the seller. In this way, futures operate similar to options but with lower risk.

An option is considered more akin to gambling because it may become completely worthless at the time of expiration.

In contrast, a future will always be worth something, though it may not be enough to recover from the initial investment.

This is because both parties are obligated to fulfill the contract at the designated time regardless of the value of the commodity.

If you agree to buy gold at a specific price and the actual value of gold is much higher at the time of completion, then you will have earned a profit on the trade.

Similarly, if you agree to sell and the actual value is much lower than the agreed price, then you will have benefited.

Gold futures very rarely involve the actual delivery of physical gold. Most brokerage firms that handle futures cannot store or insure physical gold.

Instead, the contract will close and the difference will be covered by the appropriate party.

Every gold-futures contract will cover exactly 100 troy ounces of physical gold. Thus, the actual value of the contract is equal to 100 times the current value of a single troy ounce of gold.

Ideally, you will be able to sell the contract for more than the market value to earn a profit.

One of the biggest advantages of investing in gold futures is the amount of available leverage. It’s possible to make very large investments in gold futures with very little capital.

RELATED READING: Is Gold a Good Hedge Against Inflation?

This makes it a very affordable investment opportunity for anyone who can properly predict the future value of gold. If the value moves in the direction that you predict, then you can turn a very small investment into a very large return.

Using a substantial amount of leverage can be a significant risk if you cannot adequately predict the movement of gold. If you take a loss while utilizing this leverage, then you will be required to pay more money to cover the margin.

If you are unable to, then the brokerage will close the contract and you will lose whatever you have invested.

The increased risk associated with futures makes working with a professional advisor a very smart move. If you aren’t confident in your ability to predict the future value of gold, then you should work with someone who can.

Over time, you may be able to learn how the market operates and take control of the investments yourself.

3. Consider Investing in Gold Mining Companies

The third and final option is once again very different from the previous alternatives.

It can still be one of the cheapest ways to invest in gold, though you are actually purchasing stocks in a company rather than physical gold or contracts related to gold.

The value of these stocks will fluctuate according to different standards and can be more difficult to predict without experience in the stock market.

Often referred to simply as gold stocks, these are stocks in public companies that are focused primarily on gold. The most common gold stocks are in mining companies.

Gold streaming companies are another option.

Many investors prefer gold stocks over physical gold because the potential returns can be much higher. The value of the stocks is heavily influenced by the value of gold but there are other factors involved as well.

Thus, when the value of gold increases the value of gold stocks can rise even higher.

There are also gold stocks that have a lower value than gold, which adds some financial risk to the equation.

One of the advantages of investing in gold stocks is that the value of the stock will increase when the company is doing well. If the value of gold rises, then the stock will typically rise as well. The mining company can then increase its production rate, which causes the value of its stock to climb even further.

This double increase in value can turn a very affordable investment into a very lucrative return.

As with any stock, the biggest risk comes from choosing the wrong mining company.

Not all companies perform equally well. You’ll want to do as much research as possible to find a safe company to invest in.

It’s a good idea to avoid very small mining companies as well as companies that have not yet started producing gold.

If financial security is your ultimate goal, then you want to look for well-established mining companies that have a proven track record.

Should You Consider Physical Gold?

a large pile of gold coins

Yes, but there are some factors to consider when deciding between physical gold and the “paper” gold options we detailed above.

Owning physical gold can feel very empowering.

It’s nice to know that you physically own a particular commodity. If all of the markets crash you can still extract value from your gold. It’s a valuable resource and is by no means a “bad” investment.

However, it’s not the cheapest way to invest in gold, which means it may not always be the best option if you want to hedge against inflation, economic events, or other disasters.

When it comes to collectible gold coins, there will be a significant markup on the price. The value of the collectible may indeed increase in time but many of them do not.

Most gold collectibles start off very expensive and stay within the same value range. And in times of an economic disaster, the collectible element may be completely useless.

You may only be able to exchange it for the value of the weight of the gold itself.

Standard gold coins and bullion will have smaller markups but they still exist. But even without the markups, physical gold is one of the more expensive gold investment options.

There are numerous fees associated with physical gold investments. You need to pay transaction fees, processing fees, storage fees, and insurance fees. If you only purchase a small amount of gold, then you may even need to pay a small lot fee.

All of these fees add up and make this a rather expensive investment option.

Luckily, physical gold is only one of the many different gold investment options. You can still protect your finances using gold without owning the physical commodity itself.

Here are a few of the more affordable gold investment options that savvy investors tend to love.

Summary: Which Gold Investment Strategy is Best For You?

The answer to that question depends entirely on your portfolio, your budget, and your preferred risk factor.

All three of these options are much cheaper than investing in physical gold but they each come with a different level of risk. Gold ETFs are the safest option but they have the lowest potential return. Gold futures and stocks both come with more risk but also a higher profit potential.

Consider diversifying your portfolio with different types of gold investments to spread the risk as well as the earning potential.

No matter which route you choose, you should always consult with a professional investment advisor to determine the best ways to diversify.

Jonah Ellingson

About the author

Jonah has worked as a professional journalist for more than a decade. He carries a B.A. in broadcast journalism and a Masters in Education from the University of Montana. His primary focus is on gold and silver IRAs, as well as all news and trending topics related to gold and silver investing. When he's not busy researching or writing, he can usually be found on a golf course.

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