Gold has long held a fascination for investors, whether it was a 19th century prospector panning for nuggets or a modern-day financial whiz scanning the computer for buying opportunities. Nowadays, you can buy gold in many different forms, from coins and bullion to exchange-traded funds and derivatives.
But is gold a good investment? For many investors, the answer is yes — but you should first learn how to invest in gold. Keep reading to learn about seven ways to invest in gold.
Should You Invest in Gold?
Because gold prices tend to be less volatile than stocks, gold is viewed as a comparatively safe investment. People use gold and other precious metals to diversify their portfolios and to serve as a hedge when other investments decline in value.
There are numerous ways to invest in gold. Some options are more liquid than others, which can make them better for investment purposes, so it’s helpful to explore the pros and cons of each.
7 Ways To Invest in Gold
When it comes to investing in gold, you have plenty of choices. Your choice depends on factors such as budget, risk tolerance and experience.
1. Gold Bullion
Gold bullion is probably the most popular way to invest in gold. Bullion comes in bars that might range from a few grams to 400 or more ounces, but the most common sizes are one- and 10-ounce bars. This can get expensive, considering that the price of gold in late August was about $1,816 per ounce. And unlike stocks, you can’t buy fractions of a gold bar.
Because gold bullion is so expensive, make sure you use a reputable dealer. You also should stay current on gold prices so you can choose the right time to buy. Most dealers update their prices based on current spot prices.
2. Bullion Banks
A bullion bank is a precious metal dealer that operates online or in local establishments. Bullion banks typically deal with large quantities of gold, so their customers tend to be institutional investors and central banks rather than individual investors.
Bullion banks typically offer investors a choice between allocated and unallocated gold accounts. With an allocated gold account, the investor owns specific pieces of gold that the bank cannot use for other purposes. Owners of unallocated accounts are essentially unsecured creditors of the bank.
3. Gold Jewelry
Gold jewelry might be the most familiar form for casual buyers. It offers certain advantages over gold bars, including the following.
There’s a large resale market of jewelry enthusiasts.
It can be passed on to loved ones.
It is covered under most homeowner insurance policies.
That said, purchasing gold jewelry as an investment isn’t always the best option because of the difference between scrap value and retail prices. For example, you might pay $500 for a 14-karat gold bracelet, but its scrap value is a fraction of that price.
4. Gold Coins
Most gold coins weigh one or two ounces, though you can also find half-ounce and quarter-ounce coins. The most widely available gold coins are collectibles such as South African Krugerrands, Canadian Maple Leafs and American Gold Eagles.
One thing to keep in mind is that gold coin prices don’t necessarily align with their gold content. In-demand collectible coins tend to trade at a premium, and you might be able to find better deals from local collectors or pawn shops. That said, it’s still safer to buy from a reputable, licensed dealer.
Prices on certified coins are influenced by their gold content and fineness, but rarity is also a factor. Be sure to buy only certified coins that have been verified by another party.
5. Gold Derivatives
Gold derivatives can be traded as options contracts backed by physical gold. These options eliminate the hassles of owning physical gold, which might include storage, transaction fees and insurance. Because derivatives and options require in-depth market knowledge, they are best left to experienced investors.
Derivatives can result in impressive gains, but they also carry the risk of significant losses. Prices can rise and fall faster than the price of gold itself, and derivatives trade on margin.
6. Gold ETFs and Mutual Funds
Gold exchange-traded funds and mutual funds are a good option if you want the expertise of professional fund managers, though some are passively managed index funds that track industry trends or the price of bullion using futures or options.  Funds comprise nearly one-third of overall gold investments, even though they are a relatively new option for investors. ETFs are backed by physical gold and reflect the current price of gold in the market.
One advantage of investing in gold ETFs and mutual funds is that they give you exposure to gold’s long-term stability while also offering more liquidity than physical gold and more diversification than individual gold stocks.
7. Gold Mining Stocks
Buying shares of gold mining companies is another way to get exposure to the market without buying gold directly. The main advantage of this investment is that the return is tied to more than the current price of gold. Here are some things to keep in mind:
Some stocks pay dividends.
Gold mining stocks tend not to fluctuate as dramatically as the price of physical gold because they represent an investment in a company.
The stocks are not backed by physical gold, so you can lose your investment if the company’s performance falls.
The Bottom Line
There are plenty of advantages to investing in gold, including the hedge it provides against other investments and the diversity it can bring to your portfolio. But gold also has certain downsides. One of the biggest is that its value is tied directly to its price.
Gold doesn’t provide a steady stream of income the way a stock might when it pays dividends, or other assets do with regular interest payments. And if you own physical gold, such as coins and bullion, you need a safe place to store it, either in a safe at home or at a storage facility or safe deposit box. This adds an additional cost you won’t face with other types of investments.
Vance Cariaga contributed to the reporting for this article.
This article has been updated with additional reporting since its original publication.