Ways to Own Gold

Gold is a popular hedge against a declining dollar, inflation, and a variety of adverse market events. One of the challenges investors face is not whether to own gold, but how to own gold.

You can buy bullion and bars direct from a dealer, which some investors like because they are in physical possession of their assets. However, storing bars to protect them against theft or damage can be tricky or, if a bank safety deposit box is used, costly.

Exchange-traded funds actually own and hold gold, relieving shareholders of the burden of storage. Some investors don’t like this, however, as they don’t physically hold their assets. On the plus side, ETFs, such as the SPDR Gold Trust (NYSEARCA: GLD) can be bought and sold quickly and easily anytime the market is open.

Buying stocks overcomes one of the chief drawbacks of owning gold directly, which is the absence of income. For instance, one of the world’s largest miners, Newmont Goldcorp (NYSE: NEM), pays a dividend of about 1.5%. However, gold is often mined in dangerous corners of the world, and stocks can be buffeted by geopolitical events.

Buying gold mutual funds, such as Fidelity Select Gold Portfolio (NASDAQ: FSAGX), overcomes some of the risk of buying from individual companies by diversifying among several miners. Many funds further diversify by buying precious metals mining companies, which mine silver and copper as well.

Gold futures contracts are not for the faint of heart. A small margin requirement gives investors significant leverage in controlling large amounts of gold. However, this leverage can deliver outsized losses as well. Don’t try this at home, kids!

David R. Evanson is a financial journalist in Philadelphia.