Investing in gold can add diversification as well as protection to a portfolio

Investing in gold can offer a hedge in your portfolio in case of a meltdown, or even if the U.S. dollar is rendered worthless. (Remember in the United States we have a fiat currency, which is not backed by the gold standard). Gold also does well in periods of inflation.

How To Invest In Gold

Local Dealers

One way to invest in gold is to buy physical gold coins and/or gold bars. This might not be the most efficient way because the local gold dealer is charging a markup, and you will have to pay a sales tax on your gold purchase.

Remember that taxes need to be paid when selling your gold. Yes, a capital gains tax applies also to your gold if you were to sell it, as much as 25% or even 37% depending on your tax bracket.

Gold Mining Stocks

Gold mining companies are another way to gain exposure to the gold market. The idea is that as gold prices rise the profit margin will increase, and as gold prices decline the profit margin gets compressed. In theory these companies should mock the performance of gold depending on their profit margins.

Profit margins on a company of course depend not just of the price of the underlying commodity, but labor and energy costs, geopolitics, and other factors that are idiosyncratic to a mining company that can affect profit margin.

Gold ETFs

Fund management companies out there have gone out and bought physical gold and stored it in a somewhere. Gold bullion ETFs such as the GDX and the GLD is another way to gain exposure to the gold markets.

Before investing in such a product please carefully review how the ETF works, some other companies use options or futures, or other ways to gain access to the underlying commodity. Understand carefully what the ETF does and how it can affect the value of the ETF depending on gold prices rising or declining.

Futures

If your account is approved for futures trading, then accessing gold through futures is another avenue for you. Futures trading is one of the most common ways, but futures trading involves a lot of unsuitable risks. Please know the facts before digging yourself into something that’s beyond past your risk tolerance.

How Gold Can Protect From Market Turmoil

When the economy collapses gold tends to hold its value. When the U.S. dollar is weaker gold rises in value because gold will retain its value versus the U.S. dollar which is fiat currency. Point being is that the United States dollar is not backed by anything, we are not on the gold standard of currency. If the U.S. dollar weakens it could be worthless (though that is not likely to happen, just using an extreme to convey my point), gold will still have value, and that demand for gold will increase the price. So when the economy collapses, gold can help protect a portfolio.