As kids, we buried “secret treasure” in the backyard. We didn’t know then, let alone care, about the state of the economy or the worth of gold.

These days, we know very well what’s in our investment portfolios and we cringe or breath a sigh of relief as we watch it fluctuate from day-to-day and week to week. So, it’s no surprise these days of economic uncertainty, we might find ourselves dreaming of safely buried treasure once again.

If you are, you aren’t alone.

According to a survey by Magnify Money published in July 2020, one in six Americans bought gold or other precious metals in the last three months, and about one in four were seriously considering investing in them. After all, gold tends to hold its value, in part because it has a finite supply. In fact, “gold was one of the highest-performing investments in 2019,” according to a recent article in Forbes.

Interestingly, the COVID-19 pandemic has resulted in a less fluid supply of gold in the marketplace. Around the world, the pandemic has forced mine closures and slowdowns. According to an analyst from CRU Group, in April about 10-15% of gold mines globally were offline, including in South Africa, Peru, Mexico, and Canada.

So, is gold still a good investment? And if so, what’s the best approach? Not surprisingly, there are lots of gold investment options in the modern world, and the most practical ones don’t involve buying and burying it in the backyard.

Why Invest in Gold?

Gold is understood as a “stable store of value.” Although typically gold doesn’t offer a big return on investment, it tends to hold its value during uncertain times. As a result, gold tends to hold its value during times of financial volatility like what we’re seeing now.

In today’s volatile market, that makes it particularly attractive. 

The value of gold is influenced by inflation and supply. The dollar value of gold moves opposite of the dollar. This is because as the dollar gains, it requires fewer dollars to purchase the same ounce of gold.

This year the value of gold is up significantly, with gold prices hitting a high of $2,089 an ounce on August 7. Although prices have since slipped down slightly, many experts anticipate that gold prices could reach $3,000 within the next 16 months.

How to invest in gold

There are many ways to invest in gold, including:

Physical Gold: Gold bullion is physical gold in the form of coins or bars. Typically, these are sold at a markup by the seller and come in sizes ranging from one gram (approximately 1/31 of an ounce) to 400 ounces. Bullion coins are typically recognizable based on imprints such as the American Eagle, Canadian Maple Leaf, and South African Krugerrand.

Typically, the value of non-bullion coins is based on their rarity, not the amount of gold in them. This is because in 1933, President Franklin D. Roosevelt signed Executive Order 6102, which required Americans to surrender much of their gold to the government for compensation. The collected gold was melted into bar form, making the remaining coins from that era particularly valuable.

Physical gold tends to be liquid for those needing cash, but often must be sold at a discount. Also, it can be difficult to store it safely. But again, while buying actual treasure is appealing and very possible, isn’t the only way to invest in gold.

Gold Exchange-Traded Notes (ETNs) and ETFs: ETNs are “debt instruments tied to an underlying investment” such as a commodity like gold. Gold ETNs enable investors to invest in gold without having to purchase it in physical form, which is much easier for many investors. Gold-backed ETFs are another option. First launched in 2003, these ETFs are securities designed to track the gold price.

Gold Mining Stocks: These are simply investments in companies that mine for gold. While these are not direct investments in gold, they are an investment in the industry.

In times of volatility, gold can be a popular hedge for investors looking to protect their portfolios from wild swings. For those investors interested in gold-backed ETFs and mutual funds, a search on Magnifi suggests that there are a number of available options. 

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The information and data are as of the October 20, 2020 (publish date) unless otherwise noted and subject to change.  This blog is sponsored by Magnifi. 

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