How to Invest in Gold? ETFs, Stocks, Physical, Futures, & Options

Are you looking to include gold in your portfolio? Learn the different ways to invest in gold such as ETFs, stocks, futures, options, and physical gold. Learn the pros and cons.

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4 min read
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Key Takeaways

  • Physical gold—such as coins and bars—offers the most direct exposure to gold as an investment, but storage can be a challenge 
  • Gold-mining stocks can rise and fall along with the price of gold, but there are other factors to consider
  • Gold futures can be used for leveraged investments, speculation, and hedging, but futures trading is risky     
  • Qualified clients can access options on gold futures on the thinkorswim® platform

Gold. It’s the yellow metal, the “barbarous relic,” but it’s also a medium of exchange that’s been respected as a store of value since ancient Egypt. It’s also an asset class that some investors might consider as part of a diversified portfolio.

But when it comes to investing in gold, there are many approaches, from direct purchase to investing in the companies that mine and produce the precious metal.

Yellow Fervor: Gold as an Investment

Gold has an emotional attachment that can make it different from other investments. When we exchange wedding vows, we exchange golden rings. In school, we learned of the “49ers” whom flocked to the West Coast during the California Gold Rush. And we’ve all heard the radio pitch telling us that empires were built on gold and how, on a long-enough timeline, gold will replace fiat currency as the chief unit of exchange. 

Some advisors recommend gold as a way to add diversification to a traditional portfolio of stocks and bonds. Proponents such as the World Gold Council point to studies showing that an allocation of gold and other alternative assets, even though they can be risky in and of themselves, can actually raise the risk-adjusted return profile of a portfolio. 

Why? One answer is gold’s low correlation to traditional assets, which proponents say can act as a hedge against systemic risk, especially during periods of stress in the stock and bond markets. Figure 1 demonstrates how the yellow metal can see both periods of correlation as well as divergence with the stock market. 

Gold and SPX chart
FIGURE 1: TO AND FRO. This chart shows the relative performance of gold futures versus the S&P 500 Index (SPX) from 2008 to 2022. Note that the two have long periods of divergence, with occasional periods of correlation. Data source: CME Group; S&P Dow Jones Indices. Chart source: the thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

But diversification alone shouldn’t be the basis for adding gold as an investment. Plus, there’s no guarantee that diversification will eliminate the risk of loss. 

Bottom line: If you’re considering adding gold to your portfolio, you should look at it with the same care and consideration you give any of your financial decisions. And with that in mind, let’s look at some of the choices available for investing in gold. We’ll start where the ancient Egyptians did—with the physical metal.

Gold Coins and Bars

Traditionally, ownership of the physical product—gold coins and bars—is the most common and straightforward way to invest in gold. Simply buy coins or bars from an online dealer, or from your local coin shop, and then put them away for safekeeping. But buying the physical metal is also the most inefficient way to own gold.

Panning for Gold? How About Screening Instead?

If you’re considering adding some of that glittery yellow metal to your portfolio, but you’re not sure where to start, consider using screeners. Here are two ways.

  • Screening for Stocks. TD Ameritrade clients can research mining companies under the Research & Ideas tab by selecting Screeners > Stocks. Then, under Sector, Industry and Sub-Industry, select Materials Metals & Mining > Gold.
  • Screening for Gold ETFs, ETNs, and other exchange-traded products. To screen for potential ETF ideas, go to Research & Ideas > ScreenersETFs and under Overview, select Morningstar Category > and either Commodities Precious Metals or Equities Precious Metals.

Markups and commissions on physical gold sales can be high, and depending on where you live, you may have to pay sales tax on the purchase as well. Uncle Sam collects when you sell your gold too. The IRS considers gold bullion and coins “collectibles,” which carry a 28% top federal tax rate on long-term capital gains. By comparison, stocks, bonds, and other investments have a max tax rate of 20% on long-term capital gains and up to 37% on short-term capital gains based on income level.

The storage of physical gold is also a problem. Are you willing to keep your gold at your home, where it may be at risk of theft, fire, or natural disasters? Some companies will offer to store your gold for you, and you can always get a safe-deposit box at the bank, but in both scenarios, you’ll be charged a fee and may not be able to access your gold if you need to sell it on short notice.

Gold-Mining Stocks

Gold-mining companies come in two different sizes: junior and major. Junior miners are companies that are newer or more speculative, often mining unproven claims and hoping to find a big score. Major miners are more established companies with production and infrastructure in place, mining on proven and sustainable claims. Both categories include a number of publicly held companies.

The theory behind buying mining stocks is that, as the price of gold goes up, the profit margins of the companies go up as well, which may be reflected in their stock prices. But the price of gold is only one component of the underlying value of these companies. Factors such as geopolitics, the cost of energy and labor, and even corporate governance can impact the profitability of individual mining firms but not necessarily the price of gold. As with any investment, it’s important to do your research before investing.

Gold ETFs and Other Exchange-Traded Products

Exchange-traded products (ETPs), such as a gold exchange-traded fund (ETF) or exchange-traded note (ETN), can offer exposure to the precious metal, but not all ETPs are alike. Some involve physical ownership of the metal, while others use futures, options, and other investments to attempt to mirror the investment profile of owning gold. If you’re a TD Ameritrade client, you can learn more about the available ETPs by using screeners (see sidebar).

Before investing in an ETF, be sure to carefully consider the fund’s objectives, risks, charges, and expenses. For a prospectus containing this and other important information, contact us at 888-669-3900. Please read the prospectus carefully before investing.

Gold Futures and Options

When investing in gold via futures or options, you’re using leverage to control a larger amount of the commodity than you could with just the money you’re putting at risk. This can be an efficient way to participate in gold price fluctuations—up or down—depending on whether you’re bullish or bearish on the market.

Gold futures may respond to stock market volatility, and some investors migrate to them as a hedge when stocks become volatile. But it’s important to understand the different characteristics associated with the pricing of futures and options. Plus, leverage works both ways. It can turn a small amount of money into a large gain, but the reverse is also true—any losses are magnified as well as the potential to lose more than your initial investment.

Weekly Options on CME Group Gold Futures (/GC)

If you’re seeking targeted exposure to gold products, there’s a new way to do it at TD Ameritrade—using weekly options on CME Group gold futures (/GC). Account owners with futures approval through Charles Schwab Futures and Forex LLC* can access weekly options on gold futures right from the thinkorswim platform. What does this mean? Essentially, weekly options offer the same potential benefits (and risks) as monthly options but with the opportunity to pinpoint exposure and manage volatility with more precision. Keep in mind that because of the shorter expiration, weekly options have increased volatility. A small move up or down in gold can result in a big move in the weekly futures options contract.

The Bottom Line on Gold  

Ultimately, if you’re looking to add gold to your portfolio, consider which products make sense and feel most comfortable for you. 

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Key Takeaways

  • Physical gold—such as coins and bars—offers the most direct exposure to gold as an investment, but storage can be a challenge 
  • Gold-mining stocks can rise and fall along with the price of gold, but there are other factors to consider
  • Gold futures can be used for leveraged investments, speculation, and hedging, but futures trading is risky     
  • Qualified clients can access options on gold futures on the thinkorswim® platform

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