The Best Ways to Invest in Gold Without Holding

Investors opt for gold as a safe haven when inflation spikes or economic turmoil throws the markets for a loop. 

Why? …because gold has a proven track record of gains.

However, holding large quantities of physical gold at your home or safe box can be cumbersome and expensive. 

Yet, you can invest in gold without physically holding it. Here’s how: 

Gold IRA

A gold IRA is a self-directed individual retirement account that enables you to hold physical gold or other precious metals like silver and platinum.

You’ll need to open a gold IRA account. On top of that, you must work with an IRS-approved custodian to hold the gold on your behalf. The custodian can be a financial institution like a bank, brokerage, or trust company. 

Further, you’ll need to pick a gold IRA provider to purchase the gold for your IRA. While there are many gold IRA companies, some aren’t worth your attention.

Ideally, you want to pick a reputable and experienced dealer like Augusta Precious Metals to help you buy the gold.

Side Note: You should remember that not every self-directed IRA custodian offers to hold physical gold, so you should check their offerings before opening an account.

Also, you can purchase any ingot or bar. The metals must meet IRS requirements regarding elements like purity and weight. Of course, the gold must be stored in an IRS-approved depository.

The next step is to fund your account with a contribution or transfer. You can also use a rollover from a qualified plan like 401(k) or 403 (b).

You’ll then choose investments for your account, and your IRA provider and the custodian will complete the purchase on your behalf. As for gold coins, you can only invest in bullion coins issued by specific government mints.

Gold Receipts

There’s speculation that the earliest form of credit banking was mediated by goldsmiths who’d store gold on behalf of investors.

The investor would, in return, receive a paper receipt which they could redeem for their gold in the future. 

The goldsmiths knew that only a tiny percentage of those receipts would be redeemed, so they’d issue receipts for a larger amount of bullion than their coffers could hold. And as a result, a fractional reserve credit system was born.

Fast forward, you can still invest in gold receipts and redeem them in the future for physical gold. While most government mints no longer trade privately with gold, some “private mints” do.

The Royal Canadian Mint, for instance, offers electronic tradable receipts (ETRs) that can be exchanged for gold.

Derivatives

Derivatives leverage gold as the underlying asset. More specially, there are contracts allowing for gold delivery in the future.

There are several types of derivatives as follows:

Forward Contracts

A forward contract on gold allows you to purchase physical gold in the future at a specified price today. You can trade a forward contract over the counter. Further, the buyer and seller can customize the agreement to determine terms like the expiration date, the number of ounces to be delivered, and location. 

Future Contracts

Future contracts are more or less like forward contracts. The difference, however, is that you can trade futures on an exchange.

In addition, the contract terms are predetermined by the exchange and aren’t customizable. Since forward contacts trade over the counter, each side is aware of the credit risk that the other party may fail to deliver.

That isn’t the case with exchange-traded futures. In most cases, forward or futures contracts aren’t held until expiration, meaning physical gold isn’t delivered.

Instead, these contracts are either rolled over to a new contract or sold with an extended expiration date.

Call Options

You can also use call options to invest in gold without holding it. Call options give you the right but not the obligation to purchase gold.

Because of this, you can only implement a call option when gold prices are favorable. Think of your investment in a call option as the deposit that gives you the right to purchase gold at a later date for a specified price today.

You’ll have the option to generate a profit if gold prices rise above the specified price. Likewise, if the price doesn’t rise, you’ll have the option to lose your deposit.

Gold Funds

Not only do derivatives provide an excellent strategy to invest in physical gold, but they’re also the most cost-effective. On top of that, they offer the greatest degree of leverage. 

However, derivative markets aren’t accessible to the average investor. 

Still, a typical can buy gold without holding it through mutual funds that purchase gold. Better yet, they can use gold EFTs traded like shares on stock exchanges. 

Other options include Standard & Poor’s Depositary Receipt (SPDR) and Gold Trust ETF (GLD).

Gold funds give you twice the exposure to gold while allowing you to invest based on your current financial capability.

Gold Mining Stocks

Even though owning stocks in a company that mines and sells gold is an excellent way to invest in gold without holding it, you may not get the exposure to precious metals you want. 

This is because most gold companies generate profit depending on the mining cost versus the selling price. 

Thus, many gold companies opt to hedge their exposures to gold price risk in derivatives markets in the derivative market. Essentially, this means that investing in shares of these companies gives you exposure to the operating profit margin of that firm. 

The Bottom Line

Indeed, investing in gold enables you to store value and hedge your portfolio against unexpected inflation. 

At the same time, storing physical gold can be costly and hectic. Even so, you can leverage the strategies highlighted in this post to own this precious metal without stashing it in your home. 

While buying gold is a noble idea, it would be best to work with a financial advisor or company to help you decide what percentage of your investment portfolio should be in gold.