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04—09
Types of Gold
Investment
Physical possession of your gold is the safest and most suggested way of investing in gold (most often bars or bullion coins like the American Gold Eagle, or the South African Krugerrand).
There are many advantages. There is no cost of ownership, it has a minimal tax profile, and there are no threats from counterparty risk, fraud, or other bad actors. Any quantity can be bought and sold online with a buy/sell spread of as little as 3.8%.
Physical ownership
Bullion ETFs
Often referred to as “paper gold,” the sole asset of these funds are rented or leased gold bars, and closely track the price of gold. Investors buy shares that are fractional ownership of the assets; it is a proxy for physical possession. The largest fund is SPDR Gold Shares (NYSEARCA:GLD), with assets of about $32 billion.
Gold mining stocks
Of the three types of investments, gold mining companies and non-bullion ETFs have the loosest connection to the price of gold. On the downside, they are affected by the same risks as other corporations, such as the price of energy, economic conditions and political instability. On the upside, their profits theoretically leverage the price of gold.
Since some of their costs are fixed, a large part of any increase in the gold price goes right to the bottom line. Our experience is that this relationship is not as direct or immediate as one might expect, though.
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