Investing in gold? Experts say to avoid these 4 options
The price of gold has hit several new milestones in 2024, the most recent of which was a new record high of $2,435 per ounce in late May. Although the price of gold has fallen in recent months — today's price (as of July 12, 2024) is about $2,404 per ounce — it's still up around 15% year-to-date. As a result, this has led to an uptick in interest by investors who want to protect their portfolios and rake in the possible returns.
And, while gold can be an excellent hedge against inflation and can help diversify your portfolio, you may wonder what gold options to invest in — and which ones to avoid. After all, there are more than physical gold coins and bars to consider. For example, you could invest in a gold IRA or individual gold stocks instead.
That said, some types of gold investments might make more sense than others in today's investment climate. And you might want to steer clear of some options, depending on your goals and unique financial situation. Here are some gold options some experts say you should avoid.
Find out how the right gold investment could benefit your portfolio today.
Investing in gold? Experts say to avoid these 4 options
You may want to avoid these gold assets if you're investing in gold, according to the experts we consulted.
Gold jewelry
One option the experts we spoke with said to avoid is gold jewelry.
Ryan Jacobs, founder of investment firm Jacobs Investment Management, says investing in gold jewelry is generally not advisable because it includes manufacturing and design costs, leading to prices that are much higher than the gold content.
"Selling jewelry often results in receiving less than its intrinsic gold value," Jacobs says.
You can eliminate gold jewelry as an investment unless you're including investing in a relationship, according to Brandon Thor, CEO of precious metals company Thor Metals Group LLC.
"However, from a financial perspective, it's not a good investment," Thor says.
And, while gold watches have seen an uptick in investing interest, these are another area novice investors should consider carefully, says Brett Elliott, Director of Marketing at American Precious Metals Exchange APMEX.
"It's a very niche area that has been attracting a lot of interest as of late, but the value of the watch changes depending on minute factors such as whether it has been worn," says Elliott.
Learn more about the gold investing options available to you here.
Physical gold (depending on your investment timeframe)
According to Alex Ebkarian, COO and co-founder of Allegiance Gold, a precious metal dealer, investors with short-term investment goals should avoid investing in physical gold, such as gold coins and bars.
"For day trading and short-term return on investment (ROI) time frames, try investing in gold ETFs which are very liquid," says Ebkarian.
That said, Ebkarian thinks purchasing physical gold could be a good choice if you understand the costs and fees associated with buying it. It's also important to understand that the price fluctuates and that you should have mid- to long-term expectations for ROI.
Gold futures and exchange-traded funds (ETFs)
James Rickards, author of The New Case for Gold, believes you should avoid investing in gold futures and ETFs.
"Investors should understand that gold investments such as futures contracts, exchange-traded funds and gold options are not investments in gold, they are securities, which I refer to as 'paper gold'" says Rickards. "You will get short-term price exposure if that's all you want, but you never take physical possession of any gold."
Rickards believes investing in physical gold is a better choice than ETFs or futures because it might be easier to sell in a future crisis.
"In a future crisis, it is likely that futures and stock exchanges will be closed. And if that happened, you wouldn't be able to realize the value on your paper gold contracts just when you needed it the most," he says.
That said, not every financial professional shares Rickard's perspective. For average investors, particularly retail investors, an ETF tied directly to the price of gold is the best choice, John Gilbert, executive vice president at registered investment advisor firm Bradley, Foster & Sargent, says.
"A liquid option, for example, is the GLD ETF," Gilbert adds.
Stocks of exploration- or developmental-stage gold companies
Another option that some experts say to avoid is the stocks of early-stage gold companies.
"Most investors should avoid the stocks of exploration- or development-stage companies entirely, or at least limit the size of the purchase to a small amount (one or two percent of one's portfolio, for example)," says Gilbert.
The bottom line
Gold can be a smart hedge against inflation and can be especially useful in today's economic climate. Before you invest in gold, though, make sure to understand the possible advantages and disadvantages. And, whether you decide to invest in physical gold or an ETF, don't put more than 10% of your portfolio in this asset. "Do not go 'all in' because of the concentration risk of having too much net worth in a single asset class," says Rickards.
