Gold bars and coins are the most popular types of gold investment. Over the past decade combined they have accounted for around two thirds of annual investment in gold.

Bars

Larger gold bars such as the 1 kilo size offer best value when you’re buying but not necessarily when you’re selling. Smaller sized bars such as 100g, 50g and 1 troy oz offer private investors more flexibility and liquidity.

The LGD (London Good delivery) Bar is popular with the larger institutions such as Central Banks and gold-backed ETFs. It weighs approximately 400 troy ounces and as its name suggests it’s the traditional gold bar used in London for clearing.

Coins

Gold American EagleGold coins offer more flexibility for private investors because of their smaller size when compared to bars. This gives investors the opportunity to liquidate different percentages of their gold holdings at their leisure.

Coins are normally minted in denominations of 1, 1/2, 1/4, 1/20 and 1/10 troy ounce.

Popular gold coins include the American Gold Eagle, the Canadian Gold Maple Leaf, the South African Krugerrand and the British Gold Sovereign.

*Fineness

Fineness is the term commonly used to measure the gold content in your physical gold investments. It is measured either in carats, with 24 carats being the highest, or in parts of gold per thousand with 999.9 being the highest.

Jewelry

Buying gold jewelry solely for investment purposes will not give you the best ROI. That’s because when buying you are paying the crafting cost in addition to the prevailing gold price. Furthermore gold jewelry is not as liquid, i.e. as easy to sell, as gold bullion coins and bars. A piece of jewelry that appeals to you may not appeal to many others because of individual preferences and tastes.

Exchange-Traded Products

Gold backed ETFs (Exchange Traded Funds) and similar funds allow you to invest in gold and track the gold price as if you owned the physical product but without the need to arrange storage and insurance. These funds aim to combine the benefits of owning physical gold and the convenience of stock market investing.

Gold ETFs such as GLD are paper products that come with a prospectus which most investors don’t take the time to read. The fine print is notoriously full of counterparty risk (risk that the counterparty to the contract will not honour its obligations).

Mining Companies

Another type of gold investment is to buy shares in gold mining companies. You cannot expect the price of the shares to correlate exactly with the price of gold however because the value of the stock is also affected by such factors as production costs, geo-political circumstances in the mine(s) location, effective management, reserves and anticipated future earnings.

Derivatives

There are several different types of derivatives, the main ones being futures, options and forwards contracts. These contracts typically allow both settlement in-kind and in-cash. They trade on exchanges and over the counter (OTC).

Derivatives trade on margin, with the initial margin being just a small percentage of the underlying contract price. This gives investors leverage to achieve returns far higher than their outlay but in the same way losses can be significantly higher too. That’s why investing in derivatives is more risky for the average investor – it requires a fundamental knowledge of financial securities.

Gold Mutual Funds

Gold Mutual Funds have become a popular type of gold investment in recent years. They are a variant of Gold ETFs. Whereas Gold ETFs invest in a range of gold securities, Gold Mutual Funds invest in a range of Gold ETFs.

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Author: Doug Young

More reading: Tips For Buying Gold