What does it mean to “buy gold,” and should you buy gold or gold ETFs?

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Updated
March 8, 2024

Sure, we all know what gold is. Sort of. We know it’s metal. We know it’s valuable. We know a lot of us have it plated on jewelry and some of us have teeth made out of it. But when we hear investors and advisors talking about the price of gold or investing in gold, what does it mean?

“The price of gold.”

Is literally what the words say. If you hear “the price of gold is $2,000”, it means that actual gold will cost you $2,000/ounce. A precious metal, indeed.

But why would you buy gold as an investment?

Unlike most assets, gold's price isn't dictated by a company's earnings or economic data. It's set by the global market, a constant tug-of-war between supply and demand. When inflation or geopolitical tensions rise, investors flock to gold's safe haven, pushing its price up. Conversely, economic stability and low interest rates can dampen its allure, causing the price to fall.

These are some of the reasons investors consider gold as an investment:

• Gold is a safe haven. In turbulent times, gold shines as a refuge for nervous money. Its historical resilience against economic storms makes it a valuable anchor in a portfolio.
• It can be a hedge against inflation. When currencies lose their purchasing power, gold usually holds its value, acting as a shield against inflation.
• Gold diversifies your investment portfolio. Gold's low correlation with traditional assets like stocks and bonds can reduce risks.
• It’s a tangible asset! Unlike digital or paper-based assets, gold offers a reassuring physical presence. If you’re reassured by keeping a bunch of valuable metal somewhere safe.

There are three primary ways people invest in gold.

• Invest through the stock market. In the market, you can invest in gold mining companies, or in ETFs or funds that represent gold-centric companies. This is fairly straightforward, but carries similar risk to any other market investment.
• Trading gold futures and options in the commodities market. This is a highly risky way to invest in gold, and it involves betting for or against the price going up or down. We do not recommend this for 99% of investors.
• Buy actual gold. Not a stock. The precious metal. It may sound a bit absurd, but it’s not as wild as it sounds. When you hear that banks and the government keep gold in reserve, they’re referring to actual, physical gold kept in a vault somewhere. Before you rush out and grab a gold bar, you should know the average weight of a gold bar is 27.4lbs—or around 400 ounces.

When you do the math, at $2000/ounce, every gold bar in your closet would be valued at $800,000. That’s a heavy investment. Maybe start with some jewelry. Physical gold has the added value of being fairly liquid—meaning its easily converted to cash if necessary.

Should you go for gold?

The decision depends on your individual investment goals and risk tolerance. If you prioritize stability and want a hedge against economic turmoil, gold can be a valuable addition to your portfolio. If you’re purchasing physical gold, consider the costs and inconveniences of storage.

If you’re considering starting your own private Fort Knox, reach out to your team at Range before stocking up on gold.