It is possible to invest in gold for your retirement without having to buy the precious metal.
Paper assets such as stocks of mining companies, Exchange Traded Funds (ETF’s), options and mutual funds offer well established ways to invest in gold.
Which one to choose is up to you. We recommend you take professional financial advice before choosing any of these investments. We are simply describing some investment options, please DO NOT take these options as recommendations.
Before we look at each type of asset, let’s consider them in relation to your retirement.
Before you decide you want to invest in gold via paper assets, make sure you have a clear set of goals for your investments and understand the levels of protection and income you need for your retirement years.
Consider how paper assets that are invested in gold and gold related industries should figure in your plans.
To help you we have listed out some of the general advantages and disadvantages of investing in paper assets.
There is a wide range of expertise to help you select stocks, funds and ETFs.
Most big name stocks and funds have highly liquid demand. In other words, there are always buyers and sellers should you need to make a trade.
All paper assets can drop to zero in value. In fact some futures contracts can end costing you more than you invest.
Price and performance of paper assets are at the mercy of economy, management, government, mergers and more.
You cannot store paper assets in a self-directed Gold IRA.
Let’s now review each of the paper assets, starting with mining stocks.
Gold Mining Stocks
The most common gold stocks covered by investment professionals are those of gold mining companies. These are companies whose main business is to explore for and mine gold.
There are two types of mining companies: Major and Junior. A major miner will concentrate on large scale operations and extracting saleable minerals from the earth. The junior miner is more focused on the exploration for new deposits.
It is not uncommon for a major and junior miner to team up for a project.
Major miners may extract minerals from the earth and gold is a by-product of their mines, not the main mineral. These miners are not typically called gold stocks.
There are are many factors to consider such as exploration costs, the management team, the overall gold commodity cycle, political risks and extraction costs.
Mining stocks are seen at the riskier end of stock market investing. You must do your research and make your own assessment of each stock.
The list below shows some of the popular gold stocks.
|Company||Website||Who they are||Stock Symbol|
|Goldcorp||www.goldcorp.com||Goldcorp HQ is in Vancouver, Canada and they own 5 mines in North America, 3 in Mexico and 2 in Central and South America. 2.87 million ounces of gold were sold in 2014, making Goldcorp the fourth largest gold producer in the world.||NYSE: GG|
|Newmont||www.newmont.com||Newmont, based in Greenwood Village, Colorado, USA, has operations in Australia, Ghana and Indonesia amongst other locations around the world. In 2016, Newmont reported their gold reserves at 73.7 million ounces.||NYSE: NEM|
|Barrick||www.barrick.com||Barrick, headquartered in Toronto, Canada has 14 producing gold mines, located in Canada, the United States, Argentina, Australia and other countries. In 2014, Barrick was the largest gold producer in the world.||NYSE: ABX|
Precious Metal Mutual Funds
A mutual fund is an investment fund that has a specific goal to invest in certain types of asset. The managers of the mutual fund (an investment company or a bank for instance) take a fee for managing the money within a fund.
Remember, fund manager fees are deducted from the profits made by the fund. You may be charged fees when you buy into and sell out of a fund. Consider a no-load fund to avoid these fees.
Why buy a mutual fund invested in gold related assets such as gold bullion and mining stocks? The fund has a selection of assets, so if one does not perform well, a mining stock for instance, the other assets in the portfolio may be doing better. You are reducing your exposure to the ups and downs of one stock or asset.
However, when all those assets are correlated to the health of the gold industry and the price of gold, then they are more likely to move in a similar direction at the same time.
A mutual fund focused on gold related assets may be useful if you think the gold industry is going to do well as a whole and you can benefit from the performance of a number of stocks in the sector.
4 out of 5 mutual funds under-perform the average return of the stock market. You need to keep careful track of the returns and performance of each mutual fund you select.
Below are the details of some gold mutual funds for you to investigate (these are not recommendations).
|Company||Website||Who they are||Fund Symbol|
|Fidelity||www.fidelity.com||Fidelity Investments is the 2nd largest mutual fund and financial services company in the world. Offering a wide range of wealth management, brokerage and annuity services. The FGDAX gold mutual fund focuses on capital appreciation rather than income.||FGDAX|
|First Eagle||www.feim.com||First Eagle Investment Management has a long heritage, originating in Germany in 1864. Moved to New York City in 1937 and launched first mutual fund in 1967. The gold fund "Seeks to provide exposure to the investment characteristics of gold and, to a limited extent, other precious metals."||SGGDX|
|Franklin Templeton||www.franklintempleton.com||Franklin Templeton Investments has been providing investment advice to retail investors and financial institutions since 1947. The Franklin Gold and Precious Metals Fund " ... invests at least 80% of its net assets in the securities of companies that mine, process or deal in gold, platinum, palladium and silver."||FLRCX|
Further information on mutual funds can be found at the following rating agencies. At the time of writing, each site will ask you to register a name and email address but it’s free to do so.
Gold Exchange Traded Fund (ETF)
An exchange traded fund is a security that typically tracks the performance of an index, commodity or sector through ownership of the underlying assets. A gold ETF would own the gold bullion but the ETF itself would be traded as a paper asset on the stock market.
ETFs typically have lower fees and higher liquidity than mutual funds.
An ETF can be useful for investors and speculators to buy gold without having to manage and store the bullion or coins.
The first ETF to be traded on the US Stock Market was the S&P SPDR, traded on January 1, 1993. This very popular ETF has over $86 billion in assets.
ETFs offer investors an alternative to mutual funds and stocks. Discuss the tax implications and advantages of ETFs with your accredited investment adviser.
|Company||Website||Who they are||Fund Symbol|
|iShares||www.ishares.com||iShares managed over 700 ETFs worth over $1 trillion in management in 2014. iShares is owned by BlackRock Management, an investment firm operating in 30 countries.||IAU|
|SPDR||www.spdrs.com||SPDR is a family of ETF investment funds marketed by State Street Global Advisers. SPDR GLD was first listed in 2004 and is the largest physical gold backed ETF in the world.||GLD|
|ETF Securities||www.etfsecurities.com||ETF Securities launched the first Gold backed ETP in 2003. They have over 350 Exchange Traded Products for investors and are considered an innovator in the ETF, ETP and ETC industries.||SGOL|
The “Futures” market was originally created to help farmers lock-in the price of their produce ahead of time. The could sell their wheat at a future date at a price the could have guaranteed today with a “futures contract”.
This approach is used throughout industry to trade commodities, including gold.
Gold futures can be bought and sold on the COMEX futures exchange run by the Chicago Mercantile Exchange.
It should be clearly understood that futures contracts are highly leveraged derivatives that should only be traded and used by experienced industry and financial professionals.
A futures contract is a speculative paper asset that relies on price movement over time going in your favour. You can lose more than the cost of the futures contract if the trade goes against you.
This type of investment (we would say speculation) is not suitable for a retirement strategy. Don’t just take our word for it, the team at the excellent website Commodity HQ, say the following:
“In fact, it is safe to say that the majority of investors should not be utilizing actual futures, but may instead choose to use gold stocks, ETFs, or mutual funds. Futures contracts are only intended for serious investors and traders who fully appreciate their complexities and risks.”
By all means look into futures, if you have the time and patience to learn and have a pot of money you afford to lose, then this may be an interesting diversion.
However, we do not recommend futures as part of your retirement plan.