4 Ways on How to Invest in Gold for Beginners in 2024

We all know (and love) gold as the shiny yellow metal that is worth a whole lot of money. But why is it worth so much, and what makes it so valuable?

Well, gold is a rare metal that is available in limited quantities – this grants it scarcity, which increases its value when demand goes up. More than that, gold is also one of the most useful metals, with multiple commercial applications, including in electronics, healthcare, dentistry and aerospace. 

Of course, gold is also highly popular as jewellery – its lustrous, malleable nature lends itself well to creating attractive designs for a variety of pieces, from necklaces to bangles and rings. 

Key Points

• Beginners have multiple ways to invest in gold, including physical gold, Gold IRAs, gold CFDs, and gold ETFs, each offering different benefits and considerations.

• Gold is highly valued due to its scarcity, usefulness in various industries, and historical role as a financial asset, making it a sought-after commodity in times of economic uncertainty.

• Gold provides a hedge against market volatility and has shown substantial long-term appreciation, making it a viable option for diversifying investment portfolios.

Why is Gold Valuable?  

Clearly, gold has intrinsic value on account of its industrial importance and status as a valuable natural resource. 

But gold’s most important role is the one it plays in our financial system. Because of its scarcity and high value, gold was used as a medium of exchange – with gold coins used as money over 6,000 years ago. When society progressed to paper currency, gold was used as a backing, guaranteeing the value of bank notes. ^[1] 

After shifting to a fiat currency system – where the value of bank notes is backed by the government that issues it – gold still remains a highly desired commodity and investment asset. This is best demonstrated by central banks, who maintain gold holdings as part of their reserves to ensure liquidity.

Amidst the current global uncertainty, gold is once again proving its worth. Central banks have been buying up record levels of gold starting from 2021, making the shiny metal one of the best-performing asset classes at the start of 2024 ^[2]. From 2019 through 12 April 2024, gold outperformed the S&P 500, rising an impressive 81.65% compared to the S&P’s increase of 76.22% ^[3].

Is Gold a Good Investment? ^[4]

While demand for gold has surged in recent years, inventors should understand that gold has a rather inconsistent track record as an investment asset. The following chart shows the price of gold vs the stock market (represented by the Dow Jones Industrial Average, DJIA) over the past 30 years. 

The orange line plots the price of gold, and the blue line shows the DJIA. The grey bars represent periods of recession. 

In terms of total returns, you can see that the stock market provides much higher returns, with the DJIA growing by over 900% over the past 30 years. Meanwhile, gold has appreciated by around 500%. 

Thus, this shows that a 30-year portfolio tracking the DJIA would have significantly higher returns, compared to one purely made up of gold. 

But that doesn’t mean gold isn’t a good investment. Notice the period between 2008 and 2013, when gold price clearly outperformed the DJIA. This (and other similar historical instances) marks gold as an asset class all its own, and may have low or even negative correlation with equities.

Discover the dynamics of gold prices and their trends with our comprehensive article ‘Gold Price Over 10 Years and Gold Trend Analysis’. 

As such, and considering its inherent value, gold may be helpful for portfolio diversification purposes, allowing investors to hedge against a degree of market risk. Indeed, given its continued strong demand from central banks and institutional investors, gold remains one of the safest investment assets of all time.

Why do Investors like Gold?

Liquidity

In investing, liquidity refers to the ease and speed with which an asset can be bought or sold in a secondary market. An example of a highly liquid asset are stocks, which can be sold quickly if needed. In contrast, real estate is an illiquid asset class – it typically takes weeks or months for a sale to be completed. . 

The gold market is one of the largest and most liquid global markets available. Physical gold holdings worldwide are estimated to be worth around US$ 5.1 trillion, with an additional US$ 1 trillion in open interest via derivatives. 

Gold has even higher liquidity than some financial markets (EUR/JPY, DJIA) and the market enjoys similar trading volume to that of U.S. Treasury Bills. 

The high liquidity of the gold market means retail investors can freely execute their trades without undue delay. This facilitates efficient trading at fair prices. High liquidity also enables traders to get in and out of positions quickly, facilitating risk management.

Diversification ^[5]

Diversification is a popular tactic for hedging against risk. By spreading your investments across assets with low correlations, market volatility and the effects of severe downturns may be reduced.

As discussed earlier, gold’s low correlation to the stock market renders it an effective candidate for portfolio diversification. 

During the Great Financial Crisis of 2008, equities, hedge funds, real estate and most commodities fell. Gold stood out as the exception, not only holding its value, but increasing its price by 21% over the period, as can be seen in the chart below.

Store of Value

Because of its unique role in our society, gold is globally acknowledged as a store of value. It enjoys high demand and is influenced by the dynamics of supply and demand as a scarce natural resource. 

Furthermore, gold has maintained its status as a trusted store of value throughout history, reflecting its enduring appeal and limited availability.

All these factors are why gold remains one of the few asset classes that have held its value throughout history. Compare this to stocks, which becomes worthless if the company issuing them collapses. 

Thus, by investing in gold, investors can preserve a portion of their funds against risks in a way that other asset types cannot. 

Returns

Another reason why investors like gold is that the asset experiences solid appreciation over time. 

Refer to chart 1 which compares the price of gold against the DJIA – in that chart, we see that gold has appreciated by around 500% in the past 30 years, proving its long-term value.

This remarkable growth demonstrates gold’s resilience and reliability as an investment, even during periods of economic uncertainty.

How to Invest in Gold for Beginners

1. Gold IRA

You can transfer part of your contributions to your Individual Retirement Account (IRA) into one that invests in gold. 

Doing so allows you to diversify your retirement savings into gold, potentially benefiting from the asset class. Be sure to check your local regulations to choose the best type of gold IRA for your needs. 

2. Physical Gold (Bullion and Jewellery) ^[6]

Physical gold is widely available for sale in the forms of bars and coins. You can purchase gold bullion from a variety of sources, such as dealers and pawn shops. While some may like the physical look and feel of gold, owning physical gold also requires proper and safe storage – whether at home, or with a custodian. 

Note that buying gold jewellery is not the same as investing in physical gold, due to the different purities of the gold used for each. Investment-grade physical gold is required to have a purity of at least 99.5%. 

However, such high purity gold is unsuitable for jewellery, as it can be easily deformed through everyday use. Instead, gold jewellery often uses a mix of gold and other metals to lend strength, leading to lower purity. 

Thus, investors wishing to buy gold jewellery as investments should take care to only choose 99.5% pure gold, and recognise that lower purity gold jewellery can dilute the value of your gold holdings. 

3. Gold CFDs

Gold CFDs (Contract for Difference) offer a method to speculate on the price of gold without the necessity of owning the physical metal, providing flexibility in investment strategies. This approach allows investors to earn returns from both rising and falling prices in the gold market. 

Traders can engage with products such as Gold vs Australian Dollar (XAU/AUD), Gold vs Euro (XAU/EUR), and Gold vs US Dollar (XAU/USD), each reflecting different currency influences on gold prices. 

4. Gold Futures ^[7] 

Gold futures contracts are agreements between buyers and sellers to purchase a certain amount of gold at a specific price on a specific date, regardless of market conditions. 

Traders use futures to hedge against unexpected market movements, but investors can also use gold futures as a way to speculate on the price movements of gold prices. 

Be advised that this is a highly advanced investing strategy, and is better left to experienced investors.

5. Gold ETFs and Gold Mining Stocks

Another way to invest in gold is via gold ETFs and gold mining stocks. 

Gold ETFs invest in a basket of goods related to gold, ranging from stocks of companies dealing in gold, to gold futures contracts and even the physical metal itself. 

As such, there is a wide variety of gold ETFs available with different compositions and areas of focus, offering investors a rich selection to choose from. If you’re unsure which one to go with, look for a gold ETF that has a good track record of keeping pace with the historical returns of gold. 

Meanwhile, gold mining stocks are issued by companies involved in the business of prospecting, mining and distributing physical gold. You can choose to invest in gold mining stocks as an alternative to gold ETFs, but beware of overly concentrating your positions. 

For more detailed insights, check out our article titled ‘Sprott Gold Miners ETF (SGDM): What You Need To Know,’ which provides an in-depth look at gold miners ETFs.

Conclusion: Gold, a Frontier Worth Exploring

Perhaps the best testament to gold is how it remains relevant and in demand even throughout all this time. Where currencies and other asset classes have come and gone, gold has stood the test of time as a store-of-value, medium-of-exchange and safe haven asset. 

Investors shouldn’t ignore this asset class in the pursuit of high returns. By incorporating gold’s unique strengths, investors can build resilience in their portfolios to better ride out economic uncertainty.

Ready to start trading gold? Sign up for a live account with Vantage today and trade gold (XAUUSD) CFDs to seize trading opportunities whether prices increase or fall, without the need to own the physical metal.

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