How to Invest in Gold?

You have probably wondered at least once: “Shouldn’t I buy some gold?” Especially when gold is once again rewriting its all-time highs and the headlines are shouting about inflation and instability. Hiding in an “eternal store of value” seems like a decent idea.

A beautiful idea. But then reality kicks in.

If you decide to buy a gold bar and keep it at home, you immediately have more questions than answers:

• Where do you buy it? At a bank, from a dealer, or on some dubious website?
• How do you make sure the fineness is genuine and the bar is not hollow?
• How much will you lose on the difference between the buy and sell price?
• And most importantly — who will you sell it to, and how?

Let’s go through it step by step: why gold belongs in a portfolio at all, and what ways there are to buy it — from a bar under the bed to a token in your wallet.

Why do people invest in gold in the first place?

The main argument is protection against inflation and instability. When markets get stormy, investors look for a “safe haven”, and historically that haven has been gold. It cannot be “printed”, it does not depend on the decisions of any single central bank, and it has survived more than one crisis.

A telling fact: in recent years central banks themselves have been buying gold at record pace — over a thousand tonnes a year. When the world’s biggest players are building up their reserves in the metal, that says something.

But let’s be honest, gold has a flip side: it generates no cash flow. A stock pays dividends, a bond pays a coupon, and a bar just sits there. Warren Buffett likes to repeat that gold produces nothing — you are merely hoping someone will pay more for it later. So the question is not “gold or stocks”, but what share of gold makes sense in your portfolio.

How can you invest in gold?

1. Physical gold

Bars, coins, jewellery.

It sounds romantic: a piece of “eternal value” in your hands. But reality is harsher:

• The spread. A dealer sells to you above the market price and buys back below it. On small bars and coins the difference easily eats up 5–10% before gold has even had a chance to appreciate.
• Costs. Delivery, authenticity checks, a bank deposit box or a safe — all of this costs money every year.
• Liquidity. Try to quickly sell a 500-gram bar at a fair price. There won’t be many buyers.

On the plus side: in the EU, investment gold (high-fineness bars and coins) is exempt from VAT — unlike silver, by the way. Coins are slightly easier to sell than bars, but the problem is the same. Jewellery is a different story altogether: the markup for the jeweller’s work makes such “investments” loss-making more often than not.

Bottom line: physical gold is beautiful, but it is more about collecting and a “rainy-day cushion” than about investing.

2. Gold exchange-traded funds

This is where gold becomes convenient: you can buy and sell in seconds, storage is the fund’s problem, and the bar sits in a professional vault on your behalf.

An important practical point for the European investor: the famous American SPDR Gold Shares (GLD) is unavailable to retail investors in the EU because of the PRIIPs regulation. But we have our own equivalents — and they are even cheaper:

• iShares Physical Gold (SGLN) — backed by physical gold, with a fee of just 0.12% per year.
• Invesco Physical Gold (SGLD) — a similar structure and the same 0.12%.
• VanEck Gold Miners (GDX) — a fund not on the metal but on gold-mining stocks (more on those below).

There is essentially only one drawback: you own not the metal but a security that tracks it. For most investors, that is a reasonable price for the convenience.

3. Gold-mining stocks

You can go a step further and buy shares of specific companies: Newmont, Barrick, Agnico Eagle and others.

There is an interesting effect at work here — operating leverage. A company’s cost of production is more or less fixed, so when gold rises by 10%, a miner’s profit can grow several times faster. In good years for gold, the miners outperform the metal itself — and pay dividends on top.

But! Along with the leverage you also take on the usual business risks: production problems, geopolitics, management, debt. In other words, this is already more about the stock market than about “pure gold” — and without an understanding of equities, it is better not to go there.

4. Futures and options

This is for advanced investors: speculating on the price through derivatives, leverage, hedging strategies.

The main trap is that here you need to guess not the direction but the timing. Get the timing wrong and you lose your capital, even if you end up being right about the trend. Without several years of practice and an understanding of the derivatives market, there is definitely nothing for you here.

5. Digital gold and tokens

The modern alternative is tokenized gold like PAXG or XAUT. Each token is tied to a specific ounce of metal in a vault.

Pros: convenient, fast, and you can transfer it even across borders in minutes.

Cons: the whole construction rests on the reliability of the issuer. Promising gold in a vault is easy — checking the audits is up to you.

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How much gold should be in a portfolio?

The classic recommendation is 5–10% of the portfolio. That is enough to smooth out drawdowns in a crisis, but not so much that gold drags on capital growth in calm years. Before buying, ask yourself three questions:

1. Why do I need gold — to preserve capital, to diversify my portfolio, or to speculate?
2. Am I ready for gold to go nowhere for years while stocks are rising?
3. Do I want to own the metal physically — and am I willing to pay for that with the spread and storage costs?

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Takeaways

• Want simplicity and liquidity? An exchange-traded fund on physical gold (SGLN, SGLD) is the most sensible option for most people.
• Believe in the sector’s growth and ready to dig into stocks? Gold miners give you leverage on the gold price plus dividends.
• Trade professionally? Futures and options — but that is no longer investing, it is trading.
• Want to “touch” the asset? Bars and coins — but do the math on the spread and storage, and think about the future sale in advance.
• Believe in blockchain? Tokenized gold — convenient, if you trust the issuer.

There are many ways to invest in gold, and each one has its own pitfalls. The key is to understand why you specifically need it: to preserve capital, to diversify your portfolio, or to play the price swings.

As for keeping a bar under the bed — a beautiful idea, but, I can say for sure, a questionable one.