How to Get Gold Exposure in Your Portfolio, Explained
A lot of talking heads say, “Buy gold!” but don’t really explain exactly how to buy gold or get exposure to the precious metal.
There are options when it comes to getting exposure to the precious metal, and each one has upsides and downsides worth being mindful of.
Whether you’re interested in holding physical gold in a safe storage space or simply want to add some gold exposure to your investment portfolio, this infographic shows you the differences between gold bullion, gold ETFs, and gold mining stocks.
What to Consider Before Investing in Gold
There are some key considerations to be aware of before you begin investing.
While below are some of the main factors to keep in mind as you pick a gold investment method, be sure to research each method and its properties thoroughly before investing.
Downside and Volatility Risk
The first consideration for any kind of investment should always be how much drawdown you’re willing to stomach before pulling your money out.
When the COVID-19 pandemic resulted in a price drop across the board for just about every kind of asset, the price of physical gold and gold-backed ETFs held up very differently compared to individual gold mining stocks and gold mining indices.
Case Study: Gold vs. Mining Stocks Drawdown and Returns
|Asset||Drawdown from March high to March low||Returns from March low to 2020 high|
|Spot gold and gold ETFs||-14.8%||42.9%|
|Barrick Gold Corporation||-42.1%||146.8%|
|Gold Miners ETF (GDX)||-46.0%||182.9%|
|Junior Gold Miners ETF (GDXJ)||-52.7%||237.9%|
While physical gold and bullion ETFs (which track gold’s price movements) tend to be more resilient during market downturns, they also offer less upside compared to gold mining stocks and indices during bull markets.
Junior miners or exploration companies offer the greatest volatility and potential upside, but carry the highest risk. When investing in any mining company, concrete results from their planning and drilling along with efficient execution in setting up projects and production will best determine the stock’s valuation.
Active vs. Passive Management
Some investors like to actively manage their investments while others prefer a more passive “set and forget” approach.
Each approach has its merits, however, gold ETFs and mining stocks are better suited for more active investors, while shipping and transport costs for physical gold can add up if buying and selling frequently.
Determine whether you’re going to be actively managing your gold exposure or if you’re going to be letting your investment sit for a while. This way you can determine the best method to reduce fees and commissions.
Three Types of Gold Exposure: Pros and Cons
Now, let’s dive into the three main types of gold exposure: gold bullion, gold ETFs, and gold mining stocks and ETFs.
1. Gold Bullion
If you’re looking to purchase physical gold in the form of bullion, there are a lot of considerations to keep in mind. These range from the various fees you’ll pay to where and how you’ll be storing and protecting your gold.
Many bullion dealers offer storage as a service, reducing shipping costs and the extra work of finding somewhere secure to keep your gold.
Fixed Position Sizes and Liquidity
When buying gold bullion it’s important to remember that you are buying coins, bars, or ingots of gold. This means that if you’re looking to sell off half of your gold position but only have a single 1oz gold coin, you won’t be able to!
Due to this, gold bullion might not be the best option for those interested in actively managing their exposure or for those with smaller amounts of capital.
Buying and Selling Commissions
Just about every gold dealer will charge commissions on any buying or selling, which are typically <1% of the value of the order with lower commissions for larger volumes. Some dealers include their commissions as a premium directly onto their prices.
Storing gold bullion with gold dealers or storage services will incur yearly storage costs that are typically a percentage of your holdings.
While some storage providers have low percentages, they will often have minimum monthly or yearly storage fees. For investors purchasing small amounts of gold it’s important to not let these fees eat up too much of your investment.
- Fees range from 0.12% to 1.5% annually, with some storage services providing fee discounts for larger volumes of gold
- While purchases of investment-grade bullion are tax-exempt, taxes are charged on storage fees.
Reputable gold storage services offer full insurance coverage on your bullion stored with them and will keep your gold physically separate from the company’s gold and off the company balance sheet. Some will even provide customers extra peace of mind with pictures of their bullion, typically for an additional cost.
Withdrawal Commissions and Shipping
If you’ve been storing your gold with a dealer but want it closer to home, you’ll have to pay withdrawal commissions along with shipping costs. Some dealers charge a flat rate per bullion or withdrawal, while others charge a percentage of your holdings.
If you’re having bullion sent to you without storing it at the dealer, you’ll just pay for shipping and insurance. These are typically flat fees along with a percentage of the dollar value of your order (ranging from 0.4% to 7.5% depending on the amount and types of bullion).
Before holding your gold privately it’s important to know:
- Privately held gold is sometimes not fully trusted when sold back to bullion markets, and can lose some of its value.
- Privately held gold is usually less physically safe compared to gold in a vault, and is almost always more expensive to insure.
2. Gold ETFs
Exchange-traded funds (ETFs) are a more approachable option to get exposure to gold for those with some experience purchasing shares using online brokers and exchanges.
Gold ETFs enable investors to have exposure to gold’s price while avoiding storage, shipping, and insurance fees. There are also fewer liquidity bottlenecks and tighter spreads with gold ETFs compared to gold bullion.
When buying gold ETFs it is important to remember that in most cases, you never actually own any physical gold. Even though these funds are backed by physical gold, you cannot redeem your shares in exchange for gold.
- Buying and Selling Commissions: When buying or selling shares of an ETF you’ll likely pay commissions. These commissions are decided by the brokerages and are typically below $10 per buy and sell order, with some brokerages offering commission-free trading to cut costs for active traders.
- Expense Ratios: Similar to storage fees on gold bullion kept in a vault, gold ETFs charge a yearly expense ratio to cover the costs of management and operations. Expense ratios are typically quite low, ranging from 0.17% to 0.75%, and are taken directly from your investment.
3. Gold Mining Stocks and ETFs
Gold mining stocks and mining ETFs are the most distant from physical gold, and offer exposure to the operating profits, losses, or even discoveries of mining or exploration companies.
Mining ETFs (like the GDX and GDXJ) are a basket of mining stocks for purchase as a single share, helping spread out the operational and concentration risk of investing in a single mining company. Mining ETFs are typically less volatile than individual mining stocks, but can still offer increased returns compared to gold bullion and gold ETFs.
Similar to gold ETFs, mining stocks and mining ETFs have:
- Buying and selling commissions decided by your online brokerage
- Annual expense ratios for mining ETFs
- Potential for dividends depending on the individual mining stock
If buying individual gold stocks, it is important to know that the prospects of any one company can differ incredibly. For this reason, it’s crucial to invest in quality companies, and to have an understanding at factors at play such as management competence, jurisdiction, or project quality and economics.
Find a Gold Investment Method that Works Best for You
Be aware that the methods discussed in this article aren’t the only ways to invest in gold.
If you’re willing to learn a bit more about contract structures and more complex fee structures, look into gold futures contracts. For those with some options understanding and experience, buying call options is another way to get gold exposure. Rare coins and jewelry are another investment method that also carries some artistic value.
Whatever you pick, make sure to thoroughly research your investment, its transaction and price mechanisms, and the commissions and fees you’ll be paying.
All of the investment methods discussed have differing tax implications depending on where you reside, which could influence your decision on how you invest in gold.
Visualizing Mining’s Footprint in British Columbia
Mining represents 7% of British Columbia’s GDP despite only accounting for 0.04% of the land use.
Visualizing Mining’s Footprint in British Columbia
British Columbia is considered a global leader in the development of socially and environmentally responsible resources.
An estimated 54% of the province’s total land is protected, making it one of the world’s greenest mining hubs.
This graphic by the B.C. Regional Mining Alliance (BCRMA) details mining’s footprint in the province.
A Tier 1 Jurisdiction for Mining
British Columbia covers almost 95 million hectares (234 million acres), more than any European country except Russia, and more than any U.S. state except Alaska.
As the largest mining province in Canada, BC registered $18 billion in revenue from the industry in 2022.
British Columbia stands as Canada’s sole producer of molybdenum, which finds applications in metallurgy and chemistry. Additionally, B.C. is the country’s leader producer of copper and steelmaking coal, besides gold and silver.
At the heart of British Columbia’s mining industry lies the Golden Triangle, one of the hottest mineral exploration districts in the world.
More than 150 mines have operated in the area since prospectors first arrived at the end of the 19th century. The region alone is endowed with minerals worth more than $800 billion.
How Green is B.C. Mining
Mining represents 7% of the province’s Gross Domestic Product (GDP), despite only accounting for 0.04% of the land use. In comparison, farmland demands 3% of the land, bringing $2.1 billion (0.8%) per year.
|Land Use in B.C.||Revenue (2022, CAD $)|
|Oil & Gas||0.4%||$9.5 billion|
Mining operations are also supported by a stable, transparent, and effective policy environment. The province ranked as the world’s least risky for mining in 2017 and 2018.
In addition, mineral exploration has received ample support from local Indigenous communities. Today, mining accounts for over two-thirds of all indigenous people employed in the extractives sector.
According to the International Energy Agency, up to six times more minerals and metals will be needed by 2040 to accelerate the energy transition.
In this scenario, British Columbia is well positioned to support the transition to a low-carbon future and make a significant contribution to climate action.
The BCRMA is a strategic partnership between indigenous groups, industry, and government representatives that aims to promote B.C.’s mining opportunities internationally.
Mapped: The 10 Largest Undeveloped Silver Deposits in the World
Global silver demand is poised to soar in the next decade, driven by emerging technologies like EVs and solar power.
Ranked: The Largest Undeveloped Silver Deposits in the World
Global silver demand is poised to soar in the next decade, driven by emerging technologies like electric vehicles and solar power.
Silver demand from solar alone has grown from less than 50 million ounces (Moz) a decade ago to an expected 160 Moz in 2023.
So, where will the necessary supply come from to meet this surge? This graphic from Discovery Silver shows the largest undeveloped silver deposits in the world.
Silver in Green Technology
Silver is a vital part of solar cells. The metal is converted into paste and coated onto silicon wafers to make solar arrays.
When sunlight hits the silicon, silver helps to transport the generated electricity for immediate use or store it in batteries. A typical solar panel can contain as much as 20 grams of silver.
Silver’s conductivity and corrosion resistance are vital in electronics, especially electric vehicles where nearly all electrical connections rely on the metal. Over 50 million ounces of silver are used every year to enhance conductivity in powered seats, windows, and other vehicle electronics.
In 2022, 27% of all silver consumption in the U.S. was attributed to electrical and electronics, while 10% was linked to solar technology.
Global Silver Demand Rising
With the increasing demand for new technologies combined with physical investment (bars) demand, the silver market saw a 237.7 Moz deficit in 2022, an all-time record.
2023 silver industrial demand is forecasted to rise by 4% to a new record high.
However, according to the Silver Institute, mined output is expected to decline over the next five years.
In this scenario, new mines are expected to play an important role in meeting the demand.
Currently, the world’s top 10 undeveloped silver deposits contain 984 Moz. Discovery Silver’s Cordero project in Mexico leads the ranking:
|Rank||Project||Owner||Country||Contained Silver Reserves (Moz)|
|2||Corani||Bear Creek Mining Corporation||Peru||229|
|3||Prognoz||Polymetal International plc||Russia||125|
|4||Bowdens||Silver Mines Limited||Australia||66|
|5||Santa Ana||Formerly Bear Creek||Peru||63|
|6||Fuwan||Minco Silver Corporation||China||55|
|7||Nueva Esperanza||Kingsgate Consolidated Limited||Chile||48|
|8||Vares||Adriatic Metals PLC||Bosnia & Herzegovina||47|
|9||Terronera||Endeavour Silver Corp.||Mexico||47|
Cordero is located in Chihuahua State in Mexico, one of the world’s most prolific silver producing regions.
Once in production, it is expected to become one of the top three silver mines in the world.
As silver demand is expected to soar, Discovery Silver offers direct investment exposure to this paradigm shift through its Cordero Project. Click here to learn more about Discovery Silver.
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