It is undeniable that gold has been in the midst of a bull run of historic proportions. The commodity has breached the all-important $2,000 level, and the conditions are ripe for continued gains in gold. Investors are wondering what is the best way to invest in gold if they want exposure in their portfolio.
Investing in gold itself can be done in one of several ways. The thing that you do not want to do is to actually own the physical commodity itself. It would involve money and security. However, you can gain exposure to gold in one of several ways. You can buy gold futures that are a way of getting exposure to the commodity. This way, you can benefit from the price movement without having to physically own the gold. When the future expires, you can simply roll your position into a futures contract dated further in the future. You can also have exposure to gold futures in the form of an exchange-traded fund (ETF).
According to Warren Buffett, the best way to take advantage of the rising prices of gold is not to own the commodity itself. The investment wizard would instead advocate that investors put their money in the shares of gold miners. There are several benefits to this. The first and most obvious is that the shares of the miners will increase in the long run much more than the underlying commodity. Mining companies will also pay dividends that can grow over time and be reinvested in the company. Owning gold miners is more profitable over time than owning actual gold.
Gold is actually a hedge against inflation for your overall portfolio. When prices are going up, people want to own physical commodities because their value is more stable than the dollar. In that way, gold and mining stocks are countercyclical investments. They generally perform better in declining markets.
While you should maintain a diversified portfolio, you should also consider how much of your investment you want to devote to gold and other precious metals. Some experts advise you to put about 5-10% of your portfolio in gold, taking advantage of the hedging properties while still making money elsewhere.