What Are the Best Ways to Invest in Gold?

Gold offers several compelling benefits:

When legendary banker J.P. Morgan uttered these words over a century ago, he captured the timeless allure of gold in a single sentence. Across civilisations and centuries, gold has been more than a precious metal: it has been a symbol of wealth, a store of value and a safe haven in times of uncertainty. From ancient coins to modern investment portfolios, its unique qualities have ensured that it remains relevant in an ever-changing financial landscape. But what gives gold this enduring status and how does it fit into today’s complex economy?

Its price, much like that of stocks or bonds, rises and falls, and in recent years it has repeatedly reached record highs of more than $3'000 per ounce, still attracting the attention of private investors, institutional players and central banks.

There are two broad approaches to investing in gold:

• Physical gold: bars, ingots, coins or jewelry.
• Paper gold: ETFs, futures, options, CFDs, mining stocks, Themes Trading and much more.

Each method has its own cost structure, liquidity profile and risk factors.

Here’s how each route stacks up for a typical retail investor:

1. Physical Gold
   • Bars & ingots
   • Coins
   • Jewelry
2. Paper Gold
   • Exchange-Traded Funds (ETFs) & Exchange-Traded Commodities (ETCs)
   • Futures & Options and other derivatives such as Swiss DOTS
   • Contracts for Difference (CFDs)
   • Gold mining stocks, certificates and thematic portfolios such as Themes Trading

Paper-based methods are generally more accessible and involve lower risk than holding physical gold directly. Let’s dig a little deeper.

Gold ETFs

Physically backed Gold Exchange-Traded Funds (ETFs) are funds which hold physical bullion and issue shares redeemable for fund value. They are a popular way to gain exposure to gold prices without needing private vault access.

• Structure: key products include SPDR Gold Trust (GLD), iShares Gold Trust (IAU) or Swisscanto Gold ETF denominated in CHF (ZGLD). These funds hold bullion in secure vaults, typically in London or Zurich.
• Liquidity and Trading: investors buy or sell ETF shares on stock exchanges during market hours, often with tight bid-ask spreads and high daily volume.
• Fees: annual expense ratios range from 0.12% to 0.4%, offering a cheaper solution than holding gold in physical form.

• Disadvantages: tracking errors can occur, though minimal for the largest funds. ETFs also expose investors to counterparty risk in the event of the custodian’s insolvency.

   

Gold & Commodity ETCs

Exchange-Traded Commodities (ETCs) function similarly to ETFs but are structured as debt instruments, generally collateralized by bullion.

• Counterparty Risk: since ETCs are issuer liabilities rather than fund shares, they carry additional counterparty risk. Investors must evaluate issuer creditworthiness.

• Rollover Risk (for futures-based ETCs): for commodities like oil or natural gas, ETCs usually replicate the performance of futures markets. Because futures contracts have fixed expiration dates, issuers must regularly sell expiring contracts and purchase new ones (futures rollover). Depending on market conditions (contango or backwardation), rolling can generate additional gains or lead to losses. This means the futures structure can significantly affect overall returns and investors should consider the impact of rolling on performance, not just the commodity’s spot price trend. Gold ETCs are often physically backed, minimizing rollover risk, but it's crucial to check the specific ETC's structure.

   

Gold Futures

Gold futures are standardized contracts traded on regulated exchanges such as COMEX (part of CME Group) that obligate the buyer to take delivery of 100 troy ounces of gold at a set price on a future date (mini and micro futures are also available, for smaller and smaller quantities).

• Margin and Leverage: Futures require an initial margin deposit. Day trading margin can be lower for intraday futures.
• Liquidity: COMEX gold futures (symbol GC) trade an equivalent of nearly 27 million ounces daily, making them the world’s most liquid precious metals derivatives product.
• Delivery and Expiry: Most futures traders close their positions before expiry to avoid physical delivery. The contract expires in the active months (February, April, June, August, October, December).
• Fees: Commission costs are generally low. Futures contracts also incorporate overnight financing costs directly into their pricing.

Gold Options

Gold options grant the right, but not the obligation, to buy (call) or sell (put) a gold futures contract at a specified strike price before expiration. They are traded on COMEX and over-the-counter.

• Features: Key options include American style (exercise any time before expiration) and European style (exercise only at expiration). Implied volatility and the time value portion of premiums must be considered.
• Strategies: Investors use calls and puts for speculation, hedging, yield enhancement (covered calls), or cost-basis reduction. Greeks (delta, gamma, vega, theta, rho) are crucial for pricing and risk management.
• Risks: Options are leveraged and time-decay sensitive: theta can rapidly erode option value. Complex strategies require sophisticated risk controls. They are used for speculation or hedging against volatility.
• Other assets: in addition to the options with underlying futures just described, there are also options with underlying ETFs such as GLD, or with shares as the underlying.

Gold CFDs are over-the-counter derivatives that allow traders to gain long or short exposure to gold spot price without owning physical metal or holding futures contracts.

• Leverage: CFDs typically offer high leverage, often up to 20:1, amplifying both potential returns and losses. Be aware of the benefits and risks of margined trading before entering, there is also the possibility of performing your own demo tests to familiarise yourself with the instrument and concepts such as margin calls and stop-outs.
• Instruments: CFDs mirror the XAU/USD spot price, with a narrow spread, depending on the account tier (Standard, Premium, Prime).
• Costs: The primary cost is the spread between bid and ask, plus overnight financing (swap) fees for positions held past daily roll-over.
• Accessibility: You can trade CFDs at Swissquote via the popular MT4, MT5 or the proprietary CFXD platform, which includes TradingView charts. It is also possible to trade with your Swissquote account directly from TradingView.

Swissquote’s Themes Trading offers portfolio certificates focused on gold and mining sectors. These certificates provide diversified exposure to gold-related equities, such as major bullion producers and precious metals service companies.

• Structure: Professionally managed baskets of equities, rebalanced quarterly to reflect thematic investment research, including a “Gold & Metal Miners Certificate” or “Gold Active Certificate”.
• Cost: Flat transaction fee of CHF 9 per certificate, plus annual management fee as low as 0.7%, deducted from performance.
• Advantages: Diversification across gold economy, lower cost than buying multiple individual stocks, accessible via Swiss Exchange.

Swiss DOTS is an OTC marketplace exclusive to Swissquote clients offering 90'000+ leveraged derivatives across equities, currencies, indices and commodities.

• Product Types: Warrants, Knock-Out Warrants, Mini-Futures, Factor Certificates, with leverage from 2x or higher.
• Trading: On-screen order entry from 08:00 to 22:00 daily, low flat fee of CHF 9 per transaction, no minimum size, extendable to phone orders.
• Use Case: Speculative or hedging strategies.

Swissquote allows clients to treat gold (XAU) as a currency in multi-currency accounts. Once activated, XAU appears alongside CHF, USD, EUR, etc., enabling real-time investing of fractional ounces from 0.01 oz upwards.

• Physical Backing: All digital XAU positions are fully backed by allocated bullion bars in high-security Swiss vaults (quality 995), with annual custody fee of 0.2% on metal holdings.
• Trading Conditions: Spreads of 1% commission included; leveraged forex-style margin from 0.2% to 0.3% for larger volumes.
• Custody & Protection: Your XAU holdings are fully allocated and securely stored in Swiss vaults.

Activating XAU on Your Account

To invest in spot gold, clients must add XAU as a new currency via Swissquote’s Online Banking: “Assets → Currency Activation → Add XAU”. Once activated, XAU is visible in the Assets widget, with one-click buy/sell execution.

Several key macroeconomic factors influence gold prices, shaping its role as a safe-haven asset and determining its attractiveness for investors:

Interest Rates and Real Yields
Perhaps the most significant driver of gold prices is the level of real interest rates, which are nominal interest rates minus inflation. When real rates are low or negative (meaning inflation is higher than the interest earned on bonds), the opportunity cost of holding gold falls, making it more attractive as a store of value. Conversely, rising real yields tend to weigh on gold as yield-bearing assets become more competitive.

Inflation Expectations
Gold often reacts to anticipated inflation before it appears in official figures. When investors expect inflation to accelerate, demand for gold as a hedge can rise, pushing prices higher.

USD Currency Strength
Gold is typically priced in U.S. dollars. A stronger dollar can make gold more expensive for non-USD buyers, which may dampen demand, while a weaker dollar can have the opposite effect. However, during periods of acute market stress, both gold and the dollar can rise together as investors seek safe-haven assets.

Monetary Policy
Central bank policy, especially from the U.S. Federal Reserve, has a profound impact on gold. Quantitative Easing (the large-scale purchase of securities financed by creating new bank reserves) can be supportive for gold by lowering real yields and raising inflation expectations. Quantitative Tightening or aggressive rate hikes can have the opposite effect. That said, other macroeconomic forces can at times override these relationships, leading to periods where gold prices move against the expected trend.

Economic Growth
Gold’s appeal is generally stronger during recessions or periods of uncertainty, when investors move away from riskier assets. However, in high-growth environments accompanied by high inflation, such as in the 1970s, gold can still perform strongly because inflation concerns outweigh the “risk-on” preference for equities.

Global political instability, conflicts, trade wars and major international crises often lead to a surge in gold demand. When geopolitical tensions escalate, investors seek safety and gold is a traditional refuge. Examples include the impact of major conflicts, political coups or significant shifts in global power dynamics. The uncertainty created by such events drives investors towards assets perceived as stable and reliable.

Like other commodities, gold prices are influenced by the balance between supply and demand.

Mining output: The largest source of new gold is annual mine production. Output depends on factors such as ore discovery rates, extraction and refining costs, political stability, and environmental regulations in producing countries.

Recycling: A substantial portion of total supply comes from recycled gold, primarily from old jewellery and, to a lesser extent, industrial scrap. High gold prices typically encourage more recycling.

Central bank activity: Central banks hold significant gold reserves. While their purchases and sales do not add to or reduce total above-ground gold stocks, they can influence market liquidity, price trends and investor sentiment. In recent years, central banks — especially in emerging markets — have been consistent net buyers, seeking to diversify away from the U.S. dollar.

Jewellery: Historically the largest single source of demand, particularly in countries like India and China where gold is both a cultural symbol and a store of value.

Investment: Includes physical investment products such as bars and coins, as well as financial instruments like exchange-traded funds (ETFs), futures, and other derivatives linked to gold. This segment is highly sensitive to macroeconomic conditions, interest rates and geopolitical events.

Industrial and technological uses: Gold’s superior conductivity, resistance to corrosion and biocompatibility make it valuable in electronics, dentistry, aerospace, and medical applications. This category accounts for a small share of annual demand, typically under 10%.

Technological change: Advances can either reduce demand, for example by replacing gold with cheaper metals in manufacturing, or create new applications in areas such as nanotechnology and medical devices.

Different investors have different goals and risk appetites. Here’s how to match the main gold investment methods to the profile that suits you best:

The products mentioned above are provided solely as educational examples. This information does not constitute, and should not be construed as, investment advice or a solicitation to buy or sell any financial instrument.

The content in this article is provided for educational purposes only. It does not constitute investment advice, financial recommendations, or promotional material.