How to Invest in Gold

But how does an ordinary person invest in gold?

Gold ETFs

One of the easiest ways to invest in gold is through an exchange-traded fund, or ETF for short. You can think of an ETF as a mutual fund that you can trade like a stock. I'll explain more about ETFs and some of their advantages over mutual funds in a future episode.

Two examples of ETFs that simply buy, store, and insure physical gold are StreetTracks Gold Shares (which is traded on the New York Stock Exchange under the ticker symbol GLD) and iShares Comex Gold Trust (which is traded on the American Stock Exchange under the ticker symbol IAU).

One of the key benefits of investing in gold through an ETF is that you don't have to worry about safely storing physical gold yourself. Owning physical gold can be risky because it can be stolen or lost, and you usually need to pay a fee to store it safely.

One important thing to be aware of is that the IRS taxes gold ETFs like collectibles, not like stocks and mutual funds. Collectibles are subject to special tax rules. If you hold a gold ETF for more than a year, instead of being taxed at the long-term capital gains rate of 15%, you'd be taxed at the special collectibles rate of 28%. However, you can avoid the higher "collectibles" tax rate for a gold ETF by holding it in a Roth IRA, which is tax-free.

Mining Companies

Another relatively easy, but indirect way to invest in gold is through a mutual fund or ETF that owns precious metal-related companies. There are many mutual funds that invest in companies around the world that mine gold and other precious metals. Here is a link to a Web page that lists top performing precious metal funds.