Investing in Gold: A Beginner’s Guide

The Spotlight

10 minutes read

Nov 1, 2022

a fine gold bar and a gold coin on a blue background (note: the picture will be different)

How to invest in gold? As a precious metals investor, here’s what you need to know about gold, its uses, and its main price drivers when building your gold savings.

How do you feel about investing in gold?

Tens of thousands of investors worldwide were asked what gold means to them personally and what expectations they have of their gold investment and savings.

To be honest, the results did not surprise us.🤓

The majority of those surveyed by the World Gold Council think of gold as a safe and durable investment that protects and grows their wealth over time.

Just take a look at the numbers:

  • 62% of investors in Germany, Canada, Russia, China, India, and the U.S., said owning gold makes them feel secure.
  • 60% of investors in the U.S. and 57% of investors in Germany trust gold more than currencies, a.k.a. paper money.
  • Globally, around 50% of retail investors and fashion and lifestyle consumers have bought gold at least once in their lives.

Finally, nearly 40% of German investors said they are willing to invest in gold but there was one thing that stopped them… They didn’t know where to start.

If you also feel this way, don’t worry. We’ve created a simple guide to gold that will give you answers to the following questions:

  • What is gold?
  • Where is gold used?
  • What drives the gold price?
  • How to choose a gold product?

Let’s get started.

What is gold?

a pile of fine gold nuggets

Gold is a dense, yellow, lustrous precious metal with unique physical properties that set it apart from other precious metals.

⭐ It is this combination of qualities that makes gold so special:

  • Gold is very rare: it is harder to find a one-ounce gold nugget than a five-carat diamond.
  • Gold is extremely malleable: you can beat an ounce of gold into a 0.000018 cm thick sheet.
  • Gold is very ductile: an ounce of gold can be drawn into 80 kilometers of five-micron-thick wire.
  • Gold doesn’t rust or tarnish: pure gold doesn’t react with oxygen, therefore staying bright and shiny.
  • Gold is practically indestructible: gold is resistant to acids, corrosion, and most other chemical reactions.

Gold is almost always found in nature in a relatively pure form. A great deal of gold is extracted from mines located on every continent except Antarctica. Among the world’s biggest gold producers are China, Russia, the United States, Australia, and Canada.

Then, some amount of gold can also be found in freshwater and seawater, but in very low concentrations, making it difficult to detect and even harder to extract.

💡Did you know?

Over 90% of the world’s gold has been mined since the California Gold Rush that began in 1848.

Read our SPOTLIGHT to discover 5 weird but true facts about the California Gold Rush.

Where is gold used?

a golden Oscar statue symbolizing a special place of gold in our culture

Gold has always played an important role in our culture and society.

For many years, we’ve used it to make our most treasured objects, such as Olympic medals, Oscars, Grammys, and many others.

In addition, the above-mentioned physical properties of gold make it widely used in industry as well as in our everyday items.

Let’s take a look at the key sectors using gold:

💎Jewelry. About 50% of all gold mined today is made into gold jewelry. With its softness, resistance, and luster, gold is a perfect metal to be worked into beautiful things.

Investment gold bars and coins. Governments, banks, and private investors buy gold bars and coins to store wealth and protect themselves in times of inflation and economic uncertainty. According to the World Gold Council, private investors hold about 45,000 tons of gold.

🔌Electronics. You’re reading this article online, which means that you’re currently using a device that contains a significant amount of gold. Smartphones, computers, and tablets use gold in their processors and connectors. You can also find gold in gaming consoles, printers, TVs, and basically anything electronic.

💊Medicine. For many years, gold has been used in dentistry and medicine, mostly because it's non-reactive and non-toxic. Injections of gold are used to treat muscle damage and rheumatoid arthritis, and gold microparticles are used to treat some cancers. Even Covid tests use gold!

🪐Space exploration. Gold is used in practically every space vehicle. Apart from being applied in circuitry as a conductor, spaceships are fitted with gold-coated polyester films that reflect infrared radiation and help control spacecraft temperature.

Finally, in addition to its many other uses, gold also goes in glassmaking, clothing, cosmetics, and even books. Believe it or not, those shiny edges on the pages of books can sometimes be real gold.😯

💡Fun fact

One fast-food restaurant in Colombia serves a special burger that contains many layers of meat, cheese, and… a 24-carat gold foil plating.

It’s all because gold is a non-reactive element and is not absorbed during the digestion process, so it’s safe to eat.

What does it mean for investors?

Unlike any other metal, gold has special physical properties that make it an essential metal in a lot of fields, including technology and space exploration.

100 euro notes and three fine gold bars on top on a blue background

When it comes to investors' demand for gold bars and coins, it’s also expected to increase. For example, in the Eurozone, the demand for physical gold has been steadily growing since 2019 and is likely to remain high in the future.

Growing industrial and investment demand for gold could help keep the gold price stable in the long term, thereby benefiting your gold savings.

What drives the price of gold?

As with any other commodity, a wide range of factors can affect the price of gold. So, if you’re looking to buy gold, you first need to understand how, why, and when its price is likely to move.

Here are the main factors affecting the gold price:

📈Inflation. When there's inflation, the gold price normally goes up. During inflation, consumer goods become more expensive, thereby making the U.S. dollar lose its value. Since gold is dollar-denominated (meaning it’s expressed in U.S. dollars), its price also tends to increase along with the rising inflation.

a picture of a gold mining site representing high gold supply and demand.

🏗️ Supply and demand. As with any good or service, increased demand for gold, combined with limited supply from precious metals mines and refineries, tends to drive its price up. Conversely, an oversupply of gold coupled with stagnant or weak demand can cause prices to fall.

🏦Monetary policy and Fed moves. The monetary policy set by the Federal Reserve, the central bank of the United States, usually has a big impact on the price of gold. It’s not guaranteed, but there’s a general belief that the gold price usually rises when interest rates fall and vice versa. However, historical data show that it’s not always true.

a press conference tribune with microphones with the Fed emblem in the background

💵U.S. dollar. Because gold is a dollar-denominated metal, its price is usually inversely correlated with the dollar. This simply means that a stronger U.S. dollar tends to keep the gold price lower, whereas a weaker dollar is likely to raise it. It is for this reason that gold is often seen as a hedge against inflation and money losing its purchasing power.

What does it mean for investors?

These gold price drivers are always worth watching, simply because a change in one of them could be a good indicator of upcoming price moves.

💡Check out our gold price page to track live gold prices or take a look at our precious metals guide to learn how the price of gold works.

However, it's important to remember that predicting the market, and especially the gold price, can be tricky since it's often affected by multiple factors at once.

What gold products can you buy?

Having learned the basics about gold, how it's used, and how its price is determined, it's time to take a look at some of the most popular gold products.

Should you buy gold bars, coins, or gold ETFs?

fine gold bars and coins on a light blue background with ETF letters

If you feel like adding some gold to your investment portfolio, there are two ways to do it:

  • Buy gold bars and coins.
  • Buy paper gold, a.k.a. gold futures and exchange-traded funds (ETFs).

If you’re unsure what to choose — physical gold or gold ETFs — here are 2 things you need to know:

First, compared to physical gold, gold ETFs have slightly different drivers, risks, and benefits, which makes them a better choice for more experienced investors.

Second, gold ETFs act like stocks and are only backed by gold. So, if you want to really own your gold, the most direct way to do it is to buy physical gold bars and coins.

Let's see what physical gold products you can get out there.

Gold bars

Gold bars come in different shapes and sizes, including 50 g, 100 g, 250 g, 500 g, and 1 kg. Pure gold bars are generally divided into two types: cast bars and minted bars.

Cast bars usually feature an engraving of their serial number and manufacturer's details. Because of their simple design and lower production costs, cast bars are usually less expensive than minted bars.

A PICTURE OF 50 gram Fine Gold Bar 999.9 by PAMP Suisse
A 50-gram fine gold Bar by PAMP

Some minted bars, on the other hand, can have an artistic design, like the famous Lady Fortuna range made by MKS PAMP, a global bestseller among investors.

A PICTURE OF 1 oz fine gold Bar 999.5 - PAMP Suisse Lady Fortuna
A 1 oz fine gold bar by PAMP

As you can see from the picture, minted gold bars come with a certificate integrated into protective sealed packaging, which can make them easier to sell.

Gold coins

There’s a wide range of gold coins to choose from, including legal tender coins issued by official mints such as the famous Canadian Maple Leaf or Swiss 20 franc Vreneli.

a picture of 20 franc Vreneli gold coin
20 franc Vreneli gold coin

But which is better, gold bars or gold coins? Well, if you want greater flexibility when reselling, investing in gold coins may be a better option than gold bars. But if you want to diversify your portfolio while increasing your exposure to gold, you could invest in gold bars as well.

💡If you want to understand the key differences between gold bars and coins that can help you choose the right product, read our simple beginner’s guide to buying gold.

So, is gold a good investment?

Of course, like with any other investment, it all depends on your personal needs as well as savings and investment strategy. But, in general, there are a few reasons why gold could be an interesting investment as 2022 comes to an end:

✅Gold protects against inflation: as a physical asset with intrinsic value, gold is often used by investors as a protection against inflation and paper currencies losing their purchasing power.

✅Gold is a savings solution: history has shown that gold usually performs well in times of economic uncertainty, stock market volatility, or geopolitical crises. With its value recognized all over the world, gold is an investment that lasts a lifetime.

✅Gold is a portfolio diversifier: gold is a safe long-term investment, the price of which moves in the opposite direction from the prices of other assets. Therefore, adding some gold to your investment portfolio is a good way to offset risks coming from more volatile investments like stocks or crypto.

With all three advantages combined, investors are increasingly turning to gold as an alternative to bank savings, converting some of their cash savings into gold, especially in today's challenging economic environment.

Stay tuned for our own physical precious metals price forecast by our colleague Nicky Shiels, Head of Metals Strategy at MKS PAMP GROUP.

Want to learn more about silver? Check our Beginner’s Guide to Silver.

Interested in buying platinum? Read our Beginner’s Guide: Investing in Platinum.


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