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Is Owning Gold as an Investment Option Still “Standard”?


There are two schools of thought regarding gold: One advocates owning gold as a hedge against inflation, a weakening dollar, and stock market disaster. The other camp argues the yellow metal has no role in a modern portfolio, according to some investment experts.

There is an argument for caution, when gold prices are volatile, and the market is moving quickly and dramatically, often with no warning. In April 2013, gold plunged 13% in two trading days and ended the year down nearly 28%.

For all its shortcomings, gold shines when the outlook for other assets looks bleak, because in 2002, when U.S. stocks plunged 22%, gold gained 24%. Gold was one of the few assets that ended 2008 in positive territory, and it swelled 28% in 2009 and again in 2010. Proponents of gold argue that owning the metal is a relatively inexpensive insurance policy.

If you decide you really want to own it, gold presents another quandary:How should you own it?

Here too experts don’t all agree. The purest way to own gold is via bars or coins, but dealers charge a premium, the price isn’t always tied to gold’s market value, and there’s also the issue of storage. If you pay a third party to hold the coins for you, there are added fees. If you store your gold in a safe at home, you face additional risks.

A gold-backed IRA is one form of a precious metals IRA, which have been around for decades. You can opt to fund your IRA with precious metal, but only certain metals are allowed, namely, gold, silver, platinum, and palladium.
There are a few things that make a gold-backed IRA different from other plans. For starters, these IRAs are self-directed, so that means you make the decision as the account holder. And second, your gold is stored in a facility by your chosen IRA custodian.

Many experts recommend another modern approach: Buy an exchange-traded fund that is backed by actual gold. The largest such fund, the SPDR Gold Trust, says it stores gold owned by the fund in London vaults of its custodian, HSBC Bank. The advantages of going this route are liquidity—you can buy and sell shares quickly—and cost.