Bullion
The classic way to own gold is through bullion (the actual physical metal). Not only is the classic way, but it is arguably the least risky. If you own gold that is in your hand, then you do not run the risk of any counter party failing to fulfill its obligation. This will make sense in the examples to come as trust in this “counter party” with your gold exposure becomes necessary. Since, gold is viewed by many as an insurance asset against the financial system, I question those who hold all of their allocation in the financial system. Don’t plug your back up generator to your house.
Gold ETFs
An ETF is an exchange traded fund, and it trades on the stock market with its own ticker symbol. Gold bullion ETFs typically hold quantities of gold in a vault based on how many people purchase the ETF. The common gold bullion ETF is GLD. There are other options of tickers that one can use that track the spot price of gold, but this is the most notable. Read prospectuses if you want to know the exact details of how the gold spot price is tracked, if bullion is redeemable for shares, and if there is potential force majeure language. It should go without saying that you do not physically possess the bullion, so in a worst case scenario your insurance may not work. On the other hand, you relinquish the risk of misplacing the gold or having it stolen.
Gold Miners
This option is not for your everyday individual. I consider the gold miners to be a leveraged play on the spot price of gold. The idea behind the leverage is that a gold mining company’s cost of good sold is relatively constant, so a rise in gold should lead to a more rapid rise in earnings per share. On average, gold company share prices move 2-3 times the spot price of gold in both directions. The enterprising investor may seek out the best gold mining company to try to maximize the leverage, but this is no easy task. For the investor who wants to put on an extra level of risk to potentially maximize their returns, an ETF that is a basket of gold miners should be used. The most common one is GDX.