2 Easy Ways to Invest in Gold

Got a brokerage account? You're already halfway there

So you finally decided to invest in gold.
Who could blame you? Gold’s surge to $1,900 per ounce was one of the biggest market stories of 2011, and while prices took a brief retreat, they’re back on the march again this year. Worries about U.S. finances, global spending, energy prices and a host of others have experts predicting everything between a “modest” increase to $2,000 and a rise to $2,500. Heck, one expert even thinks $10,000 gold is on the horizon!
But now that you’ve decided you want in the gold game, you have to ask yourself: How? While getting into gold isn’t as simple as walking up to Fort Knox and charging a bar of bullion to your credit card, investors with a basic brokerage account can play the yellow metal in a number of ways.
Let’s take a look at two of the most common methods of  investing in gold — beyond actually buying gold bars or coins, of course:

Physically Backed ETFs

Physically backed exchange-traded funds, or ETFs, are as straightforward as you can get without buying the bars yourself. They’re great for everyday investors, considering the high cost of actually buying, storing and securing gold bullion.
In short, a physically backed fund actually holds the metal, and the fund’s price changes pretty much along with the price of gold (minus the fund manager’s fees).
This makes for a pretty simple investment thesis: If you think gold is going up and you don’t want the hassle of holding gold bars or coins in your basement, buy a fund.

Click to Enlarge The market has a number of physically backed ETFs, but most investors can stick to the two major players: The SPDR Gold Trust(NYSE:GLD) and the iShares Gold Trust(NYSE:IAU), the respective offerings of State Street (NYSE:STT) and BlackRock(NYSE:BLK). These ETFs hold more than $80 billion in assets and are as liquid as they come.

Click to Enlarge As you can see in the accompanying charts, not only do the ETFs ride alongside the price of gold, but with each other. IAU is up just 0.5 percentage points over GLD during the past five years. Hardly a reason to pick one over the other, but if you’re asking, IAU does hold the edge.
That edge is largely because the iShares Gold Trust has a slightly smaller expense ratio — 0.25% to the SPDR Gold Trust’s 0.4%. That means fees eat up less of your returns. But most everyday investors won’t notice the difference, which comes out to $1.50 for every $1,000 invested.

Gold-Mining ETFs

Gold mining ETFs are a more indirect way to play gold.
While trusts like GLD and IAU are more tethered to the price of gold because they hold physical bullion and nothing else, gold-mining ETFs — which hold stocks of companies that mine gold — deviate a bit, for several reasons.