Precious Metals Investing 101: Gold Futures vs. Gold IRAs
What’s the difference between investing in gold futures and investing in a gold IRA? Both investment vehicles provide a hedge against inflation and allow you to invest in precious metals, but which investment vehicle is right for you?
Gold and silver futures contracts are legal agreements to buy or sell precious metals at an agreed-upon price in the future. The quantity, quality, time and place of delivery is standardized, with price as the only variable in the contract. Futures contracts provide investors a way to participate in the precious metals market without holding the physical asset. However, futures contracts are a speculative investment involving risk, where small swings in price can result in large gains or losses, making them unideal for retirement saving. Futures trade on the New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM). These contracts are a short-term investment, generally forecasting up to 3 months ahead, and require in-depth expertise and knowledge of market trading.
Alternatively, for investors looking to protect and grow long-term wealth, gold IRAs are a great investment vehicle. Individual retirement accounts consisting of physical gold or other IRA-approved precious metals held in secure custody for the benefit of the account owner. Gold IRAs work like traditional IRAs, only instead of holding paper assets, the account holds physical coins or bars.
Unlike gold futures, gold IRA clients own physical precious metals which are historically proven to increase in value over time. Purchasing physical metals benefits clients by offering protection from hacking or other electronic vulnerabilities associated with brokerage accounts. Gold’s appeal centers on its safety and security as a valuable asset, no matter the state of the government or economy.
Peace of Mind
Knowing that they own a physical asset gives investors peace of mind when thinking about economic collapse and market failure – for example, if one of the commodity exchanges collapses, your futures contract would no longer have value and that investment would result in a negative return on investment. Unlike trading futures, IRAs are long-term investments involving less risk and requiring less knowledge of gold’s short-term price fluctuations. An added bonus, the income tax implications of IRAs are much simpler than those calculations for futures.
Gold IRAs offer an easier to understand investment option compared to gold futures, coupled with increased stability and lower risk. If you’re looking for a long-term investment to protect your financial future, and the future of your heirs, a gold IRA may be the right choice.