Gold and precious metals

In short

A friend of mine once bought a small gold coin for his daughter's birthday and asked me what it was really worth. I told him the answer depends on which price he means. Gold has a spot price, which is the going rate for gold ready to trade today, and nearly every coin or bar sells for more than that. If you are thinking about gold, learn what each way of owning it costs before you pick one. A coin or bar in your hand brings a markup, storage, and insurance. A fund brings a yearly fee. A futures contract brings leverage, which means a small deposit controls a large amount of gold, and that cuts both ways. Gold pays no interest or dividends, so any gain has to come from a rising price. Taxes can also differ from what you expect, so check the IRS before you sell anything.

The whole of it

What it is

I once watched an old farmer hold a gold ring up to the light and say it was the only thing he owned that his grandfather would still recognize. Gold has that pull on people. It has been used as money and jewelry for thousands of years, and today it is also a financial asset that people trade in several forms.

Precious metals are gold, silver, platinum, and palladium. Gold gets the most attention. Each metal has a spot price, which is the price for buying or selling the metal for delivery right now. Dealers, funds, and exchanges all start from that number.

You can hold gold in a few ways. Physical gold means coins and bars you keep yourself or store with a dealer. Exchange traded funds, often called ETFs, are shares that track the price of gold and trade like stock. Mining company stocks are shares in businesses that dig the metal out of the ground, so they carry business risk on top of the metal price. Futures are contracts to buy or sell a set amount of gold at a set price on a future date.

How it works

If you are holding a coin, you own the metal itself. A dealer sells it at the spot price plus a premium. That premium covers minting, shipping, and the dealer's profit. When you sell, the dealer pays below spot, so the gap between buying and selling is a real cost. You will also want a safe place to keep it, and that costs money or worry.

A gold fund works differently. You buy shares through a brokerage account. The fund holds the metal or contracts, and it charges an expense ratio, which is a yearly fee taken as a percent of what you hold. Nothing sits in your closet, and selling is as easy as selling any share.

Futures are the part that surprises people. A futures contract is an agreement traded on an exchange, and the CME Group runs the main gold market in the United States. The buyer does not pay the full price up front. The buyer posts margin, a good faith deposit that the exchange and broker set. Because the deposit is small next to the value of the gold, a modest price move can bring a large gain or a large loss. The broker can demand more money if the price moves the wrong way. Most traders close the contract before delivery rather than taking the metal.

Gold pays no rent, no interest, and no dividend. Its return comes only from the price moving up. That is a plain fact, and it is worth keeping in mind next to an investment that pays you while you wait.

The numbers, and where to find yours

Every number in this field comes from somewhere you can check. The spot price is posted all day by dealers and by the exchanges. The CME Group publishes contract sizes and margin requirements on its own site, and your broker sets its own margin on top of that. A standard gold futures contract covers 100 troy ounces, and a troy ounce is the unit used for precious metals, a little heavier than the ounce in your kitchen.

For fees, read the fund's prospectus, the document that lists its expense ratio and holdings. For taxes, the IRS publishes the rules. The IRS treats some physical gold and silver as collectibles, and collectibles can be taxed at a different long term rate than stocks. The top rate on long term collectibles gains is the current figure, which the official source publishes each year. Futures follow their own tax rules, which the IRS explains in Publication 550. If you want to buy through a retirement account, the yearly contribution cap is $7,500 for 2026 (source, checked 10/4/2026), and the account type decides what metals it may hold. Check your own custodian, since each one sets its own list.

A worked example

Let me tell you about a woman named Marcy Ellison. She decided to look at gold and wanted to see what a small purchase would really cost her. She liked the idea of a one ounce coin.

On the day she checked, the spot price was $2,000 an ounce. The dealer sold the coin with a premium of 5 percent. Five percent of $2,000 is $100. So the coin cost her $2,000 plus $100, which is $2,100.

She also paid $40 for a small home safe deposit box fee for the year. Her first year cost was $2,100 plus $40, which is $2,140. For the coin to be worth that much when she sold it, the price would have to rise, because a dealer buying it back might pay about spot, or $2,000. She started $140 behind before any change in the price.

Now suppose the price rose 10 percent over the year. Ten percent of $2,000 is $200, so spot became $2,200. If she sold at spot, she would get $2,200. Her gain would be $2,200 minus $2,140, which is $60. The costs ate most of the move.

Now take her cousin Dale, who looked at the same gold through a fund instead. He put in $2,000. The fund charged 0.40 percent a year. Forty hundredths of one percent of $2,000 is $8. When the price rose 10 percent, his $2,000 grew to $2,200, and after the $8 fee he held about $2,192. That is a gain of about $192. The method of owning gold changed the result far more than the metal did.

Where it goes wrong

I have seen smart people stumble here, and it is no mark against them. The first trap is the premium. A person pays well above spot for a coin and then feels surprised when the buyback offer sits lower. The gap is real, and it is easy to miss when the excitement is high.

The second trap is leverage in futures. Because a small deposit controls a big contract, a price swing the other way can wipe out the deposit fast. The broker may ask for more money on short notice. The trader can lose more than the first deposit. That is why the exchange and brokers publish risk warnings, and those warnings are worth a slow read.

The third trap is the belief that gold always protects you. Its price rises and falls like anything else, and it has gone through long stretches of decline. It pays nothing while you wait. A fourth trap is dealing with a seller you have not checked. Counterfeits and pushy sales pitches exist, so deal with a seller that publishes its prices and its buyback terms.

Last, taxes can bite. A person who thinks a gain will be taxed like a stock gain may find the collectibles rate applies. Read the IRS rules before the sale, not after.

Questions to answer before you leave this page

Have you worked out what the premium and storage would cost you in actual dollars, and where the price must go just for you to break even? Do you know whether you would own the metal itself, shares of a fund, or a futures contract, and do you understand how each one is taxed and what the yearly fees are? If you were thinking about futures, could you cover a call from your broker for more margin without borrowing or selling something you need? Have you read the fund prospectus or the exchange contract details for the exact product, and do you know which official page lists the current limits that apply to your account?