How Gold Is Traded in the US: Coins, Bars, ETFs, Futures and Miners

Gold has been money, jewelry and a store of value for thousands of years, and it remains the commodity that American investors are most likely to own. There are four main ways to do it: hold the metal yourself, buy a fund that holds it, trade futures on it, or own companies that dig it out of the ground. They behave differently and are taxed differently, so the route matters as much as the decision to own gold at all.

What moves the gold price

Gold produces no earnings or interest, so its price rests on supply and demand and on what holding it costs relative to alternatives. The main drivers:

• Real interest rates. When inflation-adjusted yields on Treasuries are high, the opportunity cost of holding a metal that pays nothing rises. Falling real rates have tended to support gold.
• The US dollar. Gold is priced globally in dollars. A weaker dollar makes it cheaper for buyers using other currencies and has often coincided with higher dollar gold prices.
• Central bank buying. Central banks hold gold as a reserve asset, and their purchases or sales are a significant part of demand.
• Fear and uncertainty. Financial crises, wars and worries about government finances tend to increase demand for an asset with no counterparty.
• Jewelry and industrial demand, concentrated in large consumer markets in Asia, matter more at the margin than many US investors expect.

Prices are quoted per troy ounce (about 31.1 grams, slightly heavier than an ordinary ounce). The key global benchmarks are the London over-the-counter market's LBMA Gold Price, set twice daily, and futures traded on COMEX, part of CME Group in New York.

Option 1: physical gold (coins and bars)

Buying coins or small bars from a dealer is the most direct form of ownership.

• Common products: the US Mint's American Gold Eagle and American Gold Buffalo coins are widely recognized, along with bars from accredited refiners.
• Premiums: dealers charge a markup over the spot price, and the premium as a percentage is usually higher on small coins than on larger bars. When selling, dealers buy back below spot. The round-trip cost can be meaningful.
• Storage and insurance: a home safe is cheap but carries theft risk, and a homeowner's policy may cover only a small amount of precious metal unless it is scheduled. Bank safe-deposit boxes are not FDIC-insured. Third-party depositories charge annual fees.
• Authenticity: buying from established dealers and recognized products reduces the risk of counterfeits.

Physical gold appeals to people who want an asset outside the financial system entirely. The trade-off is cost, inconvenience and lower liquidity.

Option 2: gold ETFs and similar funds

Physically backed gold exchange-traded products hold bullion in vaults and issue shares that trade on US exchanges like stocks.

• Pros: buy and sell instantly in a brokerage account, tight bid-ask spreads on the largest funds, no personal storage.
• Costs: an annual expense ratio, which is deducted by gradually selling small amounts of the fund's gold.
• Structure: most are structured as grantor trusts registered under the Securities Act of 1933, not as investment companies under the Investment Company Act of 1940. The prospectus explains where the gold is held and how it is audited.
• What you own: a share of the trust, not specific bars. Most retail investors cannot redeem shares for metal.

Other funds offer gold exposure through futures rather than bullion, which changes both performance (because of futures roll costs) and taxes.

Option 3: gold futures

COMEX lists a standard gold futures contract covering 100 troy ounces, along with smaller contracts, including a micro contract, that make the market accessible with less capital. Futures are regulated by the Commodity Futures Trading Commission (CFTC), and brokers that handle them must be registered with the CFTC and be members of the National Futures Association.

Futures offer leverage: a trader posts margin that is a fraction of the contract's value. That magnifies gains and losses, and a sharp move can produce a margin call within a single day. Positions must be rolled to a new contract before expiry or settled. Futures are mainly used by professionals, hedgers and experienced traders.

Option 4: mining stocks and funds

Shares in gold mining companies, or ETFs that hold a basket of them, offer an indirect route. Miners' profits depend heavily on the gold price, so their shares often move further than gold in both directions. But they also carry company risks gold does not: operating costs, mine accidents, political risk in producing countries, debt and management decisions. Some pay dividends, which gold itself never does.

The routes side by side

The tax column surprises many investors. Because the IRS classifies gold bullion as a collectible, long-term gains are taxed at ordinary income rates up to a maximum of 28%, rather than the lower long-term capital gains rates that apply to stocks. Short-term gains on any of these are taxed as ordinary income. Details are on the IRS's capital gains page, and a tax professional can confirm how a specific product is treated.

Gold in retirement accounts

Federal law generally treats collectibles bought in an IRA as a distribution, but it carves out exceptions for certain gold, silver, platinum and palladium bullion meeting minimum fineness standards and certain US-minted coins, provided they are held by a qualified trustee. So-called "gold IRAs" are self-directed IRAs set up this way, and they typically carry setup, storage and custodian fees.

Gold IRAs are also a frequent setting for aggressive sales tactics. The CFTC and state regulators have warned about high-pressure pitches, inflated markups on "rare" coins, and storage arrangements where the metal may not exist. Buying a gold ETF inside an ordinary IRA at a regular brokerage avoids most of these issues.

How much, and why

Investors who hold gold usually describe it as a diversifier or a hedge against currency and crisis risk rather than as a growth engine. Over long stretches it has gone through both strong rallies and multi-year slumps, and it can fall at the same time as stocks. Deciding the role gold plays in a portfolio, and therefore the vehicle, tends to make the rest of the choices straightforward: a small, liquid allocation fits a fund; a desire to hold something outside the system points to coins; short-term trading points to futures.

This article explains how gold markets and gold investments work and is not investment or tax advice. Consider your own circumstances and consult a licensed professional before acting.