Tips For Buying Gold
It is a fact that Countries, Governments, billionaires, and multi-millionaires from many parts of the globe are buying gold in huge volumes right now. They are doing so to protect their wealth in the challenging and turbulent economic times we have all faced of late. Gold is the safe haven they are running to because gold always has and always will hold its value over time.
But this doesn’t have to be a safeguard only for the rich and famous. Individual investors can take advantage of this opportunity to protect their wealth and secure their futures too.
Below are some important tips for buying gold that will help you get started in the rewarding and profitable world of precious metals collecting and investing.
#1 – Be Aware Of Scams
Gold scams are nothing new, they have always been around. What is different nowadays is that they are more complicated and more difficult to detect than before, mainly because of advances in technology.
Scams can be avoided however by making sure that you are one step ahead of the fraudsters and aware of their tactics. This can be done by careful research. Here is a link to a free up to date report which will help in that respect: The 5 Biggest Gold Scams in 2016.
#2 – Know What Type of Gold To Buy
There are two options for buying physical gold. You can buy gold jewellery or you can buy gold bullion.
While many women would initially choose to buy jewellery you should be aware that this is not the best form of investment. The reason is that the cost of crafting the jewellery is built into the price when you buy it so its value is not based completely on the prevailing price of gold. Jewellery is also subjective. Just because you find the particular piece attractive others may not, which means that it is not as liquid, i.e. it is not as easy to sell as gold bullion.
When it comes to bullion there is often a misconception that this is limited to gold bars or ingots, the type you would expect to find in the vaults of Fort Knox. That is not the case because coins are bullion too.
For the individual investor gold coins are the better option because they are more liquid than ingots. This is because you can purchase coins in smaller denominations and they are generally issued by government mints who guarantee their purity. When you need money, it is easier to sell a number of coins rather than one ingot of the same total value because you can sell the coins to more than one buyer.
When it comes to buying gold bars there are different sizes you can choose from. While some people buy 10 oz bars the 100 oz ones are most common, and those are out of reach for the typical investor.
Coins also come in different sizes. You can buy gold coins in sizes of ½ oz, ¼ oz, 1/10 oz or even 1/20 oz but the most common size traded is the 1 oz coin.
Bullion is valued by its mass and purity as opposed to a monetary face value. The 1 oz coins and gold bars are generally .999 fine or better
Anything marked with .999 fineness or alternatively marked with ‘1oz fine’ is 99.9% pure and its value is based on whatever the gold spot price is at the time. It is not recommended that you buy gold marked in any other way. The standard is 99.9%.
#3 – Familiarise Yourself With The Different Types of Gold Coins
Gold coins fall into two categories – standard bullion coins and rare coins.
Standard bullion coins are minted by governments who then guarantee them. These coins become legal tender and are not considered to be collectibles; their value is determined by the current gold price. Different countries mint their own coins and give them their own names. For example America has the Eagle, Canada has the Maple Leaf, South Africa has the Krugerrand, Austria has the Philharmonic and China has the Panda.
All these standard bullion gold coins are basically the same apart from the fact that they contain different symbols according to the country that minted them. They all contain one ounce of 99.9% pure gold with the exception of the Krugerrand which contains a small amount of copper to make the coin more resilient. This copper is added though so the coin still contains one ounce of pure gold.
Rare gold coins are those which are no longer minted or are minted in short supply. As such they become collectors’ items and are known as ‘numismatic’ investments. Examples of these are the British Sovereign, the Saint-Gaudens, the Liberty Head and the Indian Head.
Because of their rarity they are normally more valuable than the standard coins but from an investment point of view they are more risky. This is because their values are not determined by the gold price alone and because there are a number of fakes and forgeries in existence.
Unless you are an expert or have access to expert guidance it is wise for the individual investor buying gold to opt for the standard bullion coins.
#4 – Understand What Determines The Value of Gold Coins
The price is generally set by the world’s largest commodity exchange, known as the COMEX and which is located in New York City. The COMEX price of gold is what is more commonly referred to as the spot price of gold.
You will not be able to buy gold coins for the exact COMEX price because the seller will always add a mark-up to cover their dealing costs. This of course is how dealers make their profits. So you should always expect to pay a ‘premium’ and you shouldn’t view this as any sort of scam as it’s the way the market works.
The amount of mark up will depend upon the local demand, the size of the transaction and the particular dealer you are buying from. Anything up to 10% is typical and you should steer clear of anyone charging more than that.
#5 – Understand What Influences The Price of Gold
Gold is no different to any other commodity in that its price in the short term is determined by the laws of supply and demand.
Over the longer term its price, which is determined in US dollars, has increased as the dollar has been manipulated. Since 1971 when the dollar moved away from the gold standard the value of the dollar has fallen and the price of gold has risen dramatically.
Gold has what is known as a negative correlation with other assets such as treasury bills, stocks and bonds and also with the value of the dollar. As these fall, so the price of gold increases.
#6 – Research The Reasons For Buying Gold. Is It for You?
In the video below James Turk, Director of the GoldMoney Foundation puts forward a strong argument for buying gold :
#7 – Learn How To Store Gold
Because of its high value, before buying gold you need to give some thought to how and where you are going to store it.
There are 2 obvious options and these are the ones that most individual investors choose.
The first is a home safe. These are relatively inexpensive to buy. It may be worth paying a little more for one that you can bolt to the floor for additional security. Another tip is if you buy one with an electronic opening device controlled by batteries, make sure it has a backup manual facility for opening it such as a key or manual dial, and if it doesn’t make sure you replace the batteries regularly!
The second option is a safety deposit box at a bank. You should be able to rent one for between $50 and $100 per year and that will offer you storage for hundreds of ounces of gold. You don’t have to declare details of the contents to the bank and you should have access whenever you need it.
#8 – Understand The Importance of The Liquidity of Gold
The beauty of gold is that it is portable and liquid. You can sell it pretty much wherever you are in the world and its value is determined mainly by the prevailing spot price rather than local conditions.
If you follow the advice about how to buy gold given above and you invest in standard gold bullion 1 oz coins you will have the best possible chance of selling easily and quickly.
#9 – Discover How To Sell Gold In Case You Need To
You can sell gold through the same channels that you bought it. Most dealers will buy gold from you as well as sell it to you. Speak to the dealer before you buy to check out what facilities they offer for buying it back and also what their charges would be. Just as when buying you should expect to pay above the spot price to cover the dealing costs, so you should expect to get below the spot price when you sell also to cover the dealing costs. This is known as the spread.
At times of high demand it may be possible to sell it for slightly above the spot price. The could be because the dealer has a buyer lined up and is prepared to take a smaller cut if he can turn it round right away. If you do have to sell below the spot price you should avoid paying any more than 10% in dealers’ fees.
#10 – Ask Yourself Whether You Should You Be Buying Gold Now
We started this article by informing you that governments, billionaires and multi millionaires are buying gold like crazy right now. This is because they see the writing on the wall when it comes to the declining value of the dollar and the increasing size of the US National Debt.
Gold is a safe haven in turbulent economic times. It protects your wealth against the declining value of paper currencies. And the times we are living in are certainly turbulent!
Prior to 1971 a dollar bill was actually worth a dollar but today it is just a piece of paper that we trust to be worth a dollar, a trust that is beginning to wear thin.
Most financial experts agree nowadays that gold and other precious metals should be a part of your investment portfolio. The only thing they don’t agree on is what the percentage should be. The consensus of opinion ranges between 10 – 30%.
#11 – Research Where To Buy Gold
You can buy gold online from a dealer or by visiting a store. You could also buy from friends or family. The most important thing is to make sure you only buy from a reliable and trustworthy source.
Research is essential and it is easy to do that over the internet. It is advisable to only buy from a dealer who has been in business for a number of years and is accredited to some sort of consumer protection organisation such as the BBB (Better Business Bureau). In order for the dealer to be accredited they normally will have had to go through an application and vetting process. They will also be rated in accordance with their past performance so it is best to choose a dealer with the top rating the organization gives. So in the example given of the BBB, it would be A+.
You should only be buying gold from a seller who can offer you a certificate of purity and weight. The reasons are twofold. Firstly this will give you assurance of authenticity and secondly you will need to offer this to a potential buyer if and when you choose to sell.