How To Buy Gold

Where to Buy Gold, What to Expect from Dealers, and the Different Kinds of Investments (Bullion, Gold Bars and Gold Coins)

How To Buy Gold

You may be wondering why you should even consider buying gold. Well, first of all, gold is money—actual money. Unlike stocks, bonds or even cash—which are really just representations of money—when you buy gold it has intrinsic value that can’t be wiped out by a currency crisis or a collapse in the stock market.

For this reason, buying gold is very popular. Many investors see it as an attractive way to add stability and diversity to a portfolio. When you buy gold, it doesn’t pay dividends, and it might not offer any thrilling price spikes; however, it’s valuable, liquid and traded globally 24 hours a day.

“Financially, owning physical gold is like owning real estate outright, mortgage-free,” says Adrian Ash, head of research for Bullion Vault, a gold trading and storage firm based in London. “Because, unlike stocks or bonds, no one else's financial failure can wipe it out, and gold investing is all about defending your savings from others' mistakes.”

Now that you know how valuable gold is, you probably want to know more about how to buy it. From buying various forms of gold to learning where to buy gold coins, bars and stocks, these tips can help you make an investment you won’t regret.

Buying Gold Coins and Bars

The first thing a gold investor needs to decide is whether or not to own physical gold—gold you can see and touch—or to invest money in the gold market some other way. If you want to own physical gold, you’ll need to buy gold coins and bars.

Surely, buying gold coins and bars to see the shine and sparkle of your investment is part of the thrill of owning it. If you buy gold bars or coins, however, you’ll also need to plan for additional costs, such as secure storage in a home safe or bank vault, as well as insurance. Your physical gold shouldn’t be unprotected. And when it comes time to sell the gold, you’ll have to find a reputable buyer and deal with physically moving the coins or bars—either shipping them somewhere or bringing them to a local dealer.

With physical gold, the two most popular investment options are coins and small bars. Both are pure (or nearly pure) gold bullion, just shaped into a certain form. Coins come in a wide variety of sizes and weights, which makes them both more affordable and easier to resell than bars. If you want to buy gold bullion, though, you’ll need to learn how to sell it later. This will affect the type of investment you make. For example, you’d have to find one wealthy buyer to purchase the gold in the form of a 10-ounce bar, whereas you could find several casual buyers for 10 1-ounce coins. So if you’re worried about reselling a bar, consider buying some coins instead.

Also, because government mints issue coins, they’re harder to counterfeit so if you buy them, you may be more assured of the actual value.

If you decide to buy coins, be aware of the difference between bullion coins and “numismatic” coins. Numismatic coins are collector’s items because they are rare, old or minted as part of a special edition. Experts advise against buying collectible coins unless you’re looking for a way to combine gold investment with a coin hobby. Numismatic coins are for collectors, not for gold investors. Therefore the best coins to buy if you’re looking to resell them later are gold bullion ones.

“There can be a substantial premium for numismatic coins and collectible coins issued by mints around the world well above the current spot price for gold,” warns David Schraeder of the World Gold Council. If you’re trying to buy and sell gold coins, know that numismatic ones will be harder to resell, since your field of potential buyers is limited to collectors. (The “spot price,” mentioned above, is the price for delivery of physical gold, which is two days from the trade date.)

The most popular bullion coins are American Eagles and Buffaloes, Canadian Maple Leafs, South African Krugerrands, Austrian Philharmonics and Chinese Pandas. Keep the coins in their original packaging. When you don’t remove them from the package, they get less banged up over time and retain more value.

Solid bars of gold bullion come in sizes anywhere from one ounce—more a wafer than an actual bar—to one kilogram. Gold bar manufacturers include Johnson Matthey Group, PAMP, The Perth Mint, Rand Refinery, and others. It’s important to buy gold bars from a reputable source because there have been cases of counterfeit bars, in which the center was tungsten or another metal, so make sure to deal with a reputable seller.

When you are looking at gold bullion, you’ll see references to its purity, or fineness. This is the amount of actual gold in a coin, bar or piece of jewelry. Anything less than 24 karats, or 999 parts per thousand, is mixed with another metal alloy. Eighteen-karat gold, for example, has 750 parts pure gold and 250 parts alloy per thousand. This will of course affect the price as well as how much you can sell it for later.

When you buy bars, know that they are generally 999 or 995 parts per thousand of gold. And when you buy gold bullion coins, you can expect them to range from 917 parts per thousand for the South African Krugerrand and American Eagle to 999 parts per thousand for the Austrian Philharmonic and Canadian Maple Leaf. Higher purity might look brighter and more appealing right out of the package, but coins with other metal alloys tend to hold up better over time, since gold is a very soft metal.

You may see a “troy ounce” when looking at gold bars or coins. Know that this is the standard weight in which gold is quoted in the international market, and is equal to 31.1035 grams. It was named for the old French city of Troyes, where there was an annual trading fair in medieval days. Bars and coins aren’t your only options for owning gold, though.

Other Options

If you want to buy gold for an investment without physically owning it, there are other options. You don’t need to see or touch your gold, to benefit from the stability of the market. In fact, there are a lot of safer ways to buy it. Oftentimes using the examples listed below makes selling your gold far more easily accomplished—usually requiring only a phone call or access to your online investment account.

  • Gold accounts: If you want to own physical gold without the hassle of finding safe storage and insuring it, check out your local bank. Some banks now offer gold accounts, in which the gold is held for you in a secure vault somewhere (London or Zurich, for example). If you plan on buying bars or coins this way, know that gold accounts can be allocated (specific bars belong only to you) or unallocated (you own the bar along with other investors).
  • Mining stock: You can also buy gold stock. How well a gold mining company does on the stock market tracks quite well with the price of gold. So owning shares in a mining company is another way to buy gold without actually owning it. More than 300 mining companies are listed and publicly traded on U.S. stock exchanges. 
  • Gold ETFs: Since the mid-200s, a number of banking firms have offered exchange-traded funds to buyers. Gold ETFs are backed either by physical gold that the firm has in secure storage, or by gold futures. Shares in these regulated financial products increase as gold prices increase. Shares are generally affordable and traded as easily as any other product on a stock exchange. 
  • Futures and options: Gold futures contracts are binding commitments to make or take delivery of a specified quantity and purity of gold, on a prescribed date, at an agreed price. You’ll need a stockbroker’s assistance to buy futures or options.

Whether you decide to go with coins or gold from the stock market, you’ll find that patience is a virtue. Ash says that over the last 10 years or so, “The only way to lose money has been to trade in and out, rather than simply taking a position and staying in. Few experts I know have timed the market well enough to beat the 16 percent average annual gain which gold has made since 2001.”

How Much to Invest

Michael McGowan, author of “Financial Foghorn’s Guide to Gold,” says that when you decide to invest in gold, buy enough so that it equals about 5 percent of your total investments. Its stable, steady performance is generally unaffected by what’s going on in other markets, which makes it a good way to diversify your portfolio.

While there aren’t exactly inexpensive ways to buy gold, you may find that the best way to buy it is to regularly allot money towards it. Most investors do well over the long term with dollar-cost averaging, says Ash. That means setting aside a fixed amount of money and investing it in gold on a regular basis (monthly or quarterly, for example). This can “smooth out” your overall purchase price. Depending on how much you have to set aside, this strategy might not be possible with coins or other physical forms of gold because the price per ounce can run $1,400 or so. Consider a gold account, where you can buy by the gram, or an exchange-traded fund.

If this is the best way for you to buy it, be aware of other costs besides the price of gold. Stock broker fees, storage, insurance, dealer commissions and taxes will all vary with the type of gold you buy, so research those ahead of time.

“Fixed-fee charges (such as a stock broker's) might make investing a lump sum more efficient than small but regular savings,” Ash says.

When to Buy

In order to stay on top of the latest gold prices, you may want to consider working with a financial advisor. Try to find one who’s knowledgeable about the gold market. “Advisors, like most fund managers, are in the main only slowly coming round to the idea of gold investment,” Ash says. “It's been left to independent writers on the Web to study the historical patterns [of the gold market]. That means there's a lot of ill-informed sensationalism.”

To monitor your investment and stay on top of the price of gold, try reading market intelligence reports from the World Gold Council. You should also keep an eye on the “spot price” of gold per Troy ounce at Kitco the Bullion Vault’s Website, to know roughly what you’ll be able to afford.

Twice a day, the biggest bullion banks in London (the center of the world's wholesale gold market) meet to agree on a single price to clear their outstanding orders. This is known as the London Fix. The fix is widely used as the benchmark for spot transactions throughout the market. The five members of the fix meet at 10:30 a.m. and 3 p.m. London time.

Where to Buy

Now that you know how and when to buy gold, you need to know where to go to make your investment. Like many people, you probably want to find a place that sells gold at discount prices, but there’s more to it than that.

The World Gold Council can help you. They offer a list of reliable gold dealers around the world—both online sellers and brick-and-mortar shops—so that you can find the best place to buy it in your area. The Better Business Bureau can also help you find dealers with a clean reputation. Individual dealers' outlooks on the future price of gold may vary, so don't expect every dealer's prices to be the same, and don't be afraid to shop around to get the best price possible.

You don’t have to buy gold at a local shop. You can also make your purchase online. In fact, for a lot of people, the Web is viewed as one of the best places to make your investment. Online retailers like Amazon and auction sites like eBay are another option, but do your homework ahead of time, since you won’t have a dealer to help you with purchases from these online retailers. Know the type of gold you want to buy, and check the seller’s reputation and credentials before you make a purchase online.

Know the Tax Implications

Unlike other investments, gold doesn’t fall under the usual capital gains tax rate. If you own physical gold such as coins or bars, or an ETF that is backed by physical gold, the Internal Revenue Service considers it a collectible rather than an investment—because it’s possible that you may collect gold jewelry. If that’s not incentive to buy this valuable metal, what is?

However, if you’re going to buy gold bullion, you’re probably going to sell it as well. So before you invest in it, consider what will happen if you sell it. If you own gold for less than a year before you sell it, the money you earn is considered ordinary income and taxed accordingly. If you sell the gold after owning it for more than a year, the gains are taxed at a maximum rate of 28 percent. Compare that to the rate of 15 percent for most stock market investments.

Hopefully, this guide helped you learn about buying gold. As Richard Smith writes, gold “Is the insurance you buy when you are not sure exactly what it is that you are insuring against.” And just as you would do before insuring your home, car or life, research your purchase thoroughly before you buy gold to insure the rest of your investments.

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