Where to buy gold, what to expect from gold dealers, and the different kinds of gold investments (bullion, gold bars and gold coins)
Are you asking yourself, “Why buy gold?” Or maybe you want to know how to buy gold for an investment. If you want to buy and sell gold, you probably already know that gold is money—actual money. Unlike stocks, bonds or even cash—which are really just representations of money—when you buy gold or silver 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 want to learn how to buy and sell gold for an investment. They see gold (both gold bullion and gold stocks) 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 BullionVault, 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.” This is why some people believe making an investment in gold is a safe bet.
By now you probably want to know how to buy gold. And these gold-buying tips will help you buy and sell gold. From buying gold in its various forms and identifying the price of gold to learning where to buy gold coins, bars and stocks, here’s how to buy gold for an investment.
How to Buy Gold Coins and Bars
The first thing a gold investor needs to decide when making an investment in gold 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. Buying gold and silver is more than just owning a bunch of gold jewelry or gold nuggets. If you want to own physical gold, you’ll need to learn how to buy gold coins and bars. Here is a beginner’s guide to buying gold coins and bars.
Surely, buying gold coins and gold bars to see the shine and sparkle of your investment is part of the thrill of owning actual gold. If you buy gold bars or gold 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. A gold bar or gold coin shouldn’t go unprotected. If you want to buy and sell gold bars or gold coins you’ll need to think about more than just security. When it comes time to sell the gold bars or gold coins, you’ll have to find a reputable buyer and deal with physically moving the gold bars or coins—either shipping them somewhere or bringing them to a local dealer.
With physical gold, the two most popular investment options are gold bullion coins and small gold bullion bars. Both a gold coin and gold bar are pure (or nearly pure) gold bullion, just shaped into a certain form. Gold coins come in a wide variety of sizes and weights, which makes them both more affordable and easier to sell than gold bars. Part of learning how to buy gold bullion, is learning how to sell gold later. This will affect the type of investment you make in gold. For example, depending on the price of gold, you may have to find one wealthy buyer to buy gold bullion in the form of a 10-ounce gold bar, whereas you could sell gold to several casual buyers if its in the form of 10 1-ounce gold coins. So if you’re worried about reselling a gold bar, buy some gold coins instead.
Also, because government mints issue gold coins, they’re harder to counterfeit; therefore, when buying gold coins, you may be more assured of the actual value. Keep this in mind when you sell gold bullion coins as well.
If you buy gold coins, be aware of the difference between gold bullion coins and “numismatic” gold coins. Numismatic coins are collector’s items because they are rare, old or minted as part of a special edition. When learning how to invest in gold, experts advise against buying collectible gold coins unless you’re looking for a way to combine gold investment with a gold coin hobby. Numismatic coins are for gold coin collectors, not for gold investors. Therefore the best gold coins to buy if you’re looking to sell them later are gold bullion coins.
“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 coins will be harder to resell, since your field of potential buyers is limited to coin collectors. (The “spot price,” mentioned above, is the price for delivery of physical gold, which in the gold market is two days from the trade date.)
The most popular gold bullion coins are American Eagles and Buffaloes, Canadian Maple Leafs, South African Krugerrands, Austrian Philharmonics and Chinese Pandas. A gold buying tip is to keep the coins in their original packaging. When you buy gold coins and 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. Manufacturers of gold bars include Johnson Matthey Group, PAMP, The Perth Mint, Rand Refinery, and others. It’s important to know where to buy gold bars because there have been cases of counterfeit gold bullion bars in which the center of the bar was tungsten or another metal, so make sure to deal with a reputable seller.
When you are buying 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. Any piece of gold bullion 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 of gold as well as how much you can sell it for later.
When you buy gold 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 gold 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 buying 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. Buying gold coins and bars aren’t your only options for owning gold, though.
Other Options
If you want to know how to buy gold for an investment without actually buying gold bullion coins or bars, there are other options—you could buy gold stock, for example. You don’t need to see or touch your gold, to benefit from the stability of the gold market. In fact, if you’re looking for how to buy gold the safest way, these are some of your options. Oftentimes buying gold with the examples listed below means you can sell your gold far more easily—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, you can buy gold from a 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 gold bars or coins this way, know that gold accounts can be allocated (specific bars of gold belong only to you) or unallocated (you own the gold 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 if you buy gold stock shares in a mining company, it is another way to participate in the gold buying business without owning actual gold. 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 gold 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, so you’ll be able to easily sell your gold later.
- 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 gold price. When it comes to gold futures, you’ll need a stockbroker’s assistance to learn how to buy gold for an investment.
Whether you decide to go with gold coins or start buying gold from the stock market, you’ll find that patience is a virtue. And keep in mind how you plan to sell your gold when you purchase it. 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.” Make your gold investment carefully and find the best gold price before you sell.
How Much to Invest
When learning how to buy gold for an investment, you may also be curious how much money to spend. Even if you plan to sell gold later, you’ll need a good amount of money to buy it first. 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 five percent of your total investments (assuming you can afford the current price of gold to buy that amount). 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 ways to buy cheap gold, you may find that the best way to buy gold 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 buying gold coins or other physical forms of gold because the gold price per ounce can run $1,400 or so. Buy gold stock or consider a gold account, where you can buy by the gram, or an exchange-traded fund.
If you’re interested in buying gold, and this is the best way for you to do that, be aware of other costs besides the price of gold. When you buy gold stock, stock broker fees, storage, insurance, dealer commissions and taxes will all vary from buying gold bullion, 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
Should you work with a financial advisor to stay on top of the price of gold today? Sure, if you can find one who’s knowledgeable about the gold market and can advise you in buying gold stock. “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 (http://www.gold.org/world_of_gold/market_intelligence/). You should also keep an eye on the “spot price” of gold per Troy ounce at Kitco or BullionVault’s Websites to know roughly what you’ll be able to afford.
Twice a day, the biggest gold bullion banks in London (the center of the world's wholesale gold market) meet to agree on a single price of gold 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 to buy gold bars, coins and stocks you’re probably wondering, “Where can we buy some gold?” Buying gold bullion or gold stock is more complex than just going down to a local jewelry store to buy gold and silver. Like many people, you probably want to find the best discount place to buy gold coins, but there’s more to it than that.
The World Gold Council can help you determine where to buy gold. They offer a list (http://www.gold.org/investment/why_how_and_where/) 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 gold in your area. The Better Business Bureau can also help you find where to buy gold coins or bars from 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 buy gold online. In fact, for a lot of people, the Web is viewed as one of the best places to buy gold. 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 buy gold bars online. Know the type of gold you want to buy, and check the seller’s reputation and credentials before you buy gold online.
Know the Tax Implications Before You Make an Investment in Gold
You’ll need to keep in mind how you’ll be taxed when you buy and sell gold. Unlike other investments, gold doesn’t fall under the usual capital gains tax rate. If you own physical gold such as gold 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 buy gold jewelry to collect it. If that’s not incentive to buy gold and silver, what is?
However, if you’re going to learn how to buy gold bullion, you’re probably going to learn how to sell it as well. So before you go out and start buying gold the best way you know how, 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.
This guide should help you learn all you need to know 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 how to buy gold bars, coins and stocks thoroughly before you insure the rest of your investments.
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