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How to Buy Gold – And What to Watch Out For When You Do

Investors frequently say “I’m going to buy gold.” But what does that actually mean? How do you buy gold? And if you’ve never purchased it before, how do you know what to watch out for when you do?

It turns out that there’s no one way to buy gold. You can do it in various forms, including purchasing the metal itself, or various types of paper related to the metal. Let’s take a look at the various ways to buy gold, as well as the advantages and disadvantages of each method.

Gold Coins

What they are. These include gold bullion coins issued by governments, such as the US Gold Eagle, the Canadian Maple Leaf or the South African Krugerrand. The coins come in 1 ounce denominations, but also in fractions, such as half an ounce, quarter ounce, and down to 1/10 of an ounce. They usually sell for a premium above the price of the bullion itself, which can add 10% of the cost of the coins.

Apart from bullion coins, there are also numismatic coins. These are coins that contain gold bullion, but also have historical significance that increases the value above the gold content itself. This is typical of pre-1933 US gold coins. Particularly rare versions can sell for many times the value of the goal content itself.

Advantages. Bullion coins issued by governments are widely recognized, and easily bought and sold. They also have the advantage of being highly portable – you can literally carry them from one geographic location to another.

Disadvantages. Storage is a problem, should you take possession of the coins. You will not only need to save them in a safe place, but you will have to ensure them against loss. This will increase the cost of owning the coins.

Numismatic coins often present problems on resale. The value of a numismatic coin is determined by its “mint state”, which is a numeric rating of a particular coin’s authenticity, rarity and value. However, it’s not unusual to purchase a numismatic coin at, say, Mint State 65, only to be told that it is only Mint State 62 upon sale, and often from the very dealer where you originally purchased the coin.

Such a difference could reduce the value of the coin by thousands of dollars, not to mention that there are high fees associated with both the purchase and sale of numismatic coins.

Gold Bars

What they are. These are also comprised entirely of gold bullion. They range in size from 1 ounce to as much is 400 ounces, though 10-ounce bars are typical.

Advantages. They can enable an investor to hold a very large amount of gold in bar form. They are usually also pure gold, and not alloyed with other metals.

Disadvantages. The bars are not particularly liquid. That is, they can’t be traded as barter, the way coins can. They can also be difficult to sell, given their large size. Storage is another potential issue, since a 100-ounce or 400- ounce bar is a serious target for a thief.

Gold Rounds

What they are. These are essentially coins, except that they are produced by private mints, and not by governments. This is a form of gold that is available at TreasuryVault.

Advantages. As a result of being produced by private mints, they are also less expensive, since the premiums paid are much lower. But they represent pure gold bullion, since they are not alloyed with copper or other metals that are typically found in government issued gold coins.

Disadvantages. None to speak of.

Gold ETFs

What they are. Exchange traded funds (ETFs), are sort of like mutual funds, but they usually invest in markets, rather than specific stocks. ETF’s are the most common form of index fund, since they will invest in a specific market, matching the allocation of that market. An ETF might invest in a general market index, such as the S&P 500. But there are several ETFs that invest in gold bullion. Examples of gold ETF’s include SPDR Gold Shares (GLD), iShares Gold Trust (IAU) and TFS Physical Swiss Gold (SGOL).

Advantages. ETFs are a way to invest in gold but with paper assets. That means that you can easily buy and sell the shares, and you don’t need to concern yourself with the cost of storing or insuring the metal itself.

Disadvantages. Gold ETFs represent a claim on a certain amount of gold bullion. However, this is not the same as taking physical possession of the metal itself. One of the primary reasons anyone invests in gold is for insurance against global economic or financial disturbances. A gold ETF will not serve the same purpose as other forms of gold ownership, since the shares cannot be liquidated for the metal itself. There’s also some doubt in certain quarters as to whether or not the stated amount of gold actually exists within the ETF itself.

Gold Stocks and Mutual Funds

What they are. These are not actual investments in gold itself, but rather in companies that produce gold. In the case of funds, you’re investing in a portfolio of various gold stocks.

Advantages. Gold stocks are highly volatile, in both directions. When gold bullion prices are rising rapidly, the value of gold stocks can rise even faster than the metal itself. This was the case throughout the decade of the 1970s. Gold stocks represent a play on gold, but since they are paper assets, they are very convenient to buy, sell and hold.

Disadvantages. Investors often mistakenly equate gold stocks and funds with the metal itself, but this is entirely inaccurate. Gold stocks and funds are paper certificates, representing ownership in gold mining companies. Since they are stocks, they could decline with the general stock market, even though the price of gold is holding firm or increasing.

They generally tend to track the gold bullion price only at the extremes, both higher and lower. There have been extended times when gold stocks have lagged behind the price of the metal itself. That’s because gold mining companies are subject to all of the same risks as any other business, including complications due to war in producing areas, political problems, economic disturbances, interest rate increases, and labor troubles. Any of these factors can cause the value of a gold stock to decline, even if the metal itself is rising sharply.

Secure Gold Cards

What they are. These are cards that represent ownership of a specific amount of gold, which comes in three sizes: Single Gram, Double Gram and Triple Gram, each .9999 fine gold. The cards are certified bullion products that are Mint-Direct, supplied by an LBMA approved refinery, and certified for weight and purity. They can be purchased through TreasuryVault, which has introduced them as the world’s first secure gold card.

How Secure Gold Cards Work. Secure Gold Cards can be used at participating merchants, to make purchases the same way you would with a credit card. The cards can be scanned with a smart phone, which will accomplish the following:

  • Immediately verify authenticity
  • Get an up-to-the-minute market value
  • Provide the world’s safest medium of exchange and store of value
  • Be tradable in all of the world’s major currencies
  • Come with no currency conversion fees
  • Protect your hard-earned money against inflation
  • Maintain control of your own assets
  • Offer superior built-in protections against fraud and counterfeits

By scanning the QR code (you can download the QR Code Reader at the Apple App Store or Google Play), you can verify card authenticity, gold weight and purity, the date of manufacture, inspector, and up-to-the-minute market value. You can also manually verify the information on the TreasuryVault website by entering the serial number on the back of the card.

Once you purchase the cards, they’re shipped to you either by US mail, or by Federal Express, directly to your home or office.

Advantages. The Secure Gold Card is more affordable than gold bullion coins, and provides the same benefits, including protection against inflation and financial collapse. It also provides fraud protection, universal recognition, and ease of sale. This includes fast and easy authentication. The card also gives you the advantage of physical possession of the gold itself, while being in more liquid form, much like a credit card.

Disadvantages. None to speak of.

Which Type of Gold Should You Own?

The answer to that question mostly depends upon what it is you expect your gold to do for you and your investment portfolio.

For liquidity and barter purposes, the Secure Gold Card is the best option. You can carry it around with you, and use it to buy from and barter with participating merchants and individuals (anyone who has a QR Code Reader can do so). Government issued gold coins, as well as private mint gold rounds, can also work well in this capacity, though they may not be as convenient to hold and use as the Secure Gold Card.

For pure speculation, gold stocks and mutual funds are probably the best play. That’s because they have the potential to outperform gold bullion itself in a strong bull market in the metal.

Bars and rounds are the best ways to hold large amounts of the physical metal. This is particularly true if you expect economic or financial disaster, and want to have a large amount of gold as insurance against losses in your investment portfolio. Gold ETF’s can accomplish much the same purpose, as long as the general financial situation remains intact. If it doesn’t, physical possession of gold will be the only sure bet.

What’s important to recognize that gold is not a single investment, but a group of investments. For that reason, it might be best to hold gold in several forms, in order to meet each of your unique investment needs.