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Buying Gold

By Edited Nov 13, 2013 1 0
Gold Bullion(130199)
Credit: Morgue File

Gold is a beautiful, wonderful metal that has been revered throughout history due to its beauty, properties, and an indicator of wealth. During tumultuous financial times, many investors look to gold as a means to maintain and build their wealth. Gold is often viewed as being a hedge to inflation. In general, when inflation increases, so does the value of gold. Many investors simply feel that they would rather own something tangible that has an intrinsic value rather than paper currency, or simply a bank statement.

There are many ways to own gold. One obvious way is to own things that are made from gold, like jewelry. Jewelry isn't generally considered a straight investment. Rather, jewelry is something to be held and enjoyed. There are two categories of gold coins that one can buy. The first category is coins that have a numismatic value. That is, they have collector appeal, and generally trade for more than the inherent value of the gold. The other category is bullion coins. Those are coins that are primarily purchased for the value of the gold. In general, bullion coins trade for very close to the value of the gold they contain. I will go into more detail about gold bullion coins later in this article. Another way to own gold bullion is by purchasing gold bars. Again, the price of the bars is very close to the value of the gold they contain.

All of the ways of buying gold that I have listed so far involve taking possession of the gold. In that way, gold is considered a "tangible asset". When you own tangible assets of this nature, you will need to think about storage, and insurance for your investment.

Another way to buy gold is to buy securities that are related to gold, rather than the gold itself. Gold and gold mining stocks are one example. Another is gold futures in which you speculate on the future price of gold. These securities offer the advantage that you don't need to worry about storage costs, but they remove the advantages of holding gold metal such as the fact that if you actually hold the gold that it will always be worth something.

The rest of this article will focus on buying gold bullion in the form of bars or bullion coins. In general, this is the best avenue for the small investor to purchase gold. Always keep in mind that the price of gold fluctuates widely, and thus you can lose money if you buy gold and it goes down in price. Gold does not create an income stream like bank investments such as CDs or bonds. The way you make money on gold is that you buy it at a certain price, and if you sell it at a future date, your profit (or loss) is the change in value from your purchase price.

Many people like the idea of purchasing gold bars. This is certainly a viable way to buy gold. However, for a small investor, coins are generally the better idea for several reasons. In order to have a bar of any significant size requires you to buy a significant amount of gold. This can be very expensive. Also, if you buy a gold bar, you will probably want to sell the whole bar when you want to liquidate your holdings. So – dealing with coins can give you greater flexibility, and a lower cost of entry. Finally, unless your gold bars are of a widely trusted name like Englehard or Johnson-Matthey, you may need to have your bar assayed (tested for purity and gold content) before you sell. This is an added expense.

Governments mint gold coins as a way to enable people to purchase gold. Two of the most common gold bullion coins are the American Eagle, and the Canadian Maple Leaf. These coins are available in many different sizes. The American Eagle is available as 1 oz., 1/2 oz., 1/4 oz. and 1/10 oz. sizes. The Canadian Maple Leaf is available in those sizes, and also 1/20 oz. Note that bullion coins have a face value denomination. For example, the 1 oz. American Eagle has a face value of $50. However, the gold content is worth considerably more than the nominal $50 and the coin costs more than $50.

When you buy a gold bullion coin, the cost will be determined as a combination of the price of the gold on that day, as well as a premium. The premium is a cost above the value of the gold that consists of the costs involved in preparing and storing the coin, and the dealer profits. The premium on a small coin is generally about the same as the premium on a larger coin, so it is usually more expensive to buy 10 1/10 oz. coins as compared to 1 1 oz. coin. Thus, the 1 oz. coins seem to be favored by investors.

There are many places to buy gold bullion coins. They are available from online services, local coin dealers, and the U.S. Government Mint. Shop around for price (the premium can vary from dealer to dealer), but only buy from a source that is known to be reputable.

Be sure to store your coins in a safe place, and don't forget to look at them from time to time. Though they are manufactured as bullion, they are still very beautiful coins!

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