How to Buy Gold – Tips for Safe & Profitable Gold Purchases

How to Buy Gold – Tips for Safe & Profitable Gold Purchases

Gold has been a popular investment choice throughout history, protecting against various uncertainties like inflation, economic turmoil, currency fluctuations, and even times of war. When considering gold as an investment, it’s essential not to limit yourself to acquiring physical gold through coins or bullion. There are alternative methods for buying gold, such as buying shares in gold mining companies or investing in gold Exchange-Traded Funds (ETFs). 

Options trading and futures contracts provide avenues for investing in this precious metal. These different options give investors flexibility and opportunities to take advantage of the potential benefits that come with holding gold in their investment portfolios.

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How to Buy Physical Gold

For investors who are used to trading stocks and bonds online, investing in physical gold can pose some challenges. Unlike traditional brokerages, when dealing with physical gold, you will typically interact with dealers outside the online trading platform. 

Additional costs are involved, such as storage fees and insurance, that need to be considered for your investment. When investing in physical gold, there are three primary options available: bullion, coins, and jewelry.

Gold Bullion

When most individuals consider investing in gold, they typically envision bullion: large, gleaming gold bars locked away in a secure vault. Gold bullion is available in bars that range from a few grams to 400 ounces, although it’s most commonly found in one-ounce and ten-ounce bars. 

The current price of gold stands at approximately $1,900 per ounce (as of September 2020), making investing in gold bullion quite costly. Unlike stocks, there isn’t an option to purchase fractional shares of a gold bar.

Given the high cost of purchasing gold bullion, it’s imperative to work with a reputable dealer and arrange for secure delivery accompanied by insurance or opt for storage at a reputable vault or safe deposit box facility.

Suppose you decide to invest in gold through bullion. In that case, it’s advisable to stay informed about the current price fluctuations to make an informed decision regarding when to buy. Most dealers regularly update their prices based on prevailing spot prices.

Gold Coins

Gold coins weighing one or two ounces are the most commonly found, but options are also available in half-ounce and quarter-ounce denominations. The well-known gold coins often sought after by collectors include the South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles. Some dealers even offer blanks as well as damaged or worn coins.

However, the prices of gold coins may not perfectly reflect their actual gold content. Collectible coins that are in high demand often trade at a premium. 

For instance, in mid-September 2020, a one-ounce American Gold Eagle coin had a retail price of slightly over $2,000. This represents an almost 5% markup compared to an equivalent amount of gold bullion.

While you might come across better deals on gold coins from local collectors or pawn shops, it’s considered safer to make your purchases through reputable and licensed dealers.

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Gold Jewelry

If you’re interested in purchasing gold that can be worn or has been previously worn but is damaged, you can invest in gold jewelry. However, it’s important to note that investing in gold jewelry comes with its own risks that investing in pure gold does not.

Firstly, it’s crucial to exercise caution when buying jewelry, especially secondhand pieces. Not all sellers are reputable dealers, so authenticity becomes a concern not only for you as the buyer but also for anyone who sells the piece later on. 

To mitigate these risks, purchase investment jewelry from trusted and reputable dealers while obtaining as much documentation as possible.

Secondly, when purchasing jewelry from specific companies or designers, there will typically be a markup applied based on their brand reputation and manufacturing costs. This markup can range anywhere from 20% up to over three times the actual value of the precious metal used.

Understanding the purity or percentage of gold in your jewelry is essential. Gold purity is measured using karats, with 24 karats representing 100% pure gold. Lower purity levels result in decreased melt value for your piece or lower raw weight if melted down into pure gold components.

Gold IRA

A Gold IRA provides individuals with the opportunity to expand their retirement portfolio by including physical gold and other precious metals in a tax-advantaged account. This investment option safeguards against economic uncertainties and inflation, given gold’s reputation as a reliable asset. 

Before opting for a Gold IRA, investors should carefully consider fees, trustworthy Gold IRA providers, and the long-term performance of this investment compared to other assets. By doing so, they can ensure diversification and security in their retirement savings.

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Invest in Gold by Purchasing Stock in Gold Miners

Investing in the stock market for companies involved in gold mining, refining, and trading offers a simpler alternative to buying physical gold. This involves purchasing shares of gold mining companies through your brokerage account. 

There are several highly sought-after stocks in this industry, such as:

  • Newmont Corp. (NEM): The world’s largest gold mining company, headquartered in Colorado, with active mines in North and South America and Africa.
  • Barrick Gold Corp. (GOLD): This global gold mining powerhouse is based in Toronto and conducts operations in 13 different countries.
  • Franco-Nevada Corp. (FNV): Unlike traditional miners, Franco-Nevada specializes in purchasing royalties from other gold mining operations rather than owning mines themselves.

However, while gold prices influence the stock shares of gold companies, they’re influenced by the specific factors related to each company’s current profitability and expenses. 

This implies that investing in individual gold companies comes with similar risks as investing in other stocks. Individual stocks can be subject to a certain degree of volatility and don’t offer the same level of security as diversified funds.

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Invest in Gold ETFs and Gold Mutual Funds

Investing in gold ETFs and mutual funds allows investors to benefit from the long-term stability of gold while offering greater liquidity compared to physical gold and more diversification than individual stocks. 

There’s a variety of gold funds available, each with its own unique features. Some are passively managed index funds that closely follow industry trends or the price of bullion using futures or options.

For instance, the SPDR Gold Shares ETF (GLD) invests in physical gold and deposit receipts, mirroring the movements in physical bullion prices. The VanEck Vectors Gold Miners ETF (GDX) is a passively managed fund that tracks a diversified basket of stocks from companies involved in gold mining and refining.

Experienced investors, such as those involved with Franklin Templeton’s Gold and Precious Metals Fund, actively oversee gold mutual funds. These funds strive to outperform index funds that are managed passively. However, in return for their efforts, they charge higher expense ratios.

When investing in gold stocks or mutual funds, you’re not directly purchasing physical gold. Instead, you’re investing in securities that represent ownership of mining companies or contracts for physical bullion through debt or equity. 

This means that the value of gold mutual funds and ETFs may not perfectly align with the market price of actual gold. As a result, these investments may not yield the same returns as physically owning gold itself.

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Top 3 Companies to Invest in Gold With

Goldco – Best Gold IRA Company Overall

Goldco is a company based in California that has been privately owned for over ten years. They have extensive experience in precious metals IRA and specialize in providing gold IRA and asset protection services. 

Goldco assists clients with starting or transferring their gold IRAs, as well as helping them with retirement plans that offer tax advantages. 

It’s important to note that while Goldco itself doesn’t charge any fees, there are associated costs such as custodian fees, setup and annual maintenance fees, and storage fees ranging from $150 to $200 per year. 

To open a gold IRA account, the minimum initial investment required is $25,000, and customers must go through an account opening process guided by a representative.

Goldco has received many positive customer reviews, highlighting their excellent communication skills, efficiency in handling transactions, specialist knowledge of the industry, and exceptional customer service. 

These reviews have resulted in an impressive overall rating of 4.8 out of 5 stars for Goldco’s performance. However, it should be noted that the company has addressed some complaints related to high markups on products sold by them, misleading information provided to customers at times, and delays in payout processing.

To assist customers effectively, Goldco provides customer support services from Monday through Friday between 7am and 4pm, Pacific Standard Time (PST). Customers can reach out for help either via phone or by utilizing the chatbot available on their website during these hours.

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American Hartford Gold – Best Gold IRA Company for Small Investments

Renowned for its outstanding customer service in the precious metals sector, American Hartford Gold offers a range of resources and a dedicated support team to assist their clients. 

The company’s website is filled with informative pages, news articles, price charts, fact sheets, and frequently asked questions covering gold and other metals. Transparent pricing is emphasized by providing gold and silver prices directly on the homepage.

Customer reviews consistently highlight the expertise of the specialists who guide customers through various processes, such as purchasing gold coins or setting up gold IRAs. When selecting a precious metals dealer, consider the advantages and disadvantages to secure the best prices and services.

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Augusta Precious Metals – Best Gold IRA Company for Customer Support

Augusta Precious Metals

Founded by CEO Isaac Nuriani in 2012, Augusta Precious Metals specializes in providing silver and gold coins and bars for IRA investments. With the exception of the American Gold Eagle coin, they ensure that all their metals are at least 99% pure.

Their pricing structure can be found on their website and is determined by adding a margin to the base price. This margin may vary depending on factors such as supply, demand, and overall economic conditions.

Augusta strongly encourages investors to compare their prices with those offered by other dealers. New investors are given a seven-day window within which they can reverse any transactions if necessary.

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Use Futures and Options to Invest in Gold

With investing in gold, one of the riskiest methods is engaging in futures or options trading contracts, which falls under speculative investing. These contracts are considered derivatives because their value depends solely on the price of an underlying asset.

A futures contract involves an agreement to buy or sell a security at a predetermined price on a specific date, regardless of current market conditions. 

To take part in futures or options trading, you must have an account with an online broker that offers these investment vehicles. Many online brokerages permit trading these securities but may require account holders to complete additional forms that acknowledge the risks associated with investing in derivatives.

After setting up a brokerage account for trading options or futures, you can directly purchase and sell them through the platform. The commission charged by most platforms for these trades varies depending on the number of contracts bought or sold.

Those who invest in gold using options or futures contracts must actively monitor their investments to sell, rollover, or exercise their options before they become worthless. It’s important to note that each option inherently carries a level of leverage or debt, so it’s crucial for investors not to overuse them as market losses can quickly accumulate.

Should You Invest in Gold?

If you have concerns about inflation and other potential disasters, gold could be a safe investment option. While it can be as volatile as stocks in the short term, gold has proven to hold its value over long periods.

There are various ways to invest in gold depending on your risk tolerance and personal preference. You can invest in physical gold, gold stocks, gold ETFs (Exchange Traded Funds), mutual funds, or even speculative futures and options contracts. 

However, regardless of your chosen form, most financial advisors recommend allocating only 10% of your portfolio toward gold. Remember that all investments come with risks, including investing in gold. The unique nature of the gold market requires a significant amount of time to understand its intricacies fully. 

That being said, for investors seeking stability and some shimmer in their portfolios, experts often suggest considering safer options such as investing in gold ETFs or mutual funds.

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How to Invest in Gold? – FAQs

What Is the Highest Price of Gold in History?

In the past, Gold achieved its highest recorded level in August 2020 at 2074.88. The information regarding Gold, including data, predictions, and a historical chart, was most recently revised in July 2023.

How Do I Start Investing in Gold?

One of the most popular methods for investing in physical gold is buying gold bullion. Gold bullion refers to high-quality gold usually as bars, ingots, or coins. 

When it comes to investment-grade gold, it must be at least 99.5 percent pure. Gold bars typically have essential details such as the manufacturer’s name, weight, and purity engraved on them.

Bottom line – How to Invest in Gold

Investing in gold isn’t suitable for everyone, and confident investors prefer to focus on cash-generating businesses rather than relying on the value of precious metals. 

Therefore renowned investors like Warren Buffett advise against investing in gold and recommend purchasing businesses that generate consistent cash flow. Owning stocks or funds offers simplicity and high liquidity, allowing you to convert your investment into cash when necessary.

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Individual retirement accounts are tax-advantaged accounts that help individuals save for retirement.

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