How to Buy Gold: Complete Guide

For centuries gold has possessed a significant role in human culture. Historical civilizations, such as Incas and Egyptians, were the first to use gold in their daily transactions. Until this day, this precious metal is the key factor of the financial markets.

The serious economic crisis that appeared due to the Covid-19 pandemic, forced a growing number of investors to diversify their portfolios. This is how the thought of investing in gold assets became more vivid than ever. While other forms of investments may face a tremendous fall, the price of gold remains at a standard value.

Although it can be tempting to own this precious metal, investing in gold hides some significant challenges that should be taken into consideration. In this article, we will outline the best ways someone can trade gold as well as the benefits and dangers that hide behind each investment move.

Should You Trade Gold?

A future investor should always keep in mind that his portfolio should consist of different assets. Gold, in the long run, proved to keep a stable value. Its fundamental characteristic is reliability through a period of high inflation rate. Thus, it is considered to be an efficient way to assure safety among your future investment choices.

Moreover, gold and stock market prices have a reverse dependency. When the stock market is running low, gold on the other hand faces a significant rise. Future investors should be aware that gold does not provide cash flow like other assets. However, this specific investment can protect them from rough changes of the fiat currencies’ value.

We should emphasize that a remarkable percentage of financial advisors advocate not to invest more than 10% of your assets in gold. Hence, your investment choice should be based on extensive research and in accordance with your investment plan.

Pros

• An efficient way to have a diversified portfolio.
• Through major economic crises, the price of gold managed to stay unaffected.
• Gold insures against inflation.
• The possession of gold is an alternative way to put aside money in your retirement account.
• Physical gold can pass to the next generations without losing its value.
• Gold has high financial liquidity. Investing in gold has already become more popular, thus you can sell and buy faster and easier.

Cons

• Gold value is rather volatile due to significant alterations of supply and demand.
• Owning physical gold requires a specialized safety deposit box that ensures high safety.
• Gold doesn’t produce high income as stocks or bonds may do in the long term.

Different Ways to Buy Gold

Gold happens to be an alternative asset that offers a unique diversification in your investment portfolio. There are two different ways to obtain that precious metal: either buying physical gold or gold-backed securities.

Physical Gold

Physical gold can be presented in the form of gold bullion bars, gold coins, and jewelry. Most people choose to buy it either as investment insurance or as a need to obtain that precious metal. While owning physical gold can be impressive, it can also imply some challenges such as additional fees, the necessity to store and secure it, etc.

Pros

• A marvelous feeling of owning a high-value item.
• Diversification of the investment portfolio with a unique asset.
• Complete ownership of the gold bullion.

Cons

• High-security risks.
• The gold bullion should be of high purity to have an equal value.
• The purchase should be done by highly-rated producers.
• Extra expenses for storing the gold in central banks or private repositories.
  Higher taxes.

Investing in Gold

For some people purchasing physical gold, can be expensive or challenging to handle. To avoid these difficulties they can opt for investing in gold-backed securities. Gold ETFs, mutual funds, gold futures as well as stocks of gold mines are some of the ways to join the gold stock market.

Pros

• There is no need to store them and as a result, they are more cost-efficient.
• Some of these gold investment choices are easier and friendlier for a beginner.
• Less exposure to management risks in contrast to handling gold as a physical commodity.
• Some assets offer high liquidity.
• Easier to monitor gold prices.

Cons

• You can not experience the joy of physically owning that precious metal.
• Not all gold-backed securities fit all investors.
• Some may be risky for beginners.
• Choosing gold-backed securities may require more skills and trading experience than owning physical gold.

How to Buy Physical Gold

If you came up with the decision that buying physical gold is an investment that fits you best, then you find yourself between several choices. Here are three different ways you can own gold as a physical commodity.

Gold Bullion Bar

Most people choose to buy gold in the form of bullion bars. That is because it makes them experience the satisfaction and the excitement of owning that shiny valuable metal. Of course, there are various factors that you should take into consideration before purchasing it.

Purity is the most important element that defines the value of your gold bars. The highest price is given for gold having a clearness of 99.5% to 99.9%. Of course, depending on your financial status you can purchase gold bars with less gold content that are enriched with other precious metals. However, only the highest quality gold bars, whose quality is proven by a special certificate, are considered investment assets and can be stored in a gold IRA.

Another crucial factor is the purchase process. You can buy gold either οn certified online platforms that represent private companies or from individual reputable dealers. It is advised to choose carefully your gold retailer.

The most famous ones are:

• JMBullion
• The American Precious Metals Exchange (APMEX)
• SD Bullion
• Provident Metals
• Westminster Mint
• Money Metals Exchange

Buying gold bullion bars is considered to be one of the best ways to purchase physical gold. However, its trading process comes with some extra expenses, such as an additional fee added from your gold dealer, delivery fees, and insurance that guarantees safe storage and delivery of your assets.

Gold Coins

An alternative way to own physical gold is through purchasing gold bullion coins. Those assets may have a higher value than their original. Some of them may include only 91.5% of pure gold but the price can be higher due to their historical value and rarity. Representative examples are the 24-karat American Gold Eagle and the 22-karat Canadian Maple Leaf which are popular among collectors. Some other widespread examples include but are not limited to:

• Gold Buffalo
• South African Krugerrand
• Vienna Philharmonic
• Mexican Gold 50 Pesos
• British Sovereign
• British Sovereign

The list of coin dealers from who you can purchase gold coins is very wide. Some of the trustworthy online dealers are APMEX, JM Bullion, and Kitco. They can ensure the gold’s purity while offering a fair price. Moreover, there are also popular government mints that guarantee a high level of services such as:

• The U.S. Mint
• Royal Canadian Mint
• Royal Mint of the United Kingdom
• The Central Mint of the People’s Bank of China
• The Perth Mint in Australia

Whether you decide to buy your gold coins from an online dealer or a governmental mint you should be aware of some additional expenses that will be added to the initial price of your asset.

Jewelry

Gold jewelry is another way to own physical gold. For most people, not only is it an investment but also a part of their outfit. However, it is not a profitable way to invest your money. The value of gold jewelry is dependent on the quantity of gold it contains which is only a percentage of its total weight.

A jewelry asset should be more than 14 karats of pure gold to have a high value. However, it is more likely that most of the gold pieces of jewelry are sold in the market merged with other precious metals. As a result, the retailers overrate their value by adding from a 20% up to 400% markup in their price.

Remarkably, most financial advisors find gold jewelry as a non money-making investment. Except for some distinct examples, in a resale decision, most of those fancy assets are unlikely to pay you back the money you expect.

Factors to Consider When Buying Physical Gold

Once you decided to invest in physical gold you should first monitor the changes of its current price called the spot price. The alterations are directly connected with the average bid price. The best strategy in gold trading is to buy when the price is 5% to 8% higher than the spot price and to sell when it is exactly on the spot price.

Moreover, other factors that should be taken into consideration before investing in physical gold are:

• Inflation: Before buying gold you should monitor the ups and downs of the stock market. When it is decreasing the value of gold goes up and vice versa.
• Supply/Demand: In periods when the demand is rising, the prices follow. However, when the demand is lower than the supply. the price of gold falls.
• Country of Origin: It’s crucial to always examine what’s the origin of gold and how legitimate it is. Moreover, in some countries, high taxation influences the final price of your assets in a very negative way.
• Physical Gold is illiquid: Opposite to gold funds and bonds, physical gold is difficult to resell. By trading your gold through a middleman, you are more likely to sell it lower than the spot price. Moreover, the fees that they add for the work that they do is an extra expense you have to meet.

How to Buy Gold-Backed Securities

The process of buying physical gold comes with great responsibilities as well as extra expenses. Many financial advisors, consult their clients to invest indirectly in gold through gold-backed securities. This is a safer and easier way for those who want to expose themselves to gold assets. If you are interested in that type of investment It’s necessary to first make sure you have a brokerage account. Then you can select any of the following choices.

Gold ETFs

A gold exchange-traded fund is a type of commodity which includes the benefits of physical gold while excluding its challenges. Gold ETFs offer higher liquidity than physical gold. They can be traded from anywhere that has access to the network and anytime the market is open. In contrast to other assets, they are also more cost-effective. It’s possible to trade them through a brokerage firm.

ETFs are directly connected with the changes in the price of gold. However, when a sudden decrease occurs, investors can avoid the risks of a high loss by selling their funds. You should keep in mind that most of the funds involve additional management fees which are lower than the ones coming with a physical commodity.

These are the most popular ETFs with the first three ones to be considered the largest:

• SPDR Gold Shares ETF (GLD)
• iShares Gold Trust ETF (IAU)
• Aberdeen Standard Physical Gold Shares ETF (SGOL)
• SPDR Gold MiniShares Trust (GLDM)
• GraniteShares Gold Trust (BAR)
• VanEck Merk Gold (OUNZ)

Gold Mutual Funds

Gold Mutual Funds is a similar investment to ETFs. They imply that investors own shares in different gold-related assets without owning physical gold or any type of stock. Gold Mutual Funds are most preferable for beginners and people with a standard budget. They are managed by a middleman who plays the role of the investment manager and runs all the transactions. His main goal is to achieve a maximum rate of return in your profits.

Gold mutual funds may seem an efficient way to diversify your portfolio, however, they are not as easy to be traded. Moreover, you should be aware that an additional management fee is added. Last but not least, there is always the danger that your investment manager will not achieve the desired goals.

Some of the most popular gold mutual funds are the following:

• Sprott Gold Equity Fund (SGDIX)
• Franklin Gold and Precious Metals Fund (FKRCX)
• Gabelli Gold Fund Class AAA (GOLDX)
• Invesco Gold and Special Minerals FD (OPGSX)
• US Global Investors and Prec Mtls Fd (USERX)
• First Eagle Gold Fund (SGGDX)
• Van Eck International Investors Gold Fund (INIVX)
• USAA Precious Metals and Minerals Fund (USAGX)
• Fidelity® Select Gold Portfolio (FGDAX)

Gold Futures

This type of investment is an alternative way to purchase gold indirectly and has the form of a pre-agreed contract. It is one of the riskiest forms of investment. Through gold futures, both the buyer and the seller agree to trade a specific amount of gold on a specific future date. The key factor of this contract is that as the price of gold moves up and down the contract adapts. However when the end date comes and you are in a losing position you can not hold and wait for the situation to change for your benefit.

Gold futures involve a high level of risk and are not recommended by financial investors. Keep always in my mind that due to sudden changes in the contract value, the loss you may face can surpass your initial investment.

Gold Mining Stocks

People who choose to invest in gold mining stocks may take a high risk but also can potentially have higher profits. That type of investment works through owning shares of gold-mining companies. When a company decides to expand its business the investor may profit from the increase of the production.

However, some of the gold mining businesses may not have the production they expect, and as a result, the investors will face great losses. That’s why you should constantly monitor the company’s mining portfolio, production costs, and expanding opportunities. This way you can decide which gold mining company has higher potential.

Top Gold Mining Companies are :

• Barrick Gold (GOLD)
• Newmont Mining Corporation (NMC).

What Factors Can Affect the Price of Gold Investmen

The 5 crucial factors affecting the price of gold investments include:

1. Interest Rate. The interest rate has a reverse correlation to the gold price. That means when the rate faces a drop, the gold price is rising and vice versa.
2. Inflation. Since gold price reacts in a reverse way to inflation most investors use it as an efficient way to protect themselves against inflation.
3. Demand/Supply. Those two key factors are the main reasons that form the gold’s price. When the demand rises the price goes with it. On the other hand when there is a low demand the value of gold falls.
4. Currency fluctuations. Gold responds to the price movements of different currencies, especially to the USD. It also has the same correlation with the stock market. So when the dollar goes down the gold goes up and in the opposite direction.
5. Geopolitical factors. Political or economical instability have a direct impact on the price of gold.