For centuries, gold has been prized for both, its monetary value and its beauty. The yellow metal is also prized for its scarcity: all the gold in the world would form a cube of roughly 90 feet tall, according to the US Geological Survey.
And, as inflation has spiked to its highest level in 40 years, gold has also been heralded as a hedge against rising prices. Its value has increased by 16.2% since the end of March 2021, compared to the 8.5% general rate of inflation during the same period. No wonder gold, which was selling for $1,891 an ounce on April 28, has become scarce. The US Mint sold 140,000 gold Eagle coins in tenth-ounce denominations in March, compared to 55,000 in March 2021. But investing in physical gold has two big problems: how to buy it and where to store it.
Here’s some very important advice that you should always take into account, and that’s for whenever you want to sell your gold or buy gold, make sure it really is gold, not painted lead, and of the correct purity, based on karat measurement (24 karat is pure gold; 18 karat is 75% gold). For that reason, the gold market has been plagued by fraud. Mark Twain supposedly said that a gold mine is a hole in the ground with a liar next to it.
Once you have the gold, you have to determine where to store it. If you keep it at home, a thief could take your investment. If you put it in a safe deposit box at the bank, you’ll have to buy additional insurance, because federal deposit insurance doesn’t cover those boxes. And if someone is going to hold it for you, you’ll need to pay them for the service and make sure it’s a legitimate business, not some guy with a lucrative post office box.
When you buy gold, you have to make sure that what you get is actually gold, and you may also have to hire someone to protect it. Plus, there are plenty of ways to spend more than you should on the entire transaction or get scammed outright. Here are some of the worst mistakes people make when buying gold and tips on how to avoid making them.
Fraudsters prey on investors’ fear of being ruined and their hope that an investment can save them. Gold, due to its reputation as an inflation hedge, is just what is needed to stoke investor fear and belief in the promise of huge profits. The combination is a big hit for fraudulent gold dealers, but it can be disastrous for you. Joe Rotunda, director of the Texas Securities Board’s enforcement division, says that in fraud cases associated with gold sales, fear and greed often lead investors to put a large percentage of their gold savings. “These are not people who have a lot of assets; looking to preserve what they have and live a comfortable retirement”, He says. Instead of listening to your emotions, try to determine if gold would fit into your overall financial picture. 5-10% of your portfolio could be pretty much perfect, according to financial planners, but probably no more than that.
One of the main ways to take advantage of new investors is to charge them a large difference between the wholesale price (spot; that is, what dealers pay) and the retail price of gold. You can find the wholesale price online on many financial websites: Yahoo Finance and Kitco.com are two recommended sites. On average, you should expect to pay 2-5% above wholesale price, according to precious metals trader Kitco. Find another merchant if he asks you to pay more than that, and don’t be fooled by “special offers” from private mints.
Unless you love rare coins for their beauty and are extremely familiar with the market, buy authentic government issued gold coins. Rare coins can be difficult to value and difficult to sell. Also, they can sometimes cost much more than their supposed meltdown value, which is their value based on weight and purity if the coins were melted down. If you buy popular government-issued gold coins like American Eagles, you’ll know exactly what you’re buying and can easily sell them through coin dealers. Although the US Mint does not sell Eagles directly to the public, you can find a list of dealers on the Mint’s website.
From a scammer’s point of view, the ideal gold scam is for someone to send you money for gold that you don’t have and will never have to turn over. Many reputable companies will store your gold safely and properly, but if you decide to have someone store it for you, do a thorough investigation of the organization. Look for a company with a long history of operations, Rotunda says, and check its history with the Better Business Bureau. You can also call your state securities commissioner, who can tell you if the company has had any regulatory problems.
Several exchange-traded funds (ETFs) invest exclusively in yellow metal, and their share prices are linked to the price of gold. Lots of gold ETFs are backed by physical gold stored in vaults, but some rely more on futures contracts to track the price of gold. Read the prospectus to understand how the gold ETF you plan to invest in operates. ETFs are convenient because you can buy and sell stocks at any time during the trading day, and you don’t have to worry about where to store your gold. You will pay a recurring fee for the services of the ETF, and you may have to pay a brokerage fee to purchase it, but remember that you would also pay fees to purchase the physical gold and fees to hold it. Keep in mind that some gold funds invest in gold mining stocks and not the metal itself. Again, always read the prospectus before investing.
