So you have decided to purchase physical gold because you are concerned about inflation, uncertain economy, and because it is shiny. You see all of those TV ads telling you to call the number at the bottom of the screen and talk to a registered representative. It seems so easy and simple. Before you do, please take the time to consider a few facts.
There are three different types of gold ownership: bullion gold, investment grade gold, and rare gold coins.
Bullion gold is relatively straight forward: plain gold coins or bars from a mint. These are your typical American Gold Eagles, Canadian Maple Leafs, etc. You expect to pay approximately $30-$75 dollars over spot for this kind of gold. This is the preferred type of gold investment because you are not paying too much over spot to obtain the gold.
Investment grade coins are those deemed to be held for investment purposes and usually include $20 St. Gauden's and others. These kinds of gold investments will cost you alot more than the spot price of gold. Depending on the coin it could range from $300-$1500. The dealer will tell you that these are great investments and are worth paying a premium for. I object!!! For the majority of gold investors these are ripoffs. Why? Because the premium you pay can change when you try to sell the coin back to the dealer. Say you buy a 1 oz investment grade gold coin which cost $1900. Gold is currently trading around $1,100 so you are paying an $800 premium. The problem arises when you try to sell it because the premium could have changed. It could have fallen to only $500 so you would lose on your investment even if the price of gold stayed flat. One last reason to avoid these types of investments is that if you ever need to liquidate your holdings quickly you most likely only get the gold value of the coin. There is no reason to pay a high premium for investment grade coins.
Rare and collectible coins. Avoid these at all costs unless you are an expert. These coins can be limited edition coins or ancient coins with Roman Emperors on them. Regardless they are considered rare and as such have very high premiums over spot. I have seen some of these sell for $10,000 or more. Many gold dealers will try to sell you these saying that they will go up more than gold. That may be true but it is equally true that it may fall 70% in value. Another problem with these rare coins is liquidity. If you have a one of a kind coin there are very few people you will be able to sell it to. If you go to a regular gold dealer he will most likely offer you a fraction of what you paid for it. Most dealers will only consider the amount of gold in the coin.
Final Thoughts
When considering physical gold verify the reputation of the dealer you do business with. There are many criminal gold dealers who will charge you egregious prices for even simple bullion gold. I have seen some dealers charge over $200 above spot gold for a single American Eagle. Never fall for these tricks!!! They will tell you that supply is short and they have to charge this. Don't believe them they are scamming you. And more importantly do not let them fool you into buying investment grade gold or rare coins.
Black Swan Insights
Great tips on purchasing gold.
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