How to ensure you get the quality and quantity you want at a fair price
Gold has been valued for both its monetary value and its beauty for centuries. The yellow metal is also prized for its rarity: all the gold in the world would form a cube about 90 feet high, according to the U.S. Geological Service.
Gold has been valued for both its monetary value and its beauty for centuries. The yellow metal is also prized for its rarity: all the gold in the world would form a cube about 90 feet high, according to the U.S. Geological Service.
And, as inflation hit 40-year highs, gold is also being touted as a hedge to stay ahead of rising prices. It has increased by 16.2% in value since the end of March 2021, compared to the headline inflation rate of 8.5% for the same period. It's no wonder gold, which was selling for $1.89 an ounce on April 28, has become a hot commodity. The U.S. Mint sold 140,000 one-ounce American Eagle gold coins in March, up from 55,000 in March 2021.
But investing in physical gold poses two big problems: how to buy it and where to store it. When buying gold, you must ensure that it is gold, not painted lead and that it is of correct purity, measured in karats (24 karat gold is pure; 18 karat gold is 75% gold). For this reason alone, the gold market is plagued with fraud. Mark Twain would have said that a gold mine was a hole in the ground with a liar standing next to it.
Once you have your gold, you need to find where to store it. If you keep it at home, a thief could walk away with your investment. If you put it in a bank vault, you will need to purchase additional insurance, as these vaults are not covered by Federal Deposit Insurance. And if someone else stores it, you'll have to pay them for the service and make sure they're a legit company and not some guy with a very lucrative purchase order. box.
When you buy gold, you must therefore be sure that you are getting gold, and you may also need to hire someone to protect it. Plus, throughout the transaction, there are plenty of ways to spend more than you should – or get caught entirely. Here are some of the worst mistakes people make when buying gold and tips on how to avoid making them.
1. Buying too much
Scammers prey on investors' fear of financial ruin and their hope that a single investment can save them. Gold, with its reputation as a hedge against inflation, is just the ticket to stoke fear among investors and believe in the promise of outsized gains. The combo is a big hit for sleazy gold traders but can spell disaster for you. Joe Rotunda, director of the law enforcement division at the Texas State Securities Board, said that when gold fraud occurs, fear and greed often force investors to invest a large percentage of their savings. in gold. “These are not individuals with a lot of assets – they are looking to preserve what they have and live a comfortable retirement,” he says. Instead of listening to your emotions, try to figure out if gold would fit into your overall financial picture. According to financial planners, 5-10% of your portfolio might be about right, but probably not more.
2. Overpay
One of the best ways to take advantage of novice investors is to charge a large difference between the wholesale or spot price of gold – the price dealers pay – and the retail price. You can find the spot price online on many financial websites: Yahoo Finance and Kitco.com are two good places. On average, you should expect to pay between 2-5% on the spot, according to precious metals dealer Kitco. Find another dealer if you are asked to pay more than that, and don't be lured by special private coin offers.
3. Stock up on rare coins
Unless you like rare coins for their beauty and know the market inside out, stick with genuine government-issued bullion coins. Rare coins can be difficult to value and difficult to sell. Additionally, they can sometimes cost much more than their so-called smelting value, which is their value based on weight and purity if the coins were to be melted down. If you buy well-known government-issued gold coins, such as American eagles, you'll know exactly what you're getting and can easily sell them through coin dealers. Although the United States Mint does not sell American Eagles directly to the public, you can find a list of dealers on the Mint's website.
4. Hire the wrong storage company
From a fraudster's perspective, the ideal scam is to ask someone to send you money for gold that you don't have and will never have to deliver. Many reputable companies will store your gold properly and safely, but if you decide to have someone store the gold, investigate the organization carefully. Look for a company with a long operating history, Rotunda says, and check its record with the Better Business Bureau. You can also call your state securities commissioner, who can tell you if the company has had any regulatory issues.
5. Insist on Physical Gold
Several exchange-traded funds, or ETFs, invest exclusively in the yellow metal and their share price is indexed to the price of gold. Many gold ETFs are backed by physical gold held in vaults, but some rely instead on futures contracts to track the price of gold. Read the prospectus to understand how the gold ETF you plan to invest in works. ETFs are convenient because you can buy and sell stocks at any time during the trading day, and you don't have to figure out where to store your gold. You will pay ongoing fees for the services of the ETF and you may have to pay a brokerage commission to buy it, but remember that you will also pay commissions to buy physical gold and fees to store it. Be aware that some gold funds invest in shares of gold mines and not in the metal itself. Again, always read the prospectus before investing. Mining stock prices can be much more volatile than the price of gold itself.
John Wagoner covers all financial matters for AARP, from budgeting and taxes to retirement planning and social security. Previously, he was a reporter for Kiplinger's Personal Finance and USA Today and wrote books on investing and the 2008 financial crisis. Wagoner's USA Today investment column has appeared in dozens of newspapers for 25 years.