Learning how to buy gold is a worthwhile endeavor, as the precious metal is a Swiss army knife, from a financial point of view.
At any given time, gold can be a "safe haven" investment, a hedge against inflation, a diversification play, and a hedge against a collapse of a country's economy, like Venezuela is experiencing right now.
How can gold add luster to an investment portfolio? It has specific, useful qualities that offer value in sketchy economic times, and that are highly liquid and potentially profitable in robust economic times.
- Gold is extremely rare. According to commodities industry data, gold comprises five parts per billion of the entire earth's crust. As a result, gold is hard to find and hard to extract.
- It's difficult to diminish. Gold doesn't lose its quality and structurally, will never decay.
- It's finite. The earth's entire gold deposits can easily fit within the confines of Yankee Stadium, and only stack up a few feet across the entire field.
- It has many uses and shapes. Gold comes in myriad shapes and sizes, and be turned into several finished products, including rings, bracelets, coins, and other valuable items with high consumer demands.
- It's hard to find. Excavating and developing gold is risky, difficult and expensive. Thus, it's hard to locate and dig up - and thus usually has a strong record of demand, as supply is regularly short.
For instance, one gold buyer may get in the game for profit. When gold prices are low, investors buy in for the value proposition, know that when gold prices are in decline, they usually always rise again - and then some.
Another buyer, however, may purchase gold for insurance reasons.
If you're worried about global and regional economic conditions, a healthy position in gold gives that buyer leverage. Gold, after all, always has value to someone, and when times are tough, you can sell it for a good price to keep food on the table, even during an economic calamity (gold was in high demand in late 2008 and early 2009, when the U.S. banking system was close to collapse.)
How to Buy Gold Directly
The first step in buying gold is to know when is the right time to strike.
Your best move in that stage is to be patient and keep a close eye on the markets. Like stocks and funds, the value comes from buying low and selling high. In general, prices are lower when the stock market is higher, and the economic indicators are pointing north.
That's because gold is in lower demand when the economy is strong and the stock market is firing on all cylinders. Gold is a "go to" commodity when things start going awry, economically, so it's important to buy gold when the stock market starts going south - not three months into a market decline.
You'll also need to know how gold is priced before you can buy it directly.
Gold is a highly volatile commodity, with prices bouncing up and down on a regular basis. To get a good sense of where you're buying, price-wise, check the "spot price" of gold, which reflects the average bid price on gold, as cited on global gold exchanges.
The spot price of gold can move substantially as global events occur, like recessions, natural catastrophes, military conflicts, central bank moves, and economic forecasts, bad or good. You'll pay a premium when you purchase gold (about 7% over the spot price) but you'll sell gold at the exact spot price.
The premium is baked into the cake by gold exchanges and by dealers who sell gold - there's really no way to avoid paying one when you buy gold directly.
Tips for Buying Gold
If you're buying gold directly, make sure to do your homework first so you can cut the best deal with a dealer. Use these tips to get the job done:
1. Shop Around for a Good Price
You can pay the best price for gold by casting a wide net. Dealer web sites are a great place to start, as are gold exchanges, which can easily be found online.
2. Check Their Policies
Gold dealers are usually trustworthy sources to buy and sell gold, but as always, buyer beware. Be especially careful if you buy gold and decide to sell it back to the same dealer. Some gold dealers will charge a premium for a gold buyback and some won't. Ask before you try to sell your gold back to the same dealer - a payment premium should be a deal breaker, as you can always sell your gold coins to another buyer, and avoid the premium.
3. Check With the Mint
The U.S. Mint is a great resource to check the credibility of gold dealers you're considering. Check the U.S. Mint gold dealer web page.
4. Warning Signs
Places to avoid buying gold include pawn shops, online dealers touting huge discounts, television hucksters who promise the "lowest prices," and any dealer that charges a price for storing your gold. It's better to store your gold yourself, either in a home safe or in a bank deposit box.
How to Buy Gold as an Investment
While you can buy gold coins, bricks or bullion from dealers and exchanges, there are risks in getting scammed from disreputable sellers and there are costs associated with the safe storage of your gold.
Plus, there's that pesky premium you have to pay above the spot price of gold.
If those are issues of concern for you, change your focus on investing in gold, instead of buying it directly. You can easily invest in gold using the following strategies:
1. Gold Stocks
You can buy shares of stocks from companies that mine stocks that actively engage in the production and development of gold deposits. You avoid the premium you'd pay if you purchased gold directly and you don't have to pay to store any physical gold. Plus, the value of your shares could easily rise over time.
2. Gold Mutual Funds and Exchange-Traded Funds
Buying shares of gold in funds, especially exchange-traded funds (ETFs) and exchange-traded notes (ETNs), is a safe and productive way of getting involved with gold. Fees are low and there's plenty of liquidity with gold funds, so you can easily sell your shares whenever you want.
Funds that favor gold include multiple gold company holdings, along with other commodity companies that mine silver or copper. Popular gold funds include SPDR Gold Shares (GLD - Get Report) and GraniteShares Gold Trust (BAR - Get Report) .
3. Gold Futures
While buying and selling gold futures on exchanges like the Chicago Mercantile Exchange is a sophisticated and higher-risk endeavor, investors can buy gold futures contracts, or invest with companies that trade gold commodities. Just know that buying gold via commodity futures requires a professional skill set that most new buyers don't possess.
That said, buying gold futures is possible, but it's not recommended for gold investors who are just starting out
Six Reasons to Buy Gold
Gold is the Swiss army knife of commodities, with abundant reasons to buy it. You can buy gold . . .
- As a useful hedge against inflation
- As a hedge against a falling currency, like the dollar
- As an insurance policy against geopolitical and financial market instability
- As a commodity investment, based on gold's supply and demand fundamentals
- As a store of value
- As a way to diversify your investment portfolio
All of the above items are good reasons to buy gold. Primarily, you're buying gold as an insurance policy against a declining economy - it can protect you in unstable and volatile economies, and it can grow in value while you own it, making your gold investment even more valuable.
Getting Into the Gold Game
There is no shortage of ways to buy gold or invest in gold.
Like any investment, the outcome is largely defined by the preparation you bring to the deal, and the diligence needed to track your gold investment in an often-volatile commodities market.
If you know what you're doing, becoming a gold bug can be a profitable endeavor, as well as a great insurance policy against choppy economic conditions.
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