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September 9, 2015

Buying Gold: A Beginner's Guide

Gold is undoubtedly the best known among all of the precious metals. Valued for its beauty and rarity, it has been the stuff of legend since the ancient times, gracing the myths of various civilizations, from Arabia’s One Thousand and One Nights to the Americas’ El Dorado 

In the past, gold and other metals like silver and copper played an important role as the primary mediums of exchange in major economies. For a long time, these metals were used as currencies, and the invention of gold coinage also became instrumental in the formation of banking systems.   

Nowadays, gold is mainly acquired by people as a way to diversify their wealth portfolio and as a hedge against inflation, owing to the fact that gold tends to hold value even when the prices of goods and services rise. The same can’t be said about most currencies, which tend to lose their value when economies are plagued by turmoil and uncertainties.   

The rationale behind buying this precious metal is there, but a lot of people don’t really have an idea about how to get started with buying gold or where to buy it in the first place. This short guide aims to give you a basic background on how to get started with making your first proper gold purchase.   

“Virtual” gold   

For starters, it should be noted that there are “virtual” gold products out there, including the various gold exchange-traded products (e.g. exchange-traded funds, closed-end funds, and exchange-traded notes), which are basically securities that track the price of gold and are traded in major stock exchanges. Products like these, however, can potentially come with a number of fees, as well as possible market risks that are not related to the fluctuation of gold prices.   

Additionally, people can also buy gold as shares in mining companies that produce gold. In an idealized scenario, the value of these shares should rise when the price of gold increases and the profits of the gold-producing companies grow along with it. However, this is not always the case as mines often encounter problems that can likewise affect share prices. These can include natural and man-made disasters as well as the financial difficulties that can arise from operating such huge enterprises.   

Buying physical gold  

As opposed to buying gold that can’t be physically held by the purchaser, you can also opt to buy gold in its physical form. This potentially allows you to avoid many of the complications involved in buying non-physical gold products.  

If you’re buying gold for the purpose of making it an alternative storehouse of your wealth or as a hedge against economic problems like inflation, bullion coins are an excellent way to go.    

Buying gold bullion coins is the easiest way to own gold. This is because bullion coins are minted in standard weight (usually as multiples or fractions of 1 troy ounce) and in with standard gold content or purity (above 900 parts per thousand), depending on their source mint.   

Numismatic gold coins are another option for physical gold purchase. Unlike bullion the value of numismatic gold coins is not dependent on the items’ gold content alone. Other things like their rarity, condition, historical significance, and provenance can all affect their value.   

Bullion and numismatic coins are small enough that, unlike many gold bars, they can be considered affordable by many buyers. The smaller-sized bullion coins also tend to be more liquid or easier to sell than bullion bars. Thus, unless you’re a buyer who is interested in purchasing larger amounts of gold at the lowest prices possible (bars usually have smaller premiums compared to coins), then bullion coins might be the best option for you.   

Managing the risks  

As with any other types of purchases, buying gold bullion coins also carries some risks. That’s why it is important that you buy them only from experienced dealers that are known for their good credentials and solid industry experience. Ideally, they should also have accreditations from reputable organizations like the Better Business Bureau (BBB), the Business Consumer Alliance, the Numismatic Guaranty Corp (NGC), the Professional Coin Grading Service (PCGS), and the Industry Council for Tangible Assets (ICTA).  

Your chosen dealer should make you fully aware of the risks associated with the gold bullion products you are buying. It is also advisable that you deal with a company with a generous buy-back program, which will allow you to easily sell your gold back to the dealer should you decide to let go of it in the future.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

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