OK, so you’re sold that buying gold would be a smart move for you, especially in today’s economy. But, where exactly to begin? Should you buy gold coins? Or perhaps gold futures or gold stocks? What about gold bars? Is that really feasible? The answer to all of those questions is “Yes!”.
Experts agree that owning gold, in any of its forms, be it coins, bars, stocks, options, or futures can provide the foundation for the accumulation of real wealth. And there is no better time to begin that accumulation than the present.
Let’s begin the discussion with gold coins. Are they all the same? No. There are basically two types: bullion coins and numismatic coins. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand. In other words, you are paying mostly for the gold content of the coin. The best example of this kind of coin is the Krugerrand. In fact, it is the most widely-held bullion coin in the world. Other examples are the Canadian Gold Maple Leaf, the Australian Gold Nugget, the British Sovereign, the American Gold Eagle and the American Buffalo.
Numismatic gold coins, on the other hand, are priced mainly by supply and demand based on rarity and condition. They frequently only contain about 90% gold. Consequently, if your aim is to accumulate the metal, stick with the bullion coins mentioned above. Their prices will rise and fall more directly in line with the price of gold.
Buying gold bars is the most traditional way of buying gold, if not the most convenient. The bars vary in weight from 400 Troy ounces all the way down to 10 grams. Owning gold bars is cool and they do carry less of a premium than gold coins (cost less), but they do come with a bit of risk attached – forgery. Some unscrupulous dealers insert a tungsten-filled cavity into the bar that may not be detected during the assay.
The best way to avoid this risk is to buy and sell your gold bars through the London bullion market and store your gold in a LBMA-recognized vault. In doing this the “chain of custody” so-to-speak remains intact and your purchase is assured. However, if the gold is stored in a private vault outside of this system then it must be re-assayed upon introduction back into the system.
Gold Exchange-Traded Products
Gold exchange-traded products represent a more convenient way to buy gold due to eliminating the inconvenience of having to store the physical bars. But, as it turns out, there are risks with this too. The risk comes from the fact that a small commission is charged for trading in gold ETPs and a small annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time. So just like with 7-11, you pay for the convenience.
Gold Stocks, Options, and Futures
One may, of course, buy the stock of a gold mining company. This is a very risky way to go as what you are doing is betting on the viability of the company to find and mine gold. Mines are businesses and are subject to problems such as flooding, subsidence and structural failure, as well as mismanagement, theft and corruption. Such factors can lower the share prices of mining companies. The rewards can be great if you win, but it is far from a sure thing.
Gold futures on the other hand are a pure gold price play. A futures contract gives you the right to receive a set quantity of gold at a date in the future for a specific price (usually set well before delivery). Thus, you are placing a bet on the future price of gold. Most futures contracts never actually result in delivery of the gold. One simply sells an equal number of contracts (hopefully at a higher price) and thus neutralizes one’s position. Your profit is the difference between what you collected on the sale vs what you had to put up for the buy (should you be bearish on the price of gold you can of course sell first and buy back later to close your position at hopefully a lower price). Because of the quantities of gold that are in play (plus the fact that you only have to put up a mere fraction of their overall value) substantial profits can be had. However, sadly, substantial losses can be had as well.
Gold options give you the right to buy (or sell) one or more gold futures contracts at some time in the future at a set price. Just as with futures, one simply neutralizes one’s position prior to expiration so as not to wake up with a truckload of gold dumped on your lawn in the middle of the night with an astronomical bill pinned to your front door.
Rosemary has been actively trading in the gold markets for the past 9 years. To learn more about buying gold in today’s markets visit Rosemary’s site which is completely devoted to this topic: Buy Gold [http://buygoldbuygold.net].
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