How to buy gold? A detailed approach for buyers

If you're interested in buying gold, you don't need to turn your closet into a miniature vault. In reality, all you might require is an investment account for storage. The cost of physical gold fluctuates based on various factors, including supply and demand, inflation, and the volatility of the U.S. dollar.

How to purchase gold

When it comes to acquiring physical gold, your primary options are to purchase it in the form of gold bars, coins, or jewelry. Each of these forms has its own appeal and potential value.

However, storing and insuring physical gold can pose challenges for some investors. As a result, many opt for alternative methods to gain exposure to gold without the hassle of physical storage. These indirect approaches include gold futures contracts, which allow you to speculate on the future price of gold; exchange-traded funds (ETFs) that track the price of gold; and stocks in companies that are linked to gold production or mining. These options can provide a more convenient and less cumbersome way to invest in gold while still benefiting from its price movements.

Where to buy gold

You can purchase physical gold from various sources, including both in-person and online gold dealers. However, it’s crucial to choose a reputable dealer to ensure you’re getting a fair price and authentic products.

In addition to dealers, pawnshops and private individuals can also be options for buying gold. It’s important to verify the trustworthiness of these sources and confirm that the gold's purity justifies the price you’re paying.

Another avenue is purchasing gold in the form of jewelry from a jeweler. When considering this option, it's wise to conduct thorough research on the jeweler to ensure their credibility and the quality of their pieces. 

Regardless of where you decide to buy gold, always take the time to perform due diligence. Checking reviews, seeking recommendations, and verifying certifications can help safeguard your investment and ensure you receive quality gold at a reasonable price.

How to purchase physical gold

Gold coins

Gold coins, such as the American Gold Eagle or Canadian Maple Leaf, are popular among collectors. As a result, you might pay a premium compared to the same amount of gold in bullion form.

Typically, coins contain less gold than bars. For example, a one-ounce American Eagle coin is composed of only 91.67% gold. The coin weighs 1.1 ounces, with approximately one ounce being pure gold; the remaining weight consists of silver and copper.

You can buy gold coins from dealers, pawnshops, or trusted individual sellers. If purchasing online, ensure you select a dealer listed in the U.S. Mint’s database to avoid forgeries or lower purity than advertised.

Gold bars

Gold bars, often referred to as bullion, are a favored option for those looking to invest in gold. Bullion is typically sold by weight—either in grams or ounces—and essential details such as purity, manufacturer, and weight are stamped on the bar.

Purity is a critical factor when purchasing gold. For investment-grade gold bars, the purity must be at least 99.5%. This is particularly important if you plan to store these bars in a gold IRA, as only pre-approved gold coins or purer gold can be included in such accounts.

You can acquire gold bars from various sources, including dealers, private individuals, or online retailers such as JMBullion, the American Precious Metals Exchange (APMEX), or SD Bullion. Be aware that you may incur delivery and insurance fees to ensure the safe transport of your bullion.

Jewelry

Jewelry, especially vintage or antique pieces, offers another avenue for acquiring gold. However, similar to gold coins, you may end up paying a significant premium—ranging from 20% to 300%—for the craftsmanship in addition to the gold content.

It’s also important to remember that not everything that sparkles is gold. Jewelers often use alloys to enhance durability or alter color. Understanding how gold quality (measured in karats) relates to purity can help you make informed decisions.

When purchasing gold jewelry, it’s essential to exercise caution, just as you would with coins. Ensure that the seller is reputable. A good starting point is to look for jewelers who are members of the Jewelers of America, as they adhere to a code of professional conduct that emphasizes honesty and transparency regarding their products.

Additionally, obtaining thorough documentation is crucial. Having records that verify the quality and authenticity of your gold will help you when it comes time to resell it.

Alternative ways to invest in gold

If the complexities of buying physical gold seem overwhelming, there are simpler options to add a touch of gold to your investment portfolio. Consider investing in stocks, mutual funds, and ETFs that are linked to the gold industry.

Gold mutual funds and ETFs

If you prefer not to invest in a single company, you can opt for gold mutual funds or ETFs that encompass a range of gold-related securities. These funds may track the price of gold or include shares from multiple gold mining and refining companies, as well as offer exposure to gold futures and options.

Some leading gold mutual funds and ETFs are:

• iShares Gold Trust (IAU)
• Invesco DB Gold Fund (DGL)
• Franklin Gold and Precious Metals Fund (FKRCX)

Gold mining stocks

Instead of investing in physical gold, you can purchase shares in companies that mine and refine it. Notable gold mining companies include Barrick Gold (GOLD) and Newmont Mining Corporation (NMC). While the prices of these stocks may not perfectly mirror the price of physical gold, they tend to be correlated, offering you exposure to gold investments without the complications of handling the physical metal.

Futures and options

For those willing to take on more risk, gold futures and options can be appealing. However, if you’re unfamiliar with these terms, it might be best to steer clear of these highly speculative investments for now.

Gold futures involve a commitment to buy or sell gold at a specified price at a future date. With options, you have the right (but not the obligation) to buy or sell gold if it reaches a certain price by a designated date.

Investing in futures or options requires a brokerage account and a substantial amount of industry knowledge. You’ll need to closely monitor your investments and gold prices to seize opportunities, and be aware that this approach can amplify any losses due to the leverage often involved in futures and options trading.

Key considerations when purchasing physical gold

If you choose to invest in physical gold, there are several important factors to keep in mind:

• Storage: Physical gold necessitates a secure storage solution. While it’s possible to keep your gold at home, many investors opt for a custodian. Before making a purchase, research secure storage options, as the cost of safe storage will add to your overall investment expenses.
• Purity: The gold content in the coin, bar, or jewelry significantly influences its value as an investment. Ensure that any gold you purchase meets a high purity standard, ideally at least 91% to 99% pure, to ensure it retains its worth over time.
• Manufacturer: Since this is an investment, it’s crucial to buy from reputable sources that will help maintain or increase the value of your purchase over time. Look for respected producers like Credit Suisse, the Perth Mint, and the Royal Canadian Mint when buying gold.
• Insurance: If you decide to store your gold at home, it’s wise to insure it against theft or natural disasters. This could increase your homeowners or renters insurance costs. Even if you store your gold elsewhere, verify the insurance policy of your storage provider to understand how they protect your investment.

Is gold a smart investment?

If you’re hoping to get rich in a modern-day gold rush, you might want to reconsider your expectations. Over the past five years, gold prices have risen about 38%, whereas the S&P 500 has seen an increase of 60% during the same timeframe. So, why is there so much buzz around gold?

Many people see gold as a safe haven against inflation and significant market downturns. For example, during the bear market of 2007-2008, the overall stock market dropped by 33%, while gold only decreased by 2%.

However, it’s important to note that gold prices can be quite volatile, and it is not regarded as a consistently safe investment. In fact, you can create a well-diversified investment portfolio without including gold at all. If you do decide to incorporate gold into your portfolio, it’s advisable to limit it to a small percentage of your overall investments.