When you’re new to investing in gold, your options can seem a little overwhelming. The very decision to diversify your investments to include a commodity like gold shows that you’re thoughtful about where your money goes. You want to be similarly thoughtful and knowledgeable when it comes to how you make your gold investment as well.
For anyone new to investing in gold, these five essential facts cover a lot of the basics you need to know starting out.
1. Gold certificates and stocks aren’t the same as having gold in hand.
The first thing to know about commodity investments is that there are a number of different ways to invest in gold. Each option presents different pros and cons, but they’re distinctly different and you want to make sure the investment option you choose is the one that best matches your goals.
Most people choose to invest in gold as a way to hedge any bets they have in the stock market, or to avoid the uncertainties of the stock market altogether. If you invest in the stock of a gold mining company, then your investments are still in the stock market, albeit in stocks that give you a stake in the value of gold.
Gold ETFs and certificates offer a somewhat more direct route to ownership, as the value of your investment will be tied to the spot price of gold, like it is when you own physical gold. It still requires putting your trust in a third party who says the gold you’ve invested in exists and belongs to you alone, while you never get to see or touch it to really know for sure. Untrustworthy companies could feasibly sell the same gold two and three times over or sell more shares in gold than they actually have the physical gold to back.
In an economic crisis, having a piece of paper or digital account that says you own gold quite simply won’t mean as much as having a safe full of physical gold. That said, if the convenience of not having to store your gold investment is worth more to you than the risks of second-party ownership, then gold stocks, ETFs, or certificates may make more sense for you than buying bullion or numismatic coins.
2. Buying certified gold coins isn’t the same as buying gold bullion.
If you decide that physical gold is definitely the route for you, then your next big decision is whether to go with gold bullion or certified gold coins.
When you hear gold sellers talk about the spot price of gold what they’re talking about is value per ounce of gold bullion at any given moment. Bullion bars and coins will usually be the way to get the most gold for the price in terms of weight and fineness. That makes them the most popular choice for most people who buy gold purely for investment purposes.
Certified gold coins, often called numismatic coins, function more like collector’s items. In addition to the value of the gold they’re made of, they also gain value due to factors like how rare a particular coin is and how popular it is. To confirm their value and authenticity, certified gold coins are inspected by a respected third party so you can be fully confident that you know what you’re getting.
The main difference between gold bullion and certified gold coins for investment purposes is the value of a certified coin isn’t tied to the gold spot price. That makes them a good choice for investors that want an extra hedge against risk. In times when the value of gold bullion drops, an investment in certified coins can mean you still have a commodity that maintains or goes up in value.
In short, both certified coins and bullion are worth considering as investments, but which is right for you is based on your primary goals in investing in gold. Do be aware that the decision to invest in certified gold coins would usually benefit from spending some more time researching your individual options so you understand the popularity, rarity, and value of the particular coins you buy.
3. Gold bullion’s value is tied to three things: weight, fineness, and the spot price.
While numismatic gold coins require doing some research into the specific coins available to understand their worth, with bullion coins and bars there are really just three things you need to be aware of to know what your investment is worth:
- The weight of the gold
- Its fineness
- The current spot price
When you look up the spot price for gold (or any precious metal), what you’re seeing is the market value of a troy ounce of gold at that moment. If the gold you own is 24k, then you can figure out the value of your investment by multiplying the spot price by the number of ounces of gold you have.
If you have gold that’s less pure, say 22k, then your investment would be worth a little less. To be exact, it would be worth 91.6% of the number you’d get in the equation above.
You should know that no gold coin or bar you buy will ever be 100% pure. In order to craft gold into a durable bar or coin, another metal is mixed with gold. But the standards of gold purity used in determining trade value count gold that’s 99.9% pure to be 24k, which is the highest level of purity your average investor can expect to encounter.
Investors should plan on sticking with gold that’s at least 22k, anything less pure is good for making jewelry, but not worth it for investment purposes.
4. Physical Gold Must Be Stored Securely
Anyone that decides to invest in physical gold should have a plan for storing it before making a purchase. Owning physical gold provides the benefit of not having to trust that someone else is taking care of it for you, but the flip side of that is that the responsibility of making sure your gold is safe is entirely on your shoulders.
You don’t want to stack it up under your bed and hope for the best. If you keep your gold in your own home, you should invest in a good safe to store it in. If you don’t have the space or would rather not buy a safe, you can use a safety deposit box at a local bank you trust or a secure storage vault from a company that specializes in commodities storage.
If you’re making a big investment in physical gold, making an investment in a safe storage option is worth the little bit extra it costs.
5. Not All Gold Sellers Are Reputable
Unfortunately, some gold investors that don’t research the sellers they work with find themselves the victims of scams. You can protect yourself from that fate by taking a couple of steps to make sure any commodities company you buy gold from is legit:
Look them up on the Better Business Bureau.
If they’re both listed and have a strong rating on the BBB website, then you can trust that they have a decent reputation in the industry. Shady companies and sellers often don’t stick around long enough to even have a BBB listing, or quickly rack up complaints once they have one. This one step can rule out the majority of bad players in the gold market.
Check how long they’ve been in business.
The BBB website will also tell you how long they’ve been in business. If they’ve been at it for a while, that tells you they’re experienced and they’ve had enough repeat customers and referrals to keep their business profitable in the long term.
Check if they offer education along with products.
A company that values educating its customers rather than just selling to them clearly has less to hide – you don’t create scam victims with education. See how willing they are to provide general information on the industry, on best practices for selling and buying gold, and how helpful they are in answering your questions.
While this post provides enough information to help you make an informed choice on what type of gold to buy and how to buy it, our Free Investor’s Guide is packed with even more useful information for prospective investors. To get a more robust picture of how the gold market works and how to make the best investment decisions based on your particular goals, download the guide today.