How to invest in physical gold? | Beginner’s Guide

How to invest in physical gold? | Beginner’s Guide

Where, how and for how much can you buy gold? How to handle our investment? What should we know and what should we avoid? Is it worth investing in gold at all? I will try to answer to these and other questions in this guide.

Gold has been a store of value for thousands of years, but the idea of gold as an investment generates plenty of controversy. Warren Buffett has argued that gold is far inferior to stocks as an investment, but others note that the yellow metal has risen in value over time and has a safe-haven status to protect against loss of confidence in financial systems.

After the bess lasting over four years, precious metals are slowly returning to investors' favor. If the upward trend continues - I assume so - in a few years gold and silver may be the hottest “investment” for hungry investors. But then, dear reader, you will not buy, you will only sell.

Gold for investors

Gold is a part of our assets, as is the property in which we live, like the land inherited from our ancestors or family mementos including works of art. We do not buy gold with the intention of selling it. It does not mean that we will not sell it. But if so, then it is either in a state of "higher necessity" or in order to convert it into other material assets (house, land) or capital in its own (or in common) business. Gold is protection, insurance against inflation, currency debasement, and global uncertainty.

Phisical Gold Assets

First of all, we must answer in what form we want to buy gold. We can choose from gold bars and bullion coins, also called depositors. In both cases, the price is equal to the market value of gold increased by the dealer's margin (usually several percent). As a rule, the smaller the coin / bar is, the dealer's margin is greater (in%).

With "retail" investments (up to 20-30 ounces) it is recommended to buy bullion coins, although they are slightly more expensive than bars. Coins are easier to sell and it is easier to check their authenticity (eg using a scale and caliper or Fisch's ruler). The standard size of a bullion coin is one Trojan ounce (1 oz = 31.1035 grams), although there are also coins with "denominations" of ½, ¼ or even 1/10 of an ounce. Some of the most popular gold coins are:

  • American Buffalo
  • American Eagle
  • St. Gauden's
  • South African Krugerrand
  • Canadian Maple Leaf
  • Australian Kangaroo
  • The Austrian Philharmonic Bullion
  • British Sovereign
Bars and Bullions should have a certificate of authenticity!

In case of larger investments, the gold investment bars appear more economically. The smallest ones weigh only 1 gram, but because of the high margins, I would rather not advise purchasing bars smaller than one-ounce. For large purchases, we use bars with a weight of 100 g, 250 g, 500 g and 1000 g. We only buy coins and bars of certain origin. We are only interested in bullion from known mints, we will leave all kinds of "bargains" to others.

When we are choosing a dealer, we primarily focus on its credibility. We choose only from the offer of large and serious sellers with an established opinion on the market. In my opinion, it is not worth risking a few percent savings, by buying bullion from sellers without an appropriate offer (if the dealer does not have a certain amount of gold coins in stock, we avoid it from afar) or without the required reputation.

Most dealers - large and small one– are selling online. All you have to do is log in, make order and transfer the money. Later, you can collect the gold in person or pay extra for courier (necessarily insured!).

How to recognize real gold?

The main risk when buying a gold bullion is the possibility of receiving counterfeits instead of real gold. This risk is minimal in a large and recognized dealer, but even there, you can find perfectly made fakes.

Most fakes are easy to recognize: just weigh and measure the coin, then compare the results with "factory data". If you buy coins, you can also use the Fisch ruler, which easily checks the authenticity of the most popular coins.

Also there are tungsten fakes which we will not recognize in this way. If we do not decide to pierce the coin (for which the dealer will not agree), we must use an ultrasound scanner. People with good hearing are able to recognize gold after a beautiful sound, which the metal releases after impact. There are also special applications for testing gold "on sound".

How to store gold?

I strongly recommend you, to not agree on any “buy and store” offers. Gold in the seller's hands is not really yours, it is in the dealer's responsibility. In the case of gold, it is important who stores it, and not who owns it. This rule is mandatory in the case of gold bullion.

Holding gold in a home safe threatens theft. Any homemade caches also do not provide complete security. The so-called land banks, i.e. gold buried in a garden or in a isolated place. Here, however, there is a risk that the "deposit" will remain in the land after our death and will not be in the hands of our heirs. Choosing the person which will be informed about the place of gold storage is a very delicate matter and remains the responsibility of the investor.

Gold can also be deposited in a bank deposit box (which costs money) or in a company specialized in storing valuables. Opinions about the safety of bank deposit boxes are divided. In the case of Bank bankruptcy, the content of the deposits is not part of its bankruptcy estate. Probably it will be much easier to recover than the money deposited on the bank account, although for many months we does not have access to the deposited gold.

Where to sell gold?

Basically, we buy royal metal not for sale but for storing value. Nevertheless, in the case of gold, just like any other investment, we should have an exit strategy at the time of entry. The best solution is to sell the gold to the dealer from whom we bought it. Of course, usually at a price a few percent lower than that from the London or New York market. Lower prices will reach bars of less certain origin and so-called gold scrap (e.g. jewelry).

Purchase of gold is also carried out by some goldsmiths and jewelry stores, but the prices obtained there will be rather distant from those in transactions of investment gold. The purchase of yellow metal is also carried out by pawnshops and some currency exchange offices, but the prices offered by them should be described as "unprofitable".