5 Things to Know Before You Buy Gold

1. Have an Objective.   Why do you want to buy gold? Because you think its price will rise? As a hedge and diversification against your other assets? In order to buy ammunition, come the revolution? Maybe you just think the coins are cool. (They are). Knowing your objective will help you to…  
2. Determine Which Form of Ownership is Best for You.   You can buy coins or ingots and pay to have them shipped to you – or pay to have them stored. If you would rather not pay either, you can buy “paper gold” in various forms. Gold mining stocks, exchange traded funds (ETFs), and gold certificates will all gain value as the price of gold rises. But each form of ownership has its own risks and disadvantages. The value of mining company stocks, for example, is subject to bad decisions by their management, not just the price of gold. And physical gold not only requires secure storage – it can be counterfeited.
3. Know the Spot Price  If you decide to buy actual gold, the spot price is key.That’s not the price you’ll pay, unless you’re investing half a million dollars or so – but it’s a starting point. Gold prices fluctuate on a daily basis and you should expect to pay that day’s price (spot price), plus a markup based on the size of your purchase. The smallest quantity normally sold is the gram, about 1/31^st of an ounce. Expect to pay 20-25% more than the actual metal’s value for such a small quantity and receive another 20-25% discount when you sell. You’re much better off buying in minimum quantities of at least an ounce, in which case a 5-8% markup is reasonable.
4. Avoid Leverage   You can buy gold futures or options with 10% or less of the metal’s actual value. There are also non-futures brokers of physical gold who will accept 10% down to secure your purchase and then liquidate your ownership if the spot price falls only slightly. Leverage tends to push owners out of any market as the price falls. Save your money until you can pay the entire cost of your gold and leave leverage to the professionals.
5. All that Glitters is Not…  Gold. Scams and counterfeiting aside, jewelry is almost never pure gold and its value as a ring or bracelet is quite different from its melt value, which is based on actual gold content. Gold coins may be nearly pure or merely gold plated. Coins (numismatic gold) and jewelry come in a wide variety of purities and their pricing is complicated by their degree of rarity or craft. Understand these factors before buying gold in these forms.