Investing in Gold

Posted by Paul
"Now is the time to buy gold."

That's what a coworker of mine told me almost three years ago. He'd heard this from his father in law and I'd heard some of the buzz about gold here and there which made me curious enough to look into it.

The first thing I did was contact a company called ITM Trading that specializes in gold sales. I asked to be placed on their mailing list to get a brochure on purchasing gold. First of all, I would NOT recommend doing this. You end up with a nice brochure, but also with someone that calls you almost every month trying to sell you gold.

Another option I looked into was gold funds. These are essentially stock funds that hold gold. The shares are usually priced in some way that one share of this stock "represents" a certain percentage of the price of one ounce of gold. For example, NYSE:GLD shares each represent one tenth of an ounce of gold, so if you take the share price of GLD and multiply by ten, you get the price of an ounce of gold. The share price simply goes up or down along with the current price of gold. Gold funds are a great option if you want to invest in gold. If you already have an account that lets you trade stocks then it's just a matter of buying as many shares as you want.

I decided not to go with a gold fund simply because I thought it would be more fun to actually buy and possess some gold. I was also intrigued by the fact that when you buy gold you can invest your money "off the grid" I can walk into a store, pay cash, and walk out with gold that has no traceability. I've heard that profits from precious metal investments are taxed as capital gains if you go beyond a certain amount, but to be honest I'm not sure what that amount is and how it is enforced (I've heard it's $10000). I do know that when I went into the coin store and was looking around a gentleman came in, bought $2000 in gold coins, paid in cash, and walked out. I suspect that a lot of people buy and sell very small quantities of gold without ever paying the taxes.

The basic things to decide when you are going to buy actual gold are: what form, where to buy it, and how much. I'll describe each issue and what I came up with.

What form - the decision here is to buy either bars (which come in all sizes, some small enough that they're more like wafers than bricks) or coins (which are minted by a government). I don't know if there's really much of a difference between one or the other. If you buy a brick you are clearly just buying it for the value of the gold, as the bricks have no real historical or collectible value. If you buy a coin then it's possible that someday the coin could have collectible value beyond the price of the gold itself. If you have a gold coin that's 100 years old then it would have some historical value beyond the gold itself, but then again to BUY a gold coin that is 100 years old you'll also pay extra for that same historical value. I've noticed that on the commodities markets coins are generally valued a little higher than the raw boullion, I suspect that's because a minted coin is harder to counterfeit so you have some assurances as to its weight and purity. I decided to buy a coin, mostly because I thought they were pretty, plus I figured that since I knew so little about gold that if I bought a coin it would be less likely that I'd end up accidentally buying a fake. The coin I bought had no historical or collectible value, mostly because I wanted to invest in gold, not the collectible coin.There are several coins that have been minted by governments over the years that you can choose from. Here are a few (please note, that the links are so that you can see some photos and info on the coin, these are not recommendations for places to buy):
1) The American Eagle
2) The South African Krugerrand
3) The Austrian Philharmonic
4) The Chinese Panda
5) The Australian Kangaroo
6) The Canadian Gold Maple Leaf


There really isn't much to put one coin over another in my opinion, especially if you're buying mostly for the value of the gold. A standard weight for a coin is one ounce of gold. If you do searches for these coins on the internet you can find pictures and more about the history of them if you care about that sort of thing. I decided to go with a Canadian Maple Leaf since I decided I wanted a pure gold coin (many coins are alloys that contain one ounce of gold plus some other metal mostly to lend hardness becuase gold is so soft), plus I thought they were really pretty.

Where to buy - there are all kinds of places that sell gold either in bar form or coins. Web pages, mail order companies, and coin stores being the major ones. I decided to go with a coin store so that I could actually talk to someone and see the coin I was buying before I paid for it. No matter where you go any place that sells gold or coins generally sells at the current price of gold plus a commission per ounce (usually in the range of $20 or so).

How Much - that is generally determined buy how much you want to invest. I know that at the time of this writing gold is pretty high, but in general I would suggest that you view gold as a fun, potentially high risk investment. I wouldn't go quite so far as to say that you should never invest more than you would be willing to lose since even if gold prices dropped I can't imagine it dropping to nothing overnight, and you can always sell your coin and cut your losses if prices start to drop too much, plus I can't imagine gold becoming COMPLETELY worthless. However, considering how crazy the market for gold is right now, that might not be a bad rule of thumb.

Overall, my advice is that if you are interested in gold and have a little extra cash and want to buy a coin or two, go for it. I'd suggest that you view gold (or any other precious metal) as more of a hobby than an investment. If you want to take all of your savings and put it into gold, think twice, and then if it still seems like a good idea think a third time.