How to Buy Gold
Buying gold can be an unprofitable experience for the unwary. Here are some tips to make you a smarter investor:
* Know your options. Gold coins and bars come in denominations ranging from 1/20th ounce up to a kilogram (2.2 pounds). The most commonly sold new coins in the United States are the American Eagle, the Canadian Maple Leaf and the Australian Kangaroo Nugget. Sales of new South African Krugerrands have been prohibited in this country since 1986 but are still available on the resale market.
* Beware of high premiums. You’ll pay the current spot price for the amount of gold in the coins and bars, plus a premium. The smaller the investment, the higher the premium. Buyers of a 1/20th-ounce coin may pay a 20% premium, but that premium drops to 4% to 7% for a 1-ounce coin and only 2% to 3% for a 1-kilogram Kangaroo Nugget. Thus, a 1-ounce Canadian Maple Leaf might sell at a retail price of $387.45, based on Thursday’s closing spot gold price of $369 an ounce plus a dealer premium of 5%, or $18.45.
* Buy coins for liquidity. Coins are easier to resell than bars or bullion and perhaps are more logical investments for most people, said Bruce Kaplan of Kaplan & Co., a Santa Monica-based precious metals consulting firm. Some dealers insist on doing assays--drilling small specimens--on bullion to guard against counterfeits, a process that costs investors time and as much as $40 per assay.
* Shop for best prices. The U.S. Mint each day sells American Eagle coins directly to 32 authorized distributors at fairly uniform prices. Those distributors in turn sell to local dealers across the nation who are free to charge the public whatever premiums above the value of the gold the market will bear. Also, be prepared for daily--even hourly--fluctuations in retail prices because of the volatility in spot prices of gold on international markets.
* Take possession of your gold. Although dealers and many banks offer gold storage services, Kaplan urges that you take physical possession of your coins or bars and keep them in safety deposit boxes or home safes. “In the event of a disaster, you’re going to want to get to your gold in a hurry,” Kaplan says. Also, taking possession of your gold could help protect you from con artists whose scams depend in part on you never receiving the gold you’re supposedly buying.
* Handle with care. Be careful handling your coins so as not to scratch them, reducing their resale value.
