By John Fisher
Investors buy gold to use as a hedge against economic and financial crisis, either of which would lead to the devaluation of paper currency. Others buy hoping to turn a profit. Which reason will be the main factor that will influence your decision as to why to buy gold?
Buying Gold as a Hedge
Gold coins and bullion are most often used as a hedge. This is because the underlying metal retains its value despite the potential onset of economic or financial crisis. “Paper” gold, such as ETF’s, would see substantial liquidation and conversion to physical gold. Everyone would want the “real stuff”. ETF’s are fine as a short-term trading vehicle in investment accounts. However, there is no replacement for physical gold as a long-term hedge and store of wealth.
You can purchase gold bullion in the form of bars or gold coins. Coins tend to be more widely traded. If you find coins and bars at approximately the same price, always choose the coins over the bars. Coins by nature are self-authenticating and typically easier to liquidate. If you do decide to buy gold bars, only buy clearly hallmarked (assayed) bars from a known source. As a general rule, stick with coins as the additional cost, if any, will probably be recouped when you sell.
Finally, store your gold where you have 24-hour access if possible. Consider a high quality safe, private storage facility, family members’ homes or another secure location. If you choose to use a safe deposit box at a bank, I would suggest only a portion be stored there. The very best form of security is secrecy. Don’t tell anyone about your holdings except when absolutely necessary and prudent.
Buying Gold for Profit
If you intend to invest in gold to grow your investment accounts and make a profit, then your best options would be to buy low premium bullion or to invest in gold equities. Remember, however, that equities in the form of stocks, bonds, futures, ETF’s and others carry different risks than owning physical bullion.
These forms all carry counter-party risk in that their performance is dependent on the performance of another party over which they have little or no control. If you own gold bullion you will never lose all your investment whereas owning any of the equity forms listed above can default just as easily as providing a healthy return on your investment.
How to Buy Gold the Safest Way
There are more unscrupulous characters entering in to the gold business every day. Why? For one reason, the business is completely unregulated. You need no securities or business licenses. What you can do in terms of advertising and promotion in the gold and silver business would cause you to lose your license or worse in the securities business.
Of particular disdain are the sellers on TV, radio and many on the internet. Through a bait and switch tactic (they all use basically the same tactics that we can explain to you,) buyers typically pay 30 – 100% more than they should in order to accomplish the same goals. They will discuss bullion with you, then typically bring you around to buying pre-1933 “antique” coins in order to avoid “potential confiscation” and “reporting regulations”. These are two of the greatest falsehoods in the precious metals industry, amongst many others. Read our article “Myths and Misunderstandings”:
Myths and Misunderstandings
The best places to buy gold and silver are dealers with a stellar reputation that come by referral. They should also be able to provide third party testimonials from customers. Don’t buy on the first phone call. Repeated conversations will begin to expose the true colors of the individuals and organizations you are considering.
All Things Considered – John’s Commentary
The bottom line is that you need to find a trusted and reputed precious metals dealer to both buy from and sell to. We are committed to educating our clients about how to buy gold and silver well, but also how to avoid the unscrupulous tactics and marketing ploys of the precious metals industry. We invite you to call us to let us help you better understand how the retailers and many dealers operate. It begins by understanding that they market to you in order to move specific inventory items (not to sell you what best meets your investment needs,) all the way to avoiding the many marketing myths we referenced a above.
Action to take now: Prices continue to trade sideways. Silver is still the buy over gold on a 2/3rd to 1/3rd basis. Buy modest amounts regularly over time, monthly or quarterly, and you will not be sorry. That is the same advice I practice for my personal holdings.
What to buy: In gold – 1 ounce Medallions, Austrian 100 Coronas and British Sovereigns. In silver – pre 1965 90% silver coin is hands down the #1 choice, followed by 100 ounce silver bars.
Quote of the day: “Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state.” – William F. Rickenbacker
