How To Invest In Gold Right Now

How to Invest in Gold Right Now

With the price of gold rising against the US Dollar on a regular basis many people are probably wondering; what is the best way to cash in on this trend? Here I will deal with the HOW TO part of gold investing, and not the merits of whether gold is a good investment.... this part could be dealt with by other articles, and perhaps a consultation with your personal financial advisor(s).

We can break down the various ways to invest in gold into the following categories;
1) Buying physical gold
2) Pooled accounts
3) EFTs
4) Gold Stocks
5) Gold Futures contracts (which we will not deal with here)

Physical Gold – The Real Deal

This is the most obvious, and time tested way to invest in gold...to buy the actual gold. The next question that comes up is in what form, and from who? Gold is available for purchase in a variety of bars and coins.

The bars (usually .999 or 99.9% or better fineness) come in a variety of sizes ranging from 1 gram (less than a 31th of a troy ounce), all the way up to 400oz. When buying a bar consider the name of the refiner on the bar. You probably want to have a bar manufactured by a well known refiner, so that when it comes time to sell, the buyer does not dispute the weight or purity. The most recognized names are Johnson -Matthey, Engelhard, Suisse PAMP, and Credit Swiss, although there are lots of other good quality bars out there like one from the Royal Canadian Mint, etc.

Choosing the right size bar to buy is important. There are advantages and disadvantages with both small and large bars. With a very small bar the premium (or bar charge as it is commonly known) can be very high in percentage terms, and will drag down any return you make if gold rises in price. Large bars have much smaller premiums, but may become more difficult to sell as the price rises. Imagine a 1kg (32.15 troy oz) bar with a spot price of $3,000 per ounce. This would be close to $100,000, and may limit the number of buyers. Also with a large bar it is not possible to sell a percentage of the bar.

Overall, I feel the best cost vs. sell-ability is probably by owning 1oz bars. With gold at around $900 / ounce even a $30 premium or bar charge will only amount to 3%. It is a size that is convenient, easy to stack or store, and easy for other to understand when you sell...The price is quoted in ounces in the paper each day, so almost everyone is clear how much your bar is worth.
Another option is to buy gold coins. The advantage here is that coin come in many sizes, and can also be prized for their collectable value. Generally gold coins are divided into two types; bullion and collectable. As a general rule if you are buying them because you think gold will go up, play it safe and stick with the bullion coins. Collectable coins are a whole different ballgame. Yes, you can also make lots of money, but it is a more complex area that requires further leaning before investing.

Bullion coins can generally be divided into two types. Modern, and older. The modern coins (most issued from 1979 to date) are manufactured each year by various countries including Canada (Maple Leaf), USA (Buffalo), England, Australia, Austria, China (Panda), etc, and are usually made from 99.9% or finer gold (as pure as the above mentioned bars; or better). The come in sizes that are usually 1oz or smaller. Typical sizes usually include 1oz, ½ oz, ¼ oz, & 1/10 oz, although there will be some variability by country. The best buy is usually the 1oz size as it sells the closest in price to gold (the smaller sizes have a higher % premium when sold by dealers).

Be careful, as there are also many modern coins issued for collectors that are not pure gold and may sell for bigger premiums as they are designed for beauty, and collecting, and not for gold investing. These are usually easy to spot and avoid as they are not made of pure gold (usually 22k or less), and carry a price tag well above gold.

There are also older bullion coins which can also be suitable for gold investing. Most of these were made pre-1950. It is important that you know how much gold is in each coin before buying as they can vary quite a bit. Most of these older coins were made in either 22K (.916) or .900 fineness, but there are many exceptions. Popular types include US coins pre-1933 which are available in quantity, Mexico 50 Pesos (over 1.2oz of gold), Great Britain Sovereigns (.2354 oz each), France and Swiss 20 Francs (.1867 oz each, and many others.

You can buy both bars and coins from local coin shops, certain banks, and various bullion dealers around the world. A quick search online will yield lots of results. Compare prices and delivery terms.


Pooled Accounts – Somebody is holding the gold for you

There are several big advantages to having a pooled account to invest in gold. Firstly, you no longer need to worry about storage, and this is done for you. Another big advantage is that you are usually allowed to make very small purchases with very low commissions.

That being said, much research must be done to determine if you are entirely secure with the folks who are holding your gold. What happens if they go out of business? Is the gold in an independent trust? What happens if there is fraud?

Owning gold in a pooled account really removes one of the biggest advantages to holding gold...regardless of the economy or the folly of others you hold real money. A pooled account does not give you this.

Also if you go this route consider having an allocated account which gives you ownership in a percentage of the holdings rather than an unspecified ownership of a paper contract.
If however, you do not want to have any physical gold, this is one option worth considering, but again do lots of homework on who is holding your gold, and the rules of the game.


Gold EFT – Owning it like a stock

For most of us, our investing is done through our online stock brokerage accounts. You can actually buy gold with a click of your mouse, by buying gold Electronic Traded Funds.
Most typically have an MER (management expense ratio...the fee they make for running the fund) of around .40 to .55% per year, which does not sound like much, but consider that if you end up owning the fund for ten years, and you had an initial investment of $100,000 in such a fund, even if gold did not go up your fees could add up to over $5,000!

The most popular gold ETFs stock symbols are (this is in no way a recommendation and is for information purposes only); GLD, IAU, IGT, GDX, and XGD. You can go to your favourite online finance site and get more information.

Consider as well, like pooled account, you do not actually have physical possession of your gold, and this should be considered as a risk should the EFT not actually have the gold it claims. Do lots of homework.

As with all stocks there is obviously a brokerage fee for buys and sell that will vary with the firm you deal with.


Gold Stocks – Leverage with more risk

As gold rises it should be no surprise that gold mining companies benefit. Imagine you have a gold mine and it costs $700oz to get the gold out of the ground and to market. If gold is trading at $800oz you make $100oz, if gold is $1,000oz you make $300oz or 3 times as much even though gold has only gone up 40%. Thus is the great leverage in mining stocks.

Investors need to realize however, that an investment in a gold mining stock is not an investment in gold. It is entirely possible that even if gold does go up you could lose part or all of your money in a gold stock. This is because you are investing in a company. Should the company be poorly managed, lie (as in the many famous cases including Bre-X, have a workers strike, be forced to pay more taxes to the country it mines in, have increased costs of mining due to inflation or other reasons, etc, etc, you could lose money.

Please consult your broker or investment advisor for ideas, and investment strategies.