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How to Pick the Best Gold Dealers for Your Needs

In the current economic environment, an allocation to gold is a sensible choice.

Gold is a safe-haven asset that performs well during periods of financial uncertainty. When the stock market is falling, gold’s price tends to rise. In other words, gold acts as a form of financial insurance.

Gold also provides protection from inflation. It is both a store of value and a global currency that has retained its value for thousands of years.

Yet, buying gold bullion is not always a safe and straight-forward process. There are plenty of unscrupulous gold dealers out there that won’t have your best interests at heart. Doing a little research is essential in order to make your gold purchase with confidence.

This guide explains how to buy gold and what to look for in a gold dealer.

A Warning on Numismatic Coins

Before we begin, one important point to note is that many gold dealers, both local and online, often try to sell novice investors high-margin “numismatic” coins. They may try to convince you that numismatic gold coins could provide high returns.

However, investment-grade gold bullion almost always outperforms numismatics. Truly rare collectible coins are an exception, but you need to have a really good understanding of this niche market to profit.  

Unless you are an experienced collector specifically looking for rare gold coins, avoid dealers that promote numismatic coins as a good investment. This is especially true of modern collectibles, proof coins, and commemorative coins.

Reputable gold dealers, such as the Hard Assets Alliance, will only offer LMBA (London Market Bullion Association)-approved, investment-grade bullion. This is the best gold to buy as an investment.

Now, let’s get back to picking the best dealer for you.

Local vs. Online Gold Dealers

There are two main ways of buying gold.

The first option is to visit a local gold dealer. These can be found in cities all around the world.

Since brick-and-mortar shops usually have higher overhead costs and lower sales volumes, local dealers often sell bullion at higher prices.

Admittedly, local dealers have their advantages. When buying gold at a local dealer you can physically inspect the gold and take immediate possession of it. You may pay a slightly higher price for your bullion but you won’t have to pay for shipping or wait for delivery.

Due to the nature of local business, local dealers also care a lot about their own reputation in the communities they serve. Therefore, the quality of their service can be higher.

Finally, if you buy small quantities of bullion and pay for it in cash, your transactions with a local dealer may not have to be reported to the IRS and can remain confidential. If that is a consideration, make sure your dealer confirms that your transaction will be below the current reportable threshold.

The other option is an online gold dealer.

Online dealers typically sell higher volumes of bullion and have significantly lower fixed costs. As a result, they are often able to pass on significant discounts to customers.

However, buying gold from an online dealer can make some investors nervous. Gold is an expensive product that some people might be afraid to buy online. This is probably the key reason why local gold dealers remain in business.

On the other hand, online dealers offer a much wider range of gold bullion products. Also, some online dealers offer convenient buy-and-store programs, further reducing the hassle of owning gold as an investment.

The downside of buying gold online is that you do have to pay shipping costs and wait a couple of days for delivery. Yet, that’s a small price to pay for the discount and convenience that online dealers provide.

Here’s a quick list of bullet points for easy reference when comparing local dealers against online dealers.

Local Dealer vs. Online Dealer Summary

Local dealer advantages:

  • Exist in most cities
  • Can buy gold in person
  • Gold can be physically inspected
  • Gold can be purchased immediately
  • Transaction may not have to be reported and remain confidential
  • No shipping costs
  • No wait for delivery

Online dealer advantages:

  • Significantly lower prices
  • Higher profit potential
  • Wider range of products
  • Buy-and-store programs offered

So which option is better, you may ask? It depends on your needs.

There are different things to look for, depending on whether you are buying for delivery, buying for storage, or buying in an IRA.

What to Look for if You Buy for Delivery

When buying gold for physical delivery, there are several important things to consider.

First, look for a dealer that has a strong reputation. You want a dealer that is trustworthy and reliable. It’s easy to check a dealer’s reputation by reading customer reviews on Google, investment forums, and other precious metals-focused websites.

Second, the dealer must strictly sell gold coins and gold bars from LMBA-approved wholesalers. This is your best guarantee that the coins and bars are authentic.

Last but not least, check the dealer’s premiums on bullion, which can vary widely in this industry. Also, be conscious about the spread between buying and selling prices, which can sometimes be as high as 10% or even more.

It’s worth spending some time to find a reputable dealer that offers everyday low premiums if you want to maximize your long-term profits.

An Important Note for Investors Who Buy for Delivery

If you buy precious metals from a LMBA-approved dealer for delivery, keep in mind that you will break the so-called chain of custody, which guarantees the authenticity of the bullion.

In the custody of LMBA-certified members, the face value of bullion is accepted without examination as long as it stays there. Put simply, you can quickly sell your bullion without having a dealer inspect it in person.

However, as soon as the gold leaves the chain of custody, the bullion will have to be inspected and possibly assayed before it can be sold. This can delay the sale, reduce bullion value, and limit selling options.

The only way to return the bullion to the chain of custody is for a certified dealer or a refinery to inspect coins or assay bars again.

Investors who want to store gold at home should also be aware that the risk of theft is probably the greatest threat to their precious metals holdings. You also put yourself and your family at risk in case burglars break in.

Although storing bullion with a dealer adds to the costs, the LMBA chain of custody is the best guarantee that your precious metals holdings will be there for you when you need them.

What to Look for if You Buy for Storage

When buying gold for storage, there are a few extra things to look for.

Obviously, it’s still important to check a dealer’s reputation, premiums, and bid-ask spreads on the gold coins or gold bars for sale. However, there are a lot of other factors that come with bullion storage that you should check.

First, examine storage facilities. You want the dealer to store gold bullion with a separate credible entity to reduce counterparty risk. Ideally, it should be a LMBA-approved vaulting provider like Brinks or Loomis.

They house the gold reserves of governments and some of the biggest financial institutions in the world. Knowing that your gold is stored securely with the precious metals of the world’s largest banks will provide you with peace of mind.

Insurance is an important consideration, too. You want a dealer that offers insurance at full replacement value.

That means if anything happens to your bullion, you’ll get back the same type and amount of coins and bars you had as opposed to compensation in cash, which is based on the spot price of your metal.

In a financial crisis, gold coins and bars tend to be in short supply and so they sell at a much higher premium over the spot. In that scenario, the payout from an insurance company would be much lower than the true market value of your bullion.

Another important thing to look for is whether precious metals are fully allocated to you or not.

Fully-allocated bullion is held in your name and is available for delivery or sale at any time. You are the outright owner of it and no one can claim it.

In contrast, unallocated bullion is shared by several investors who own an interest in large gold bullion bars. This raises all kinds of liquidity issues. It’s also impossible to take delivery of your metal without exchanging it for smaller bullion, which brings another issue.

Most dealers will charge a significant premium for “fabricating” your holdings into smaller coins or bars before they can deliver it. This process will delay your shipment and reduce the value of your bullion holdings.

Other things to assess when buying gold bullion for storage include a dealer’s buyback/delivery policy and whether they offer savings programs and features like dollar-cost averaging.

What to Look for if You Want to Open a Gold IRA

If you are considering opening a gold Individual Retirement Account (IRA), again, you want a Gold IRA provider with an excellent reputation. IRAs are a long-term investment so you want a provider that will still be in business in 10 or 20 years.

The dealer must offer different forms of IRAs, including Roth IRAs and SEP IRAs, and only propose IRS-approved bullion products.

You also want a provider with a transparent fee structure. Check the fees for buying, selling, and storing gold since fees can affect your investment returns. Make sure their pricing is competitive and transparent.

As with storage, insurance is a necessity and should be offered at full replacement value as opposed to spot prices.

Finally, you want an integrated service in which the dealer can help you deal with the custodian. Custodians can sometimes be slow to respond to issues. Having a dealer on your side can help resolve issues quickly.

Warning on Self-Directed IRAs

Investors should avoid buying gold in a self-directed IRA unless they are very familiar with the IRS rules concerning prohibited transactions. A small error could result in harsh penalties.

Only buy precious metals for your IRA through a reputable custodian offering products that comply with IRS rules.

Common Plots and Scams to Avoid

There are many unscrupulous gold dealers out there that will try to take advantage of new gold investors. Being aware of common plots and scams will help you avoid them.

The first thing to look out for is a large spread between the buy price and the sell price of gold bullion.

Some dealers lower their selling price in order to lure unsuspecting customers. Later, these dealers push down their buy-back prices so they make more profit when the customer sells their bullion.

Also, be careful of hidden fees. Ensure you have a full understanding of the storage and delivery costs associated with your gold bullion coins and gold bullion bars.

Another common tactic used by less reputable gold dealers is “bait and switch.” In this tactic, the dealer will bait you with a low price to get your attention and then try to sell you onto a higher-priced product of lower value.

Often, the dealer will try to offload numismatic and collectible coins. Always remember the old adage—“If it seems too good to be true, then it probably is.

Be careful of unallocated programs that are advertised as allocated programs. Look out for sellers that are offering allocated gold in grams or “grains.” The dealer is most likely selling unallocated gold.

In that case, fabrication charges, and possibly delays, will occur if you request delivery of your gold.

These services can be competitive and may suit some investors. Yet, they are not comparable to the benefits and security of fully allocated precious metals storage services.

Finally, watch out for counterfeit products. In order to avoid the risk of being ripped off, invest though reputable gold dealers that only sell LMBA-approved bullion products.

So, Who is the Best Gold Dealer for You?

If you’re serious about investing in gold, buying gold online is most likely the best way to buy gold.

Online gold dealers usually offer much lower premiums. They provide a much wider range of bullion products and solutions, such as buy-and-store or savings programs. All of this makes investing in physical gold easy, convenient, and secure.

However, it’s important to find a reputable online dealer that you can trust. So, take your time to do proper due diligence. Don’t fall for empty promises and work only with dealers that sell LMBA-approved investment-grade precious metals.

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