Buying gold isn’t rocket science, but there are things investors need to know before taking the plunge.
To get the most from this metal, it pays to understand its basic characteristics and a few truths about the gold market. This guide will tell you everything you need to know about the best way to buy gold.
Gold ETFs vs. Physical Bullion
When starting out in the gold market, many investors choose gold ETFs. They’re a convenient, easy way to gain exposure to one of the world’s oldest investments.
But the structure and operation of ETFs come with inherent risks—uncertainties that can jeopardize your entire investment.
The bottom line is that gold ETFs are a financial instrument, a paper proxy for the real thing (you own shares in a pooled gold fund or trust, not the metal itself). As such, you must rely on a counterparty to make good on the investment.
This can burn an investor in a number of ways: management, fund structure, chain of custody, operational integrity, and regulatory oversight can all break down and when they do, it’s you who loses out.
All one needs to do is Google the rap sheet of HSBC (GLD’s custodian) to find out why huge international banks can hardly be trusted.
And what about delivery? If you have the option—which is typically available only to very large shareholders—delivery protocols are restrictive, expensive, and the fund reserves the right to settle in cash rather than send you actual bullion.
If you want a low-cost way to invest in the short-term direction of gold’s price or to employ leverage with options—and you never want or need to take delivery of your metal—bullion ETFs can be ideal. But if the main reason you’re investing in gold is for protection of your financial assets during an economic downturn or “Black Swan” type event, it hardly makes sense to place your trust in the banking system.
The Benefits of Bullion
The best way to buy gold is purchasing physical gold bullion. It is the only actual gold you own outright.
Because it’s totally yours once you buy it, you can never suffer a default on physical bullion. And gold has stood the test of time in preserving purchasing power. (Just because an investment has never gone to zero is not a good reason to own it, IMO.)
Premiums to purchase bullion are higher, and you must arrange for safe storage or pay for delivery, but avoiding the risks associated with paper gold is worth the extra investment.
When you own real, physical gold, you have an investment that is liquid, portable, durable, value dense, and confidential. No other form of gold can offer such benefits. It’s truly the best way to buy gold.
Here’s also a summary table for easy reference:
|Type of Gold||Benefits||Best For|
|Physical bullion||no counterparty, no risk of default, uncorrelated to stock market||long-term investments to preserve capital and purchasing power, hedge against risk|
|ETFs (GLD, IAU, etc.)||low-cost, convenient, no need to take delivery or arrange storage||Shorter-term trading, obtaining leverage through the futures and options market|
Where to Buy Gold
Once an investor has decided what to buy, the next question he usually has is where to buy it. Is it better to go local or buy online? Can you get a good deal at a gold show? And what about eBay?
In general, the best way to buy gold is either through a trusted local coin shop or a reputable online dealer.
Gold shows typically deal more in numismatic, or collector coins, which have high markups, are illiquid, and are valued based more on rarity or historical significance than gold content. If a dealer does have any bullion, it is likely to be a limited selection. While numismatics can be a good investment, it takes a tremendous amount of research to avoid being taken advantage of by an unscrupulous dealer.
eBay comes with its own set of drawbacks, the biggest being that it is extremely easy to get ripped off by fakes. And even if you find something that can be authenticated as real, prices can be inflated by auction bids.
Knowledgeable investors usually choose to conduct their business locally or online.
Even in today’s digital world, a real-world relationship with an actual person still has its benefits.
When you shop locally, you get immediate possession of your gold—with no shipping or insurance fees to worry about—and you often have the chance to negotiate a lower buyback fee should you choose to sell your gold.
But be aware that your shop owner needs to turn a profit; premiums will typically be higher than at an online dealer to account for the extra overhead.
And because a brick and mortar store is always going to be a smaller outfit than an online dealer, they’ll have less capacity to fulfill substantial orders or make large buybacks.
While there are advantages to buying locally, it’s not the best way to buy gold when you’re planning to make a sizable investment.
We shop online. We bank online. Why not buy gold online?
The best way to buy gold to hedge your financial portfolio against risk is through an online precious metals dealer.
The prices are usually lower than local shops and the convenience of 24/7 ordering and account management—such as online trading, record keeping, and account statements with valuations—can’t be beat.
Of course, not all online dealers are created equal. Here’s what to look for:
- a website that’s education-oriented and not overly promotional
- real-time bid and ask prices displayed on the site
- shipping and insurance fees listed
- delivery fee quoted before placing your order
- delivery within 7 days guaranteed
Those are the basic must-haves when it comes to online gold dealers. But depending on your needs, you may want to find a company with a wider range of services, like a buy-and-store program in various jurisdictions, a mechanism for dollar-cost averaging, and varied account types like IRAs, trusts, and corporate accounts. More on that below.
Here’s a quick summary of the differences between local and online dealers:
|Local shop||face-to-face relationship, immediate possession, no shipping or insurance||buying a few coins to have on hand for an emergency|
|Online||open 24/7, capacity to fulfill large buys, lower premiums due to less overhead||making a meaningful allocation to gold to secure your portfolio in the event of a financial crisis|
Buying gold from an online dealer offering storage will make your life easier in a number of ways (as long as your metal will be held by a third-party custodian, not the dealer itself).
One of the biggest benefits is you won’t take possession of the metal.
It may sound strange, but consider that once a gold bar leaves a dealer and falls into your hands, there’s no way to prove its authenticity. If you ever want or need to sell the bar, you’ll most likely have to fork over money to re-assay it or sell the bar at a substantial discount relative to a verified product.
When the gold goes from the vault of an online dealer to a third-party storage facility without any break in the chain of custody, your gold can be sold as-is.
This is the main advantage of buy-and-store programs (and why we set up the Hard Assets Alliance that way).
The other is convenience. Buying from an online dealer that offers storage will save you the time and trouble of having to source a dealer and coordinate delivery.
Choosing an online precious metals platform that streamlines buying/storage/delivery, like the SmartMetals account, allows you to manage the entire investing process with just a few clicks of your mouse (you can open an account here).
Market volatility is a daily reality for gold and silver investors. As prices rise and fall, so does the hope of ever buying at precisely the “right” time.
But it’s very hard to buy only on down days and nearly impossible to pick a market bottom. The best way to buy gold without all the frustration is by making regular buys and dollar-cost averaging into your position.
All it takes to do this is to decide the amount of precious metals you want to own, then divide your capital into equal dollar amounts and spread the purchases out over time.
Investors who commit to incremental buys generally wind up paying the same (or even less) in the long run for their metal and spend a lot less time watching the market. And an online dealer that can schedule your buys makes the process much easier.
That Hard Assets Alliance offers a dollar-cost averaging service called MetalStream, enabling you to take advantage of market movements. It’s automatic and effortless—and can even get you a better price for your gold overall.
Gold IRA Programs
For investors concerned about whether their portfolio can withstand any financial climate after retirement, finding an online dealer that can facilitate a gold IRA is essential.
A gold IRA protects the value of your paper assets in the event of a recession and preserves the purchasing power of your nest egg despite inflation. Experts suggest that 5% to 15% of an investment portfolio should be in gold.
Because of IRS regulations, the process of establishing a gold IRA can be cumbersome. It involves four parties: the investor, the IRA custodian, the gold dealer, and the storage facility.
It is up to the investor to source all parties and coordinate all moving parts. And every time you make a transaction, you have to go through the whole process all over again.
It’s not exactly the easiest or best way to buy gold for your IRA.
Fortunately, this can all be avoided if you choose an online dealer with a fully integrated IRA program, like the one we offer here at the Alliance. This type of program combines everything under one roof so you can easily add physical precious metals to your IRA and manage the entire process online.
For the convenience factor alone, it’s worth finding an online gold dealer that offers a seamless IRA.
Final Thoughts: the Best Way to Buy Gold
Deciding to make an allocation to gold to protect your financial future is only half the battle.
Understanding your needs, as well as the benefits and drawbacks of both different types of gold and different dealers, is the other.
Sticking to physical gold bullion from an online dealer that offers storage, a dollar-cost averaging program, and a fully integrated IRA will ensure that all of your precious metals needs are met—now and for years to come.