Gold has a long and storied history as a currency and as a way to accumulate wealth. It remains a popular investment vehicle in the modern world, because it’s a valuable commodity and because most investors feel safe about buying gold.
But you shouldn’t rush into gold investment blindly. Just as with any other form of investment, buying gold has its drawbacks and risks. And you shouldn’t just start buying gold jewelry at the pawn shop – if you want to buy gold that you can sell for close to the market price later, you need to buy bullion. Here’s what you should know before you put money into precious metals.
You Should Buy Pure Gold Coins and Bars from a Reputable Dealer
In 2020, the jewelry industry demanded 1,400.8 metric tons of gold, accounting for about 36.83 percent of global gold demand. Gold jewelry is beautiful and some of it can be valuable, but it’s not a good way to diversify your portfolio into gold holdings. That’s because most jewelers sell their wares at a hefty markup, and if you’re looking to sell a piece of jewelry back to a jeweler, you’ll get significantly less than what you paid for it.
You should also be careful about buying antique gold coins. Antique coins have what’s known as numismatic value – they’re collector’s items. Their value as such may be much higher than the value of the gold used to make them.
If you want to invest in physical gold, you need to buy gold bars and coins from a reputable gold dealer. Look the dealer up on the Background Affiliation Status Information Center (BASIC), which is run by the National Futures Association. You can also check a gold dealer’s rating with the Better Business Bureau or look up a broker’s background using FINRA’s BrokerCheck. Make sure to check the spot price of gold before you buy any. It’s normal for dealers to sell gold for one to five percent more than the spot price, but anything more than that either means the economy is looking very unstable or the dealer is not reputable.
Gold Bullion Can Be Expensive to Store
If you buy physical gold bars and coins, you’re going to need to store them somewhere. Sticking them in a closet at home may not be safe. Someone could steal them, for example, or they could melt in a fire. If you’re going to store gold at home, you should store it in a fireproof safe or vault, or put it in a bank safe deposit box.
A better option, especially if you plan to buy large quantities of gold, is to store your gold bullion in a depository. It will be safe there, and you won’t have to worry about not having room for it. However, if you store gold in a safe deposit box or a depository, you’ll pay storage fees.
It Can Be Hard to Sell Gold Bars and Coins
Gold bars and coins can be hard to liquidate, especially the large ones. If you somehow manage to get your hands on a 400 troy ounce bar of gold worth $628,000, for example, you can only sell the whole thing. You can’t cut it into pieces and sell the pieces for less. And most investors aren’t going to have the cash to buy that much gold at once, if they even want to.
Gold coins and smaller gold bars are easy to sell, but it can still be a hassle to liquidate physical gold. You have to find a buyer for it, and even when you do, you may get less than the market price or even less than you paid for it, depending on where you sell it. You’ll also need to pay to ship gold bullion from your depository to a buyer or buyer’s depository.
You Can Get Gold Exposure from Mutual Funds and Exchange-Traded Funds
You don’t need to buy physical gold to get precious metals exposure for your portfolio. You can buy shares in a gold mutual fund that holds physical gold or shares in gold mining and streaming companies. You can also buy exchange-traded funds (ETFs) that track the price of gold. Both of these investment vehicles are easy to liquidate – just sell your shares on the stock market – and provide many of the same benefits as buying gold bullion, but with none of the drawbacks.
An investment in gold can help you protect your wealth against inflation and market volatility. But you need to know what you’re doing before you buy gold, so you can make the right choices for your financial future.