-Investing In Gold And Coins

-Investing In Gold And Coins

Reasons to invest in gold

People invest in gold for their own reasons.  Some do it to preserve their own wealth, there are others who do it to actually increase their wealth, and many managed it in the past with much success.  There are many reasons to invest in gold, and in this chapter I will present them to you.

Unlike paper currency or other assets, gold has a history of holding its value.  People like to invest in gold because, they see gold as a way to preserve their wealth from generation to generation.  In reality, gold is a hedge against inflation. The limited supply of gold combined with the increasing demand in countries such as India and China is another factor which influences the price of gold.

In addition, gold is a hedge against geopolitical uncertainty, and my word our times are troubled times. Furthermore, portfolio diversification along with the weak dollar are two very important reasons for the investor to put his money into gold.

How to invest in gold

In the old days there was only one way to invest in gold and that was only by acquiring gold itself, mainly in the form of jewelry and gold coins. During the centuries there has been many changes and nowadays, the investor faces a very difficult task, due to the fact that there are many options available.  In this post, I intend to inform the investor on the ways he, she, can actually invest in the safe heaven gold.

Direct ownership, in my opinion, is the best way to invest in gold.  Why?  There is nothing like pure gold in your hands, it is certainly better than money.  Its value cannot be changed or controlled by governments and that is the reason for governments to go off the gold standard.

Investing in gold bullion bars?

A gold bar, is a quantity of a fine metallic gold, that is manufactured by a bar producer meeting the exact standard conditions, such as labeling and record keeping.

Bars are the most traditional way of investing in gold.  In many countries they can be bought directly through banks.  Bars are available in various sizes, 12kgr, 1kgr, 100gr, 50gr, 10gr, 1gr, etc.

The standard gold bar held as gold reserves and traded as such by the central banks, is the 400-troy-ounce. (12.400 or 438,9 ounces).  The 1000gr bar or the kilobar, is the most popular bar among investors, and it is used extensively for trading and investment. The premium of these bars when traded, is very low over the spot value of the gold, making it ideal for small transfers between banks and traders.

Nevertheless, bars purity must be 99.5%  (24 karats) at least, whereas there is a number of manufacturers producing bars at 99.9% purity.(24 karats too)

Investing in gold bullion coins?

Bullion coins are coins made out of precious metals with one purpose only, that of investment or store of value, rather than used in day to day commerce.  Many countries have their own bullion coins such as the British sovereign, produced by the British, the American Eagle series of coins available by the U.S. mint and many others.

Bullion coins are produced in many different weights.  They are usually in fractions of one troy ounce, but some bullion coins are produced in very limited numbers in kilograms or more.  Bullion coins are usually available in gold and silver, with a couple of exemptions, (the Krugerrand, and the Swiss Vreneli) which can only be found in gold.

Bullion coins are priced according to their fine weight plus a small premium, based on supply and demand, as opposed to numismatic gold coins, which are priced mainly by supply and demand, based on rarity and condition.

Bullion coins sell, for a premium over the market price of the metal on the commodities exchanges.  This premium is due to an underlying demand for bullion coins, their small size, and the costs of manufacture.  In addition, the amount of the bullion varies depending on the coin’s type, the weight, and the precious metal.

Other ways of investing in gold

Gold options and futures currently trade on various exchanges around the world and over the counter directly in the private market.  They are suited to the sophisticated and experienced, who can speculate on price movements in either direction.  The risk is high, so the profits and losses too.

The companies that produce the gold itself as shares in gold mining companies.   If the gold prices rise, so will the profits of the gold mining companies and as a result, the share price will also rise.   However, there are certain risks here an investor has to take into account.  Mines are commercial enterprises, with problems such as flooding, subsidence, structural failure, mismanagement, negative publicity, nationalization, theft and corruption.  Such factors can lower the share-value of mining companies.

Gold Exchanges Traded Funds (E.T.F.s)  They are a very interesting way to invest in gold.  An E.T.F. is a type of mutual fund, that trades on stock exchange like an ordinary stock.  The E.T.F.’s exact portfolio is fixed in advance and does not change, therefore the E.T.F. holds gold bullion as its own asset.  E.T.F. offers a practical way to invest and hold gold.

Investing in gold IRA’s

A gold IRA investment is an individual retirement account, an account that functions the same way as a regular IRA account however, instead of holding paper assets, it holds physical  bullion coins or bars.

Gold is the type of investment that can protect when times are hard, and at the same time will also offer significant gains to your nest egg.  Back in 2001, an ounce of gold cost $271,00.  Ten years later it reached $1896,00, an increase of almost 700%.   During that time, banks and currencies collapsed, the real estate market collapsed, but gold didn’t.  In particular gold fed from these calamities, it was the rediscovered idol, in the time when everything else collapsed, from mortgages, credit default swaps, and derivative products, too complicated to even understand.

As you can see, a standard IRA, an IRA invested totally in stocks bonds and other funds, is actually putting your hard earned money at risk.  You are relying on government, weak currencies, economies and large corporations.  Gold and silver can actually safeguard your investment.

Since the 2008 financial crisis, gold IRAs have become very popular.  Record gold sales, combined with the appearance of many more, that simplify the transaction, have made investing in an IRA a one shop stop.  The result is robust IRA growth.

Nowadays, it is absolutely necessary for the investor to invest a portion of his/her savings in gold, as the dollar is still weak, there is geopolitical uncertainty, the country’s (US) trade deficit is out of control, and the potential inflationary impact of the Federal Reserve’s, stimulus programs.

How does it work?

It works the same way as a regular IRA account, however instead of holding paper assets, it holds physical bullion coins or bars.

Choosing the right gold broker

Choosing the right gold broker is always a difficult decision.  It doesn’t matter where an investor is prepared to invest, it is absolutely necessary to research and make sure his/her hard earned money doesn’t go to waste.  In order to ensure the above and at the same time maximum earnings, it is important for you to read this page.

Selecting the appropriate broker

Check out the comments regarding the firm especially the complaints, see how these complaints were handled.  If the there is a long list of complaints, then this is a sign to worry.  Also check the number of years the company operates, you want ten years of solid record.  Finally most important is to choose a firm with a commitment to keeping you informed.  Keeping you informed now and in the future.  If a sales person gives you a short shrift, or hits you with a high sales pitch, then this is bad news.

LBMA members 

The LBMA (London Bullion Market Association) is the competent authority for the world bullion market, and it is overseen by the bank of England.  It is imperative for the bullion to be produced by an LBMA approved refinery.  This way, the gold bullion coins or bars are meeting the standards set by the LBMA.  In a few words you are getting what you’ve paid for.

Direct storage outside the banking system

Storage of bullion should be outside the banking system, this way the possibility of confiscation due to bank bankruptcy (bail-ins), or government confiscation is eliminated. Storage should be direct to clients name with no intermediates.  This way there is no risk of the investor loosing his/her investment, in case the broker goes bankrupt.  The investor should be provided with a storage certificate by the independent storage company.

Buyback, shipping, and pickup services 

The gold firm should be able to provide the client with several but important services that include:  a buyback service a pickup service, and a shipping service as many clients would prefer their gold kept at home.  At the same time it is important for the dealer to be accessible to its clients questions and queries, and give answers and solutions promptly.

 Vault location

Location of vaults is very important.  A vault should be located at a free trade zone to avoid taxes or duties.  There are many trade free zones in the world, and most vaults are located there.  (Singapore, Toronto, Switzerland, New York etc.)

 

 

Author: Nektarios
Hi, there. My name is Nektarios. I have been an investor and market analyst for over thirty years. I created this website to provide you with the latest up-to-date investment news.

Leave a Reply

Your email address will not be published. Required fields are marked *