Buying Gold for Investment (Is Gold a Good Investment?)
If you are looking to buy gold for investment, you don’t have to convert your locker into Fort Knox, the only storage you need is an investment account.
4 things before buying gold for investment
If you decide to buy physical gold, you will need to keep a few things in mind:
Storage: Physical gold requires a secure storage location, so while you can keep your gold at home, many investors prefer having a trustee. Make sure to research safe gold storage options before you buy it and remember that it can cost you some money.
Insurance: If you decide to store your gold at home, you must insure it to protect yourself from theft or natural disasters. This can add to the cost of homeowners or renters insurance.
Purity: The gold content in a coin or piece of jewelry has a significant impact on its value as an investment tool. This means that you should aim for at least 91% pure gold items, if not 99%.
How to buy gold for investment
Gold bars are a popular choice for people looking to buy gold. Bullion is usually sold by grams or ounces, and the purity, manufacturer, and weight must be stamped on the face of the bar.
Purity is very important when buying gold for investment, investment-quality gold bars must be at least 99.5% pure gold to be considered bullion, and to be exempt from all applicable taxes. If not, taxes will still apply.
Gold can be purchased directly from some banks, either in person at a branch or online. There is a limit to the amount of gold that can be bought from the major banks in a 24 hour period which usually hovers around $10,000. If you wish to purchase more than that, you must do so in person.
Major banks may also provide storage services to their customers through a custodian account at no additional charge if you do not wish to store your gold at home. But remember that it may be a difference between the gold you store in the bank and the gold you take out since gold is stored in banks collectively. To make sure that the gold you take out of storage is really yours, you can opt for the dedicated storage model, which stores the gold in a separate vault with your name on it for a set fee.
You can also buy gold for investment online or in person through a merchant you trust. Although there are no taxes applicable to pure gold bars, you will still be required to pay any delivery, transportation or insurance costs.
Coins usually have a lower gold content than gold bars. The American Eagle coin, for example, contains only 91.67% of gold. You can buy gold coins through individual dealers and sellers that you trust, or even from major banks in the country. If you’re concerned about counterfeiting, you can verify the authenticity of gold coins at a mint or bullion dealer of record with DNA, a machine that takes a high-resolution picture of your coins and then digitally checks for special security marks on the coin that can’t be seen with the naked eye.
You can also check the authenticity of old coins through several simple tests such as:
Magnet: Gold is not magnetic, so if you can pick up your coin with a magnet, it is not pure.
The “Ping” test: When you hit a gold coin, you should hear a high-pitched ringing sound. Non-gold coins will sound very dull and the sound will not ring for long.
The Ceramic Test: If you run gold across an uncoated ceramic plate, you should see a gold mark, not a black one.
Nitric Acid: Pure gold should not oxidize or corrode when placed in nitric acid.
Jewelry, especially artifacts with potentially high gold content, can provide another means of buying gold for investment. But keep in mind that like gold coins, you will likely have to pay extra for the amount of gold you get. As with coins, you need to be extra careful when buying gold jewelry. Make sure the person you are buying your jewelry from is reputable and honest and upfront about what they offer.
Precious metals dealers transacting $90,000 or more are usually required to follow anti-money laundering regulations set by the Financial Transactions Analysis and Reporting Center. This means that merchants must establish a compliance programme, keep a record of everything they sell, and adhere to ministerial directives from the government.
You will also need to make sure that you have as much documentation as possible so that you can prove the quality of the gold when you resell it.
Other ways to buy gold for investment
If all of this sounds daunting, consider investing in stocks, mutual funds, and ETFs related to the gold industry.
Gold mine stocks
Instead of investing in physical gold, you can buy shares in companies that mine and refine the gold. Major gold mining companies include Barrick Gold (GOLD) and Newmont Mining Corporation (NMC).
While their stock price may not exactly match the trajectory of the actual price of gold, this can give you exposure to gold as an investment without the risk or headache of dealing with physical gold.
Gold mutual funds and ETFs
Instead of investing in a single company, you might invest in a basket of gold-linked securities through gold mutual funds or ETFs. Here are the best ones:
- iShares S&P/TSX Global Gold Index ETF
- BMO Equivalent Weight Global Gold Index ETF
- CIBC Precious Metals Fund
- TD Precious Metals Fund
- BMO Precious Metals Fund
- Futures and options
For investors willing to take more risks, futures and options may be ideal.
With gold futures contracts, you are committing to buying or selling gold in the future at a specific price. As for options, you will have an agreement with the option to buy or sell gold if it reaches a certain price on a predetermined date. Successfully buying gold futures or options requires a brokerage account and a lot of industry knowledge, and you’ll have to keep a close eye on your account and the price of gold to make sure you don’t miss out on your options.
Is gold a good investment?
If you are looking to gain wealth by investing in gold, you are probably in the wrong place. Over the past five years, the price of gold has risen about 36% while the S&P 500 has gained 104% over the same period. So why all the fuss about gold?
The answer is that there are many investors who view gold as a safe haven from inflation and market crashes. During the 2007-2008 bear market for example, the overall stock market fell 33%, while gold only fell 2%.
This does not mean that gold prices are completely fixed, but rather they can be subject to extreme fluctuations at times as well. In fact, you can easily craft a well diversified investment portfolio without including gold. But if you want some of that golden sheen in your investment account, don’t let it go beyond just a small percentage.
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