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Tuesday, January 03, 2006

How do you buy gold

How you buy gold is very simple. There are basically four ways of buying gold and each depend basically on what sort of gold you would like and why. These are:
  • Gold Coins
  • Gold bars to take home
  • Gold bullion or bars held in escrow
  • Gold in the form of Exchange Traded Funds
  • Gold coins and gold bullion or bars one can purchase from dealers, auction houses or even from other collectors.
With gold coins one should look for:
  • Type of coin. Eagle, sovereign etc.
  • Size of coin. These can vary also. Sometimes measured in value and sometimes in weight.
  • Face value. 1 rand or 10 rands (South African) for example.
  • Weight. Usually measured in troy ounces or part of an ounce but grams have also become a popular weight measurement recently.
  • Fineness. (999% fine) Amount of gold compared to other metals, such as silver, Gold bars are usually measured as 999 parts per 1000. Most gold coins are usually 917 parts per 1000. Other metal is added to make them easier to mint and give them extra strength.
  • Gold Content in Grams. The weight of the gold contained within a gold coin measured in grams.
  • Gold Content in troy ounces. The weight of the gold contained within a gold coin measured in ounces.
  • Price. How much you would be expected to pay for the gold coin advertised, usually called 'percentage above spot'. This includes any margin added by the seller and any tax that might be applicable.
For bullion, unless one is prepared to invest in the larger bars, one should be looking at the ten gram up to one hundred or more gram bars available from current dealers. These would be at current gold prices plus a premium to cover the gold dealer's or manufacturer's costs.

The Perth Mint in Australia, for example, will sell you bar sizes from 1 gram up to 100 grams. A 1 gram bar will cost just over 20USD (30AUD) and a 100 gram bar will set you back about around 1300USD (1900AUD) including freight. Due to production costs, the smaller bars carry a higher margin for the Mint and therefore you pay a higher premium than if you purchased a larger bar.

Probably a ten ounce up to one kilo bar (about 32 ounces) would be the best buy as the premium is a lot less.

Examples of other established and popular gold refineries include PAMP (Produits Artistiques de Métaux Précieux) a gold metals refinery based at Castel San Pietro, in Switzerland. Johnson Matthey, a refinery that has been established for many years and is considered one of the leading producers of gold bullion. AGR Matthey in Australia and Midwest Refineries in the US are among many others.

Gold bullion or bars held in escrow is a little different in that you do not actually possess the gold although you own the rights to it as expressed in an account holding.

GoldMoney.com is an example of this. One opens an account and can fund that account with any amount of gold from a few hundred up to no limit. The actual bars are held in banks around the world and you would own a portion of one or more bars depending on the size of your holding. The advantage with this system is that you do not have to concern yourself with storage and security issues, particularly if your holding is in the thousands. One can easily buy and sell gold by this method. The only disadvantage, if one can call it that, is that you cannot hold the gold bars or coins in your hand if you want to.

Exchange Traded Funds, or EFTs is a relatively new method of holding gold. Similar in some respects to having gold held in escrow you simply purchase certificates each of which represent an amount of gold held in a bank. The bank generally issues the certificates and you buy at whatever the market price is. There is a brokers fee but you generally buy and sell at the spot (market) price for the gold on that day. Some investors prefer that as there is no handling of gold, storage or security issues to be concerned with. However it is purely an investment so there can be tax considerations one would need to discuss with one’s financial advisors if embarking on a buy/sell activity with EFTs.

So when deciding which type of gold you would like to hold, there are many options to choose from.



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