Wednesday, November 07, 2007

Best Way to Buy Gold

What is the best way to buy gold I am often asked. There is no big secret to this but probably the best way to buy gold is summed up in the word consistency. This means that, regardless of the price of gold at any one time, one continues to buy gold on a regular basis month after month, week after week, regardless of the price.

The cost of your gold is spread out evenly over time this way and, if the price of gold dropped say, at one time for a period, it would not matter particularly as eventually it will rise again and the average value of your gold holdings will remain the same, if not increase. Share investors understand this principle of consistency in buying regular packets of shares and the value and cost of the shares tends to even out.

One aspect that is not understood well is the idea that the value of gold can be too high. In actuality the value of gold remains fairly steady and it is the decreasing value of the currency that gives the illusion of gold being more expensive. The currency is not linked to gold and rides a roller coaster of its own when it comes to inflation and recession. The chart shown gives some understanding of the inflation linked gold price.

So the consistent buying of gold on a regular basis month after month, week after week, will even out the peaks and troughs and the asset value would not be affected by inflation.

In short, saving ones assets in gold is a far better deal than sticking money in the bank.

With gold then, it becomes a matter of choosing what gold one buys, keeping in mind the mark up or premium placed on various gold products.

Some gold coins for example, especially newly minted ones, attract a premium, such as the cost of packaging, shipping, insurance etc, which can be quite costly. Small gold bars can suffer the same costs also.

As in many other products, the more gold you buy in one purchase the smaller the premium you pay. The mark up and costs associated with buying gold in the form of a one kilo bar are far less, per ounce, than buying one ounce bars. Of course you have to pay the price for one kilo of gold and not very many people can afford to do so. How much gold you can buy at one time will depend on how much you wish to salt away for a rainy day on a consistent basis.

There are many places one can buy gold coins and small bars without incurring some of the heavy mark up you have with newly minted gold coins and bars. There is no investment opportunity in buying gold coins in a wooden box which one has had to pay for so provided the coins are sealed in their original plastic containers, a presentation box, although it 'looks ' nice, is really superfluous to an investor.

Coin dealers selling proof coins, auctions and private sales are good look places to look. Join or belong to a coin club or association is a worth while activity since many club members sell coins to each other and there is usually plenty to buy. Scouring the auctions, such as eBay and the like can be time well spent. Spending some time studying the various gold coins and the value is time well spent also. Understanding the values of rare gold coins can net you some good deals also

Basically, applying just a bit of due diligence and some consistency in buying gold coins and bars on a regular basis is really the best way to buy gold!

No comments: