In recent years, many investors have turned to the cheap alternative….exchange traded funds….in order to add gold to their portfolio. That was the route I took personally. During the bull rush that ended in 2013 on gold, investors flooded ETFs to cash in. Now, some investors are moving away from ETFs, because unlike the SPDR Gold Trust, not all ETFs are actually backed by gold. Some are just following indexes that track the price of gold or the stock price of mining companies.
In most markets, when stocks sour gold shines brightly. The fact that there’s little correlation between gold and stocks is the primary reason why investors diversify their portfolio with the precious yellow metal. Investors like Len Penzo on our podcast invest in metals to prepare for the worst case scenario.
Precious metals experts suggest that investors who want real exposure to gold may want to tap on the actual metal. The reason for this is because physical gold won’t lose its status as legal tender no matter how much its price plummets. Even if gold’s cost per ounce sinks below $1,000 after the Fed increases interest rates sometime this year, it can still cover an investor’s assets.
Buying Gold Coins
One of the many ways investors get exposure to the actual metal is by buying gold coins. Millions of gold coins are sold on a weekly basis. The biggest sellers? The American Gold Eagle and Canadian Maple Leaf coins have the biggest market. South African Kruggerands are cheaper than Gold Eagles and Maple Leafs. However, Kruggerands are harder to sell and they’re more suitable for people who invest in gold for wealth purposes.
Buy A Safe
If you buy gold coins, don’t forget to store some of them in a personal safe near or in your home. After all, the reason many people invest in gold is to be able to liquidate immediately when they need to. If your gold is locked away someplace remotely and there’s the worst case scenario…like a market crash or an invasion of another country, it would be difficult to ship them back home quickly.
Before buying gold coins, make sure to compare dealer prices. Check out the dealer locations on the U.S. Mint’s website in order to avoid scammers that put high premiums in gold products. Experts suggest not going above 5% for a premium. Coins with a full ounce of gold have much lower premiums that those that contain a half ounce, quarter ounce, and one tenth of an ounce.
There are two types of gold coins: the regular ones and rare ones. The rare ones are much more expensive but contain the same gold denominations as the regular ones. Avoid rare coins unless your goal is to create a gold coin collection. Finding a buyer for rare coins is very difficult.
Before buying gold coins, make sure that you’re prepared to shoulder the shipping costs. If you’re going to sell your coins, you will also have to shoulder the shipping back to dealers and package them yourself. Unless, of course, you’re buying gold via an Internet peer-to-peer exchange market, which became a hit in the UK in 2005.
You must also remember that most dealers don’t accept credit cards for gold purchases. Before placing an order, you will have to hand in cash first through a wire transfer or cashier’s check. This is another reason to be extremely careful about what you’re getting into….
Remember, before making any types of investment, know exactly how gold fits in your financial plan. Then decide where to keep your gold, who to purchase from and the type of coins that fit your needs.