GOLD BUYING GUIDE
History of Gold
Gold is one of the world’s oldest forms of money and is often viewed as a safe haven investment. Gold has been in use for over 4,000 years and remains the most recognized all over the world as a store of value. The Coinage Act of 1792 established the first U.S. Mint in Philadelphia and created a bimetallic standard in which both gold and silver were used to define a monetary unit. In 1913, the gold standard was built into the framework of the Federal Reserve. The law required the Federal Reserve to hold gold equal to 40 percent of the value of the currency it issued. During the financial crisis of 1933, the Roosevelt administration suspended the gold standard. On April 5th, Roosevelt closed the banks in response to a run on gold and ordered all gold coins, gold bullion and gold certificates to be turned into the Federal Reserve by May 1st for the set price of $20.67 per ounce. On January 30th, 1934, the Gold Reserve Act prohibited the private ownership of gold except under license. In 1944, the Bretton Woods System called for the U.S. dollar to be pegged to the value of gold. Then later, President Nixon declared that the U.S. would no longer officially trade dollars for gold on August 15th, 1971 and this marked the end of the U.S. gold standard. It wasn’t until President Ford signed a bill in December 1974, that Americans could freely buy and trade bullion, for the first time in over 40 years. This is why we can own and invest in gold today.
Why Invest in Gold?
Gold is indestructible. Gold bars and coins have been recovered from shipwrecks submerged for centuries. Gold has also been found preserved for thousands of years inside of pyramids and still valuable after all this time.
Gold is portable. A tube of 20 - one ounce gold coins weighs less than two pounds.
Gold is divisible into small portions. 1/10th of an ounce is the size of a thin dime, but you can buy/store it by the gram - or in blocks of grams.
Gold is difficult to counterfeit. People do try to counterfeit gold, but there are many ways of testing a piece of gold to make sure it is real. Looking for stamp irregularities, checking it with a magnet, weighing the gold and acid tests can all help detect a counterfeit. Almost any coin shop can test a piece of gold for you if you are unsure.
Gold stores easily. Significant amounts can be stored or hidden just about anywhere - although we recommend storing it in a safe to protect it, or use a storage facility.
When investors are worried about the economy, they often times buy gold to add to their portfolios. Based on the increase of this demand, the price of gold tends to increase. Between November 30th, 2007 and June 1st, 2009, the S&P 500 index fell 36%, while the price of gold rose 25%. If paper money were to suddenly lose its value, many investors believe that the world would fall back on gold. In other words, a reset to our monetary system could mean a fiat or digital currency backed by gold. Today almost every major nation has some form of gold reserves.
How to Invest in Gold?
There is not a set amount of gold that makes a good investment. The right amount will depend entirely on you. Financial experts recommend that you have as low as 5% and as high as 20% of your assets in gold or other precious metals. Most people keep between the 15 and 20 percent range. It is also recommended that you diversify your precious metal investments, just as you would in stock investments. This may mean either balancing your portfolio between metal asset classes – bullion, numismatic coins and certified investment grade coins – or diversifying your investments in different types of metals, like gold and silver.
Types of Gold Bullion
There are two basic types of gold that can be bought by investors. Depending on your preferences and how much you are looking to invest, there can be a difference between investing in gold bars and gold coins. Purity is also important when buying gold. The term gold bullion means that the gold is between 99.5% and 99.9 % pure. You want to look for gold that is sold by a reputable gold dealer or a gold seller connected to a government mint to ensure that you receive real gold. Gold bars must be certified for weight and purity, and will typically have a serial number attached for security reasons. Some bars and coins even have extra security features.
Gold Bars & Coins
Gold bars come in different sizes, from as little as 1/100th of an ounce in weight, all the way up to a 400-ounce gold bar. Gold bars generally have premiums that are lower than coins. This allows you to pay the minimum amount over the spot price of gold, giving you more ounces for your investment.
Gold coins are typically the most common way that people purchase gold. This is because they are more convenient than gold bars due to their smaller size and ability to be bought in smaller increments. There is something to be said about certified, graded coins and bars, but the most cost effective way to purchase gold is by purchasing lower premium branded rounds or bars. The premiums on these are much less than the ones that have been certified.
What You Need to Know About Gold Investments
Historically, precious metals have been a great long-term investment. They tend to increase in price during periods of inflation and they hold their value over time. Precious metals can be a good way to diversify your investment portfolio and protect you from market volatility.
While some assets can be purchased all at one time, like a house or commercial property, gold should be purchased in increments. Investors will typically choose to purchase smaller amounts of gold over time, to counteract price fluctuations. Gold can make a great asset to include in your retirement portfolio since retirement investing is generally long-term.
Having possession of physical gold offers the most protection that precious metals can offer. If you are holding gold in your home, it might be a good idea to see if your homeowners insurance offers an add-on to cover precious metals. At the point you start to feel uncomfortable with the amount of gold in your home, you might want to think about a second location gold storage facility. There are many companies out there such as Brink’s, Loomis and Strategic Wealth Preservation for gold storage. However, it is important to consider the storage fees and shipping costs involved with using these types of services.
When investing in precious metals, it is important to remember that there are risks involved, just like with any type of investment. The price of precious metals can go up and down, and may be affected by global economic conditions. It is highly recommended that you have adequate financial resources, knowledge, and cash reserves before deciding to invest in precious metals. Investing in precious metals may not be for everyone. We suggest that you speak with a certified financial advisor before making any investment decisions.