Television ads and radio talk show hosts tout gold buying as if we were on the precipice of another Great Depression. Some people agree with them. Regardless where you stand in the ‘sky is falling’ argument, many seniors respond to the argument that at least some physical gold is a good thing to own.
Gold buying is a little more complex than just picking up the phone and ordering ‘rounds or bars.’ On the product side, having a little knowledge will ensure you are purchasing something that will hold its value at least on par with the value of the gold it contains. On the service side, scam artists do exist. Fortunately, reputable gold dealers also exist, online and off, to fulfill your wish to own physical gold, whether you store it at home or not.
It may have started with a gold coin given to us as a child by a grandparent many decades ago. Whenever it started, the appeal of gold – in any form – is virtually universal. Whatever its shape, its lowest value will be the exact amount of pure gold in any item: jewelry, coins or bars. (The benchmark is 0.999 pure, with an alloy added so the soft gold holds its form.) Beyond that, you are paying for its rarity or design.
As an investment, people tend to be either avid coin collectors or bullion bar holders. Gold can be purchased through many sources, including banks, brokerage firms, coin dealers, auctions and pawn shops. However, the reliability of the source is critical. As a buyer, you are seeking the greatest reassurance that the gold you are purchasing indeed contains the amount of pure gold you are being told it does. That is why some gold dealers have worked so hard to build and maintain a solid reputation.
Historically, gold has been held by the world’s wealthy as a store of value. It is easily negotiable, transportable and enjoys a structured market that determines its value in world markets at any moment. The price of gold is set internationally in U.S. dollars per troy ounce as the result of many factors. The current spot price of gold, which changes minute by minute, is available on many websites and should be used as the basis of any purchase.
In recent years, some investors have settled for owning gold-back exchange-traded funds, or ETFs. These are traded easily like stocks, through brokers. They consist of ‘gold derivative contracts’ that are backed by gold, but you own no gold. Although they are convenient and will track the price of gold, for many they fail to provide the feeling of security they are seeking.
Many of us scrimped and saved over the years to build our nest egg so that we could enjoy our later years free of financial fear. However large or small that nest egg might be, in our volatile world, there is always a fear of loss from political and economic forces we cannot control.
Traditionally, owning gold has been considered a hedge against anything that could go wrong: runaway inflation, foreign wars, worthless currency and so forth. When major economies and currencies go down, the value of gold goes up. Gold has served that purpose well, such as during the financial crisis of 2008. However, once the crisis is over, the price of gold tends to go back down to its base position.
Financial advisors will often say older investors should have their investments in assets that generate income. Gold can only serve that purpose if it is carefully monitored and traded like any other commodity, buying and selling with the market.
Regardless, for many seniors gold continues to play a ‘peace of mind’ role. It becomes a safe harbor for a small percentage, say 5-15 percent, of their portfolio as a hedge against disaster. For those who want to own and hold physical gold, either in bullion bars or coins, they must find a reputable, reliable gold dealer.
Finding the right gold dealer means having:
- A reliable source for safe purchases of gold, however large or small;
- Access to an advisor who can help develop a smart gold-buying strategy;
- A safe place to store physical gold and avoid transporting it;
- A means to sell gold back, if needed; and
- Assistance in putting physical gold into a self-directed IRA.
With the advent of the internet came many online gold dealers as a convenient way of gold buying. However, because of the trust that you will be putting in that supplier, it is critical that you investigate the dealers thoroughly.
As you assess the different companies, you want to compare the cost of their service (what they charge as a premium above the cost of the gold you are purchasing), the warranty they provide, the ease of purchasing and of canceling, if needed, and the quality of their customer support.
You also want to qualify them for how long they have been established and by what others say about them in arm’s length reviews. You want to know if prices are different for the various payment methods and how much they charge for shipping. Also, if they offer price protection and if there are minimum and maximum purchase requirements.
Liquidity, or the ease of buying and selling gold, is a vital part of the market and needs an easy way to match buyers and sellers. It requires a certain standardization of the product itself and an intermediary, in this case, gold dealers.
The product: Typically, the physical gold that is bought and sold for investment purposes is held in bars or round coins. Gold bullion coins can range from one gram through one troy ounce, although they exist as large as five troy ounces or larger. While called ‘coins,’ they do not carry a monetary value. Their value comes from their precious metal content, the mint that produced them and any rarity.The ones with the most market liquidity (ease of buying and selling) are the 1-ounce coins such as the U.S. Eagles, Canadian Maples and South African Krugerrands.
Bullion bars, or ingots, typically start at one troy ounce and go up to gold bars weighing 100 troy ounces or more. A common purchase, for example, is the 1-ounce 0.9999 pure gold bars from authorized manufacturers such as Pamp Suisse, Credit Suisse, U.S. Mint and Royal Canadian Mint. They are assayed, stamped to an exact 1-ounce weight, certified and sealed at the refinery in a plastic card, with a serial number on the assay card and the bar.
The purchase price will be the spot price of the weight of the item, plus a premium or transaction fee. The higher the weight of the piece, the lower the per-ounce premium, which includes profit plus a handling charge. If you are comparing identical items from different dealers, you want to pay the lowest possible premium.
Because the price of gold changes minute-by-minute, you want to purchase from an online dealer that displays transparent bid-and-ask gold prices. You should be allowed to lock in your price when you are ready to buy, with a small window to complete the rest of the transaction. Otherwise, a change in the spot price of gold will result in a different purchase price than you expected when you made the decision to buy.
Some dealers will offer free shipping above a certain minimum purchase. If not, the shipping fees should be clearly stated as they can have a major impact on the net value of your purchase, especially on smaller purchases.
The service: Because you must trust that the gold dealer will send you exactly what you ordered after you have sent the money, you want to find a record of prior transactions and reviews from other buyers. The best strategy would be to get a referral from someone who has frequently used and highly recommends a particular gold dealer. Contacting the dealer’s state Attorney General and local consumer protection agency could also be valuable.
By not straying from reputable dealers, you can avoid any form of fraud which, in its extreme, could include buying gold coins or bars that are coated (and not solid) gold since it is difficult to check without defacing the piece.
Gold buying sometimes becomes gold selling when you want to cash in on an earlier purchase. While you could sell locally to coin or gold shops, you can check the depth of a gold dealer’s service by finding out how they would treat you when buying back the gold it sold you. Pay attention to their policy, and if they charge a fee (or discount) on the spot price at the time of sale.
Gold buying has many aspects, including ways to store gold and to put your gold purchase into a precious-metals self-directed IRA. A gold dealer should have experts available to educate and advise you on your many options, giving you the risks and costs of any recommendation.
Two areas differentiate what seniors prioritize from what younger people do when making gold purchases: age-friendliness and health-related value.
Agefriendliness: Your age should not affect your interaction with an online gold dealer, as it is a relatively simple transaction. Once purchased, you just have to be available to take delivery and to find a safe place to store your physical gold. However, how to sell it if you decide to do so can become cumbersome once you are less mobile because of age. As for its role as a safe store of value, the value of gold can go up and down frequently enough that it does not matter if you are buying it for a 20-30 year time frame or as a safe harbor for two or three years.
Health-related value: Buying and owning gold has little to do with your health. The only consideration is that, before your health declines seriously, you want to be certain you have shared with a trusted party where it is stored (as well as documentation of its purchase) and what you want done with it as part of your estate, ideally within a will.
Gold buying begins with the spot price of the precious metal at the time of your purchase. Spot gold prices frequently change throughout each day, based on market fluctuations, and the gold dealer should display the price transparently.
The gold coin or bar purchased will be affected by the reputation of the mint that produced it, with some mints ensuring greater quality than others. A renowned mint will make your gold easier to resell as well.
Above that, gold dealers will charge a premium, which is the equivalent of their profit and internal handling costs. The larger your purchase, the lower the premium will be when measured in per-ounce terms.
Some gold dealers will charge shipping fees and wire transfer fees. (Depending on the size of your purchase, you may prefer to pay with a wire transfer directly from your bank to the dealer. Your bank will likely charge you for the transaction, but your dealer may, too.) Also check if the dealer is in a state which requires gold dealers to charge state sales taxes; unless those taxes are compensated fully with lower transaction costs, they will make your purchase less interesting in net value. You might want to avoid those states.
If you ask the dealer to store your gold, it will charge a management fee for storage and security, much as a brokerage would for an investment portfolio. That fee may be calculated by weight, or as a set monthly amount. Where to store physical gold is a concern for many investors, since stolen gold can so easily be converted to cash. Your gold dealer is one solution. A home vault with security is another, and a bank safe deposit box is a third. They all have pluses and minuses regarding risks and costs, which should be factored into the gold buying decision.
Choosing a dealer for your gold buying depends on the out-of-pocket cost(above the product cost), the company’s warranty, how easy it is to order, its cancellation policies and the quality of its customer support.
Price: Comparison shopping for online gold dealers is relatively easy, if their policies on premiums and other fees are clearly stated. You might want to avoid any dealer that is not upfront about each cost.
Warranty: Any reputable gold dealer will guarantee the authenticity of every product it sells. As an industry that thrives on trust, such a company will do whatever is needed to resolve any quality issues through a clearly stated refund, return and/or exchange policy. However, the industry is also filled with high-pressure, less-than-scrupulous salespeople who play on our fears. In that case, the warranty may only be as good as the words on the website.
Ease:The entire gold buying transaction should be described on a gold dealer’s website: how you lock in a price, how you pay, how fast it will be shipped (if that is your choice), what shipping will cost, how your shipment will be tracked and how you will be advised of the delivery date.The gold dealer’s website should be intuitive and easy to navigate, and the ordering and billing process should be trouble free. Some dealers will require that the gold buying transaction itself be done over the telephone instead of online.
Cancellation: Because gold is a precious metal with a fluctuating market value, a gold buying transaction is the equivalent of a binding contract. Most companies will charge you a cancellation fee, plus any loss it occurs if the market value has dropped in the interim.A gold dealer’s website should specify what the cancellation window is; if you miss that window, you are likely dealing with the costly return shipment of your purchase and a delay until the product is received and authenticated, then a refund sent.
Customer support: Once you have purchased successfully from a dealer, it is likely you will purchase again if you feel safe and supported throughout the transaction. Gold dealers are aware of that fact and, particularly after your first purchase, will offer dedicated account managers who become educators and facilitators.
For many seniors, buying physical gold is an emotional decision. Once you have made that decision, you then must consider how and where you are going to store your gold. One option is to store it with your dealer. However, the temptation is to store it where you can ‘visit’ it, although that may not be the smartest decision unless you have a secure place to do so at home, for example, and can maintain utmost secrecy.
Some people prefer an independent depository where, if it is close enough, you can go ‘audit’ your holdings upon 24 hours of notice. Some are approved by the IRS to house the precious metals held in IRAs. Finding a good independent depository requires the same research and vetting as does finding your gold dealer.
Transporting precious metals is easy for dealers and depositories, based on their extensive experience. When shipping to you, they will usually use FedEx (or a similar) shipping company and a neutral package. The shipment will be insured by the dealer’s or depository’s umbrella insurance policy. Shipping precious metals back to a dealer or depository may be a bit more complicated – because of the insurance – but only requires you to follow their instructions carefully.