What Are The Different Ways You Can Buy Gold?
February 5, 2009 – 10:09 pmI’m not a gold bug. I don’t own any gold (unless there are some mining stocks or commodities in the mutual funds that I own, and I don’t believe there are). And I’m not telling you to buy gold.
What I am telling you is that, as a sophisticated-investor-in-training, you should arm yourselves with some basics knowledge about a variety of investment choices.
There are always a group of folks that are caught up in gold fever. Sometimes they’re out in the open, other times they’re outside of the spotlight. I’d like to discuss the various methods available to buy gold (based on my limited research), and discuss some of the pros and cons. I think every investor should know the basics about all types of investments, even though they may not agree with or use all types of investments.
In my opinion gold is still more of a crisis investment than anything else for most people. I’m sure some have made fortunes in gold, just like some have made fortunes selling Avon and speculating on oil drilling rigs. Just because someone else has been successful doesn’t mean I’m going to be successful, especially if I’m not willing to pay the price in time, energy, etc to ultimately be successful. Therefore I won’t be busting out the divining rods and start looking for oil any time soon, but that’s just me. 
Gold. How can I get me some?
Based on my preliminary research there are a few of the main choices:
- open up your phone book, look for a gold dealer, and go buy some gold. For investment purposes most people buy coins (U.S Eagles, South African Krugerrands, Canadian Maple Leafs, etc) or bars. Local dealers can charge quite a premium over the spot price of gold for coins and bars, so shopping around could save you come major cash.
- Numismatic coins are collectible coins. Some argue that collectible coins are less liquid, which seems like a reasonable argument.
- Buy a precious metals or gold mutual fund. There is even a family of funds called the Midus Funds. I’m not recommending these funds and don’t really know much about them. [I did find it funny that the "Special" Midus fund is down 45% this year as of this writing. Check out the list of risks associated with this fund and it's a bit easier to understand how this could happen.]
- Buy a gold ETF, like GLD or some of the other gold ETF’s. Note that the long term capital gains rate on precious metals ETF’s is 28% because the IRS apparently categorizes them as collectibles. James Turk and others have called into question whether these ETF’s actually own as much of the underlying commodity as they are supposed to. Please do your own research before investing.
- Buy gold mining stocks. As stocks this type of investment will have a much different risk and return profile than simply holding shiny gold coins.
- Futures and options. i don’t know anything about gold futures and options. My risk-o-meter goes off when I get to this kind of topic personally
- There are also digital bullion trading exchanges
In a future post I’ll talk about some of the choices you have on where to store your gold.
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