How to Buy Gold
Here’s what you need to know about your safe-haven investment
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When investors are looking for a way to protect themselves financially in uncertain times, gold often emerges as a preferred choice. It has been around for thousands of years and the precious metal is known for retaining its value even in times of economic volatility, making it very appealing. Whether you’re a seasoned investor or new to the world of finance, understanding the complexities of the gold market and how to incorporate it into your portfolio is crucial.
There are many ways to invest in gold — such as through gold-related stocks and funds or by investing in physical gold that you store or tuck away in an individual retirement account (IRA). Each avenue has pros and cons that you should consider before buying gold. To help you feel more confident making the next step in gold investment, we’ve covered everything from the best time to buy to the intricacies of each type of gold or investment.
Editor’s note: Gold and other precious metal IRAs are an investment and carry risk. Consumers should be alert to claims that customers can make a lot of money in these or any investment with little risk. As with any investment, you can lose money and past performance is not a guarantee of future performance results. Consumers should also obtain a clear understanding of the fees associated with any investment before agreeing to invest.
Key insights
- Gold prices fluctuate due to supply and demand, economic conditions and even geopolitical events.
- The “buy low, sell high” principle applies to gold investing.
- Expect to pay 5% to 8% more than the current gold spot price.
When should you buy gold?
The rule of “buy low, sell high” applies to all gold investments, including coin, bullion or stock form. The best time to buy gold is when you want to diversify your investment portfolio or have tangible assets during periods of economic instability.
There are two main ways to buy gold: either physically or through a financial instrument, such as a gold exchange-traded fund (ETF). Even though gold is considered a safe-haven investment, which means it tends to retain or increase in value during market turbulence, it is not without its risks.
» MORE: How to invest in gold
Pros and cons of buying gold
When purchasing gold, whether physical or as an investment, there will be some drawbacks. This list can vary depending on the type of gold you purchase. Weighing the pros and cons of buying gold with your overall financial picture will help you decide if gold is a good investment for you.
Pros
- Retains its worth over time
- Can quickly convert to cash if needed
- Diversifies investment portfolio
- Physical gold is a tangible asset
- Potential for future profit
Cons
- No income from dividends or interest
- Owning physical gold can come with additional costs
- Short term price can be volatile
- Physical gold should have special storage
» READ MORE: Why is gold valuable?
What type of gold should I buy?
Bullion coins and ingots are a relatively safe way to buy gold, though some investors prefer to invest in gold funds, such as mutual funds or ETFs. Don Durrett, a longtime investor and author of the book “How to Invest in Gold and Silver,” recommends that people begin investing in bullion before jumping into stocks. “I always tell people to buy some physical gold or silver coins — buy them and stick them in a safety deposit box and see how it feels," he said.
The most common coins to buy and sell are the Canadian Maple Leaf and the American Eagle gold bullion coins.
The best type of gold for you to buy depends on your starting investment, your financial goals and how often you want to sell your investment.
Here are the most popular types of gold:
- Gold bars and coins: Gold bars are a quantity of gold in any shape that meets standard purity requirements. A gold coin is a wafer or disc made almost entirely out of gold.
- Gold jewelry: In general, jewelry is not a lucrative form of investment. Retailers add up to a 400% markup on gold jewelry, making it unlikely that you will be able to recoup your investment or make money on top of it later.
- Gold mining stocks: Instead of just owning a piece of gold, stockholders own a share of the process of mining gold by investing in companies that own mines. Gold stocks are a riskier, potentially high-profit investment.
- Gold mutual funds: With gold mutual funds, investors pool their money together to buy precious metals. Mutual funds are available through a financial institution or commercial bank.
- Gold ETFs: Gold ETFs are a type of commodity fund. It’s a relatively low-cost way to diversify with metal investments. You can buy and sell them directly through the stock exchange or through a brokerage firm.
- Gold futures: Futures are contracts that are traded on exchanges. Gold futures specifically relate to the price of gold on a predetermined date. Like with gold funds, investors don’t own physical gold, but they can buy and sell at their own discretion.
» LEARN MORE: How to buy silver
How to buy physical gold
You can buy gold online and from local gold dealers, pawnshops and jewelry stores. Here are some things to think about before you buy physical gold:
Expect to pay a 5% to 8% premium above the spot price for a gold coin.
Check current gold spot prices
It's a good idea to follow the price of gold for some time before deciding it's the right time to invest. You don’t want to buy at the peaks, so it’s good to understand what factors affect the price. Shop around dealer websites to make sure you're paying a fair price for gold.
Find the right gold dealer
Durrett advises gold bullion buyers to buy from online gold dealers, explaining that local retailers can’t compete with online stores and typically charge customers more. But because you’ll always sell your gold at the spot price, it doesn’t matter where you sell.
Take some time to research reputable gold dealers to find a fair price on gold coins. The gold dealer should have clear buyback policies in place and also have a strong reputation through the U.S. Mint’s listings of gold dealers. Reading through ConsumerAffairs gold dealer reviews can help you understand how the pros and cons of each company compare.
An added bonus of finding a reputable gold dealer is that they can guide you through the process and answer any questions. That’s especially helpful to people who are new to gold investments. ConsumerAffairs reviewer Liam from Rhode Island said, “I was looking for a small kind of long-term investment to keep my money safe throughout my life, something to look forward to for retirement, or something to pass on to my children. We started with very basic and introductory and his answers got more and more specific as time went on. He had a very laid-back but also professional style and that worked very well with me.”
In general, avoid buying gold online through bidding sites; you can end up in a bidding war and pay more for a gold coin than it’s worth.
Consider storage options
Where will you store your precious metal? Bank safety deposit boxes are an option, but some precious metal investors don’t trust banks. You might prefer purchasing a home safe for your gold, which adds to the overall cost of your investment.
Remember, homeowners insurance might not cover the loss or theft of your gold, so this also may affect where and how you store your bullion.
Avoid gold scams
Even though it’s relatively easy to find and buy precious metals, there are some risks to consider. Avoid Craigslist, online dealers offering massive discounts, pawnshops, TV ads, cold callers and any dealer without a brick-and-mortar location, since there’s no way of verifying that the dealer actually exists.
Dealers that offer free storage or delayed delivery might not be legitimate, and you may never see the gold you paid for.
And don't give in to the pressure of late-night telemarketers insisting you call them immediately for a limited-time discounted rate on gold. Take your time to find a reputable dealer.
» LEARN MORE: Precious metal IRA: How to invest in gold and silver
I was looking for a small kind of long-term investment to keep my money safe throughout my life, something to look forward to for retirement, or something to pass on to my children. ”
Buying gold bullion vs. gold stocks
Hunter Riley III, a longtime investor and author of “Stack Silver Get Gold: How to Buy Gold and Silver Bullion Without Getting Ripped Off,” says that one of the main things gold bullion has going for it is that it’s a tangible asset you maintain control of, no matter what happens to the global economy.
Here are the main differences between the two types of gold investments.
| Gold bullion | Gold stocks |
|---|---|
| Tangible investment: You can hold and store your gold and have it with you at all times. | Easier to sell: When you have physical gold, you need to find a physical buyer, which can be difficult and time-consuming, especially when the market starts to go south. |
| Hedge against inflation: Typically, physical gold holds its value in times when the dollar is weaker. | Riskier: Investors “really want to start out using money they can afford to lose until they get an understanding” of how mining stocks work and what causes their prices to rise and fall, according to Durrett. |
| No third-party risks: If you own and store the physical gold on your property, you don’t have to worry about third-party security breaches. | Higher return: The payoffs can be more significant and include dividends you won’t get when you buy a piece of gold. |
| Universal value: Tangible gold is recognized worldwide as valuable. | Requires more research: A successful pays attention to their particular mining stock's daily and external factors. |
» COMPARE: Best gold dealers
FAQ
What influences gold prices?
The current price of gold is called the “spot price,” and it’s constantly fluctuating. The spot price reflects the most recent average bid price, according to global professional traders.
Several things can influence the spot price on any given day, including war, the central bank, supply and demand, and the size of the average transaction. When you buy gold, you buy it at a percentage (generally 5% to 8%) above the spot price, and you sell it for exactly the spot price.
Can I buy $100 in gold?
When you want to invest in gold but don’t have enough money saved for a gold bar, there are gold coins available in sizes of 1 gram or one-tenth of an ounce that are more affordable. It is best to contact a gold dealer you trust and let it know your budget so it can match you to the best products for you.
Do I have to pay taxes when buying gold?
Depending on the specific transaction, there may or may not be taxes due upon buying physical gold bullion or coins. However, capital gains taxes may apply if you sell gold for a profit down the road.
Bottom line
Gold has been a commodity for thousands of years. Its value has been relatively stable historically, and it tends to perform better when stocks are down. For these reasons, gold is a popular investment strategy for many people who want to diversify their portfolios. However, most financial advisors don’t recommend putting more than 10% of your assets in gold.
If you’re looking to invest in gold for retirement, you might consider a gold IRA. These work similarly to a traditional or Roth IRA but hold bullion or coins instead of paper assets.
