The following is a guest post from Commodity.com. In an effort to continue growing our investment acumen, we like to consider alternative points of view in the investing realm. While I currently do not own any gold nor do I have plans to invest in the short-term, it’s always good to learn new investing strategies. Now onto The Savvy Investor’s Guide to Buying Gold.
Gold is back in the headlines as investors seek out safe-haven assets in the midst of the economic crisis sparked by the coronavirus.
This month gold hit a historic high, passing the $2,000 an ounce mark. For most of 2020 it has outperformed all major commodities. Gold is up 35% year-to-date. Interestingly, that number one spot was recently eclipsed by silver, which was previously down 4% YTD. Silver is now up 59% year-to-date. Like gold, silver is often seen as a safe haven asset in times of economic uncertainty.
So what’s behind gold’s (and silver’s) performance? Why is gold up when most commodities are down year-to-date? What are the best ways to buy gold? And what are the secrets to obtaining gold at the best rates?
A Traditional Safe Haven Asset
For millennia gold has been considered money. And for centuries it’s been an asset that the rich used to protect their purchasing power in times of economic uncertainty.
Those that are currently bullish on gold see it as a hedge against massive money ‘printing’ by governments and low interest rates.
Gold moves inversely to real yields and those have reached record lows. For these reasons, gold is seen as an important element in portfolio diversification.
So what are some examples of analysts and institutions that are bullish on gold?
- Bank of America predicts gold will exceed $3,000 an ounce by late 2021.
- Nine private banks controlling $6 trillion in assets have advised their wealthy clients to allocate 5%-10% of their portfolios to gold.
- Sherry Paul, Managing Director for Wealth Management at UBS, reports that they started adding gold to client portfolios last February and investing in it “continues to make sense.” (Source: Bloomberg)
- Some top hedge fund founders are bullish on gold, including Paul Singer of Elliott Management, David Einhorn of Greenlight Capital, and Crisin Odey of Odey Asset Management.
- Several fund managers believe that the “bond market’s trillions are coming for gold.”
Be aware that not everyone believes gold is a wise or necessary investment. In addition, many gold bulls view the metal as a type of insurance designed to preserve wealth rather than grow it.
Contrarians like Warren Buffet have long been skeptical of gold and favor silver given its widespread industrial uses.
Smart Ways to Buy Gold
There are multiple ways to invest in gold. You may have seen late night infomercials or glossy magazine spreads advertising gold coins. Typically these advertisers offer coins with high mark-ups. It’s usually a good idea to avoid these.
Indeed, since gold’s price has soared, bloated prices and even outright scams are on the rise.
The good news is there are several easy and cost-efficient ways to invest in gold. Here are some of the best.
The Stock Market: Sprott Physical Gold Trust (PHYS)
This Canada-based trust is a convenient and affordable way to buy physical gold via the stock market. When you buy a share, you are purchasing a part of a real gold bar, which is stored in a vault. Sprott has some $8 billion in precious metals under management.
The Sprott Physical Gold Trust, which trades under the ticker symbol PHYS, is the best-known bullion trust. Shares are currently priced at over $16.
Investors may be interested to know that you can redeem (take delivery of) the physical bullion you own through Sprott, so long as you have invested enough to own a standard London Good Delivery bar, which weighs 400 ounces.
This trust is structured as a “closed-end fund” (CEF) which may present unique tax benefits to buyers of gold. Consult a tax professional to learn more.
Fans of silver may be interested in the Sprott Physical Silver Trust (PSLV) and the Sprott Physical Gold and Silver Trust (CEF). (The latter offers shares in combined silver and gold bullion.)
“Buy and Store” Services: BullionVault.com and GoldMoney.com
BullionVault.com and GoldMoney.com are services that allow investors to buy gold directly via the internet. The metal is stored in a vault. These two services manage the logistics through trusted third parties like Brinks and Via Mat and all metal is audited regularly by third parties.
After you purchase your metal you can choose a storage location, such as Singapore, Zurich, Hong Kong, New York, or Toronto. Currently GoldMoney offers more storage locations than BullionVault.
- Of these two, BullionVault is the best choice for small investors, because it doesn’t not charge a minimal monthly storage fee. GoldMoney charges a minimal fee of $10/month.
- Those investing five figures or more in gold would do well with either service.
Note that GoldMoney.com offers a convenient Visa card: when you sell any portion of your metal you can load the funds onto your card for immediate use.
There are a variety of gold ETFs available via the stock market. But be aware that not all of them are backed 100% by bullion. Some offer mixes of physical bullion and mining stocks and mining interests, such as financiers of gold mining companies or exploration companies.
Gold mining stocks can’t be expected to consistently mirror gold’s price, since multiple issues may affect the stock, such as changes in management, mergers and acquisitions, and COVID-19 shutdowns of mines.
Gold ETFs that are backed 100% by bullion are typically structured as “grantor trusts.” This means that they usually don’t transfer ownership of the gold to you. There are notable exceptions, like the The Perth Mint Physical Gold ETF (AAAU) backed by the government of Western Australia.
Popular gold ETFs backed fully by bullion include:
- GraniteShares Gold Trust (BAR)
- SPDR Gold MiniShares Trust (GLDM)
- iShares Gold Trust (IAU)
- VanEck Merk Gold Trust (OUNZ)
Tax note: Grantor trusts do not transfer ownership of the metal to you but you will be taxed as though you own it.
What About Coins and Bars for Home Delivery?
There are many reputable online dealers that you can purchase gold (or silver) coins and bars from, such as Apmex.com.
The most popular coins are those minted by governments. You’ll see these listed according to the design and country of origin, for example:
- Royal Mint (UK) Britannias
- American Eagles
- Canadian Maple Leafs
- Austrian Philharmonics
- Australian Kangaroos, Kookaburras and Koalas
Buying coins and small bars for home delivery are one of the least cost-efficient ways to purchase gold because you have to pay a premium for each coin or bar.
Spot Price and Premiums, Explained
To understand premiums, first we need to understand the “spot price.” The spot price is the current price of one troy ounce of gold. The price fluctuates continuously. You can find it by googling “spot price of gold.”
- Currently the spot price of gold is over $2040.
- The premium for one-ounce gold coins typically runs between 7-9% per coin.
This is considerably higher than normal, as premiums have gone up during the coronavirus, making this method of buying precious metals even less cost-efficient.
Note that silver premiums are even higher: ranging from 39% per ounce up.
If you’re set on having some gold and silver delivered to your home, then here are some tips:
- Look for discounts based on volume and method of payment
- Consider buying generic rounds or bars instead of government-minted coins. Firms like Apmex produce their own coins and bars which cost less.
- Opt for a large bar instead of many small coins: a 10-ounce bar will likely carry less of a premium than 10 individual one-ounce coins.
- Check local pawn shops or places with “Cash for gold” signs: coins are typically either higher or lower than normal at these locations.
- Opt for second-hand coins, which are available from online retailers.
It’s likely that gold will continue to be viewed as a safe haven asset and, due to the pandemic, uncertainty in the economy will continue for the foreseeable future.
If you choose to invest in either or gold however, being knowledgeable can save you considerable money.
Disclosure: I am/We are long $AAPL, $ADM, $BG, $BGS, $BP, $BUD, $CALM, $CAG, $CAT, $CLX, $CMI, $CSCO, $CTL, $DAL, $F, $FAST, $GE, $GT, $HBI, $IRM, $JNJ, $IBM, $INGR, $KHC, $KO, $KSS, $MMM, $MSFT, $NWL, $PFE, $PG, $SBUX, $SJM, $SPTN, $STX, $T, $TSN, $UPS, $WFC, $WPC, $WRK, $WY, $XOM
Disclaimer: All the information above is not a recommendation for or against any investment vehicle or money management strategy. It should not be construed as advice and each individual that invests needs to take up any decision with the utmost care and diligence. Please seek the advice of a competent business professional before making any financial decision.
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