What’s The Best Way To Buy Gold?
As a continuation of the Fee-Only Financial Advisor blog sharing group, this month’s post comes to us from Joseph J. Alotta, a Financial Advisor in Oak Brook, Illinois. He shares his thoughts on how to purchase gold and silver coins for those investors preferring a small allocation of physical gold and silver.
Admit it, you like it. You want it. You want to touch it, feel the coldness in your hand, feel the weight, it is too heavy for its size. It makes you feel good.
Prince, the rockstar – the man who only has a first name — he liked gold. Prince didn’t have any name for a while, he lost even his first name. They called him “the entertainer formerly known as Prince.” But he got his first name back, and he died owning lots of gold bars.
It is okay. I understand. I am a professional financial advisor and I bless your desire to own physical gold in the name of National Association of Personal Financial Advisors.
Three reasons: (1) It is what you want! (2) It can’t do you much harm (3) It may do you some good. So why not?
Will it make you happy? Probably not, but you can keep it as a paperweight on your desk and play with it when you make phone calls. It may give you some security. You may have a ready gift to give to someone if you need an emergency gift.
Can it do you harm? Not in the quantities I am suggesting here. A small amount. One percent, two percent of your total. No more.
When Prince, the rockstar entertainer died in 2016, he had 670 ounces of gold on hand. This was worth approximately $840,000. It sounds like a lot, but Prince’s estate was worth $300 million, so this is just 1/4 of 1 percent of the total.
There is a difference between gold on paper and gold in person. Maybe your advisor recommends a gold mutual fund or an ETF. Not the same. Some people want it near them. Some people like to touch the gold. It gives them a sense of security and privacy. Remember Prince had gold bars. Alan Greenspan said, “[Gold] is the only currency, along with silver, that does not require a counter-party signature”.
Gold gives you some options that you may not have had otherwise. There is a famous story about Augustine Dupré. He was arrested in 1789 by soldiers in the French Revolution. They made him wait in line for his chance at the guillotine. Suddenly, in the midst of despair, he remembered a little gold coin in his pocket. It is called a Gold Angel because on the face of the coin is a picture of an angel. He bribed a soldier to march him to a private alley and release him from certain death. Afterward Dupré would tell about his guardian angel and always carry one in his pocket. Other people followed his example. Napoleon Bonaparte always carried a Gold Angel in his pocket.
How to buy gold and silver:
Important Step #1.
Find out what the spot price of gold is. The spot price is for 1-ounce of gold. It changes minute by minute. You must know what the spot price of gold is before you buy any form of gold. It is the price large dealers are paying for gold around the world.
How do you find it? Google “what is the spot price of gold”. Google knows. Siri doesn’t. Google told me “Gold Price Per Ounce = $1,202.20″.
Important Step #2.
Figure out the premium charged over spot. Nobody will sell you gold at a loss. If it costs them $1,202.20 for an ounce, they are going to charge more for making the gold into a bar or coin and shipping it to you. Focus on the premium.
For example, I just looked at a dealer and they were selling a 1-ounce gold coins for $1,262.75 and a 1/10-ounce coin for $136.85.
Subtract the actual price from the spot price. The first coin 1262.75 – 1202.20 = 60.55. This is the premium
The premium for the second coin is 136.85 – (1202.20 / 10) = 16.63.
So if you buy the smaller coin, you will need to buy 10 to get an ounce and your premium per ounce would be 166.30.
So it is always better to buy 1-ounce coins than smaller coins because the premiums are lower.
Important Step #3.
Fake gold abounds. Avoid anything weird. Buy common items. Do not buy gold bigger than 1-ounce. Counterfeiters have economy of scale with more expensive items. Government-issued coins are less likely to be fake.
Important Step #4
The best place to buy gold and silver is via the internet from large respectable bullion dealers who offer discount prices. These websites compare web prices and give you the best price. You should use this as a starting point for negotiations with any other dealer or coin shop.
I recommend Coins rather than bars. Coins are minted by governments. And I would only recommend 1-ounce coins.
Important Step #5
Buy only these coins.
Gold Coins Recommended.
- Canadian Maple Leaf, 1-ounce gold. Any year is fine.
- American Eagle, 1-ounce gold. It usually costs a little more than the Maple Leaf.
- American Buffalo, 1-ounce gold. Costs the same as the American Eagle, the difference is that the American Eagle is 22 carat gold and more durable than the Buffalo which is 24 carat. The Eagle is slightly heavier, but both coins contain exactly one ounce of gold.
- South African Krugerrand, 1-ounce gold. This was the first gold 1-ounce coin to be made. It is usually the cheapest option and a very popular choice. I have listed it here as my 4th choice because some people have ethical problems with the South African government.
Silver Coins Recommended.
- Canadian Maple Leaf, 1-ounce silver.
- American Eagle, 1-ounce silver. Usually costs a little more than the Maple Leaf
I recommend only these coins. First, they are popular and can be bought and sold easily. Second, they are less likely to be fake. Many fakes exist, so only buy from a reputable dealer and only the popular items.
As I write this, gold is approximately 70 times the cost of silver. Don’t let this confuse you. Buy gold and silver in dollar amounts. For example, buy $20,000 worth of gold and $10,000 worth of silver. Yes, you will get more silver. The major constraint is your storage space.
Important Step #6
Where should you keep your stash? Keep a few out on your desk. You want to touch them when you are talking on the phone. Coins are made to be touched. You want to have them handy in case a grandchild comes. You’ll have a ready gift. Tell them to keep it for college.
Just remember, if you touch a coin, you are decreasing its value. It is no longer uncirculated. For the coins I recommend, it doesn’t matter. They are just valued by their metal content. But all the same, just touch a few, and the rest, keep in plastic. If you buy ten coins, they will come in a tube. Single coins will come in a plastic “flip”. Never put your coins in a plastic bag. It is a different kind of plastic, a soft plastic, that can react with your coins and leave a green film.
But the rest of your stash, where do you keep it? Do you have an Emergency Records file cabinet? You should. That is the subject of another blog. Do you have a home safe? If you buy a substantial amount of gold, then you will need to rent a safety deposit box at your local bank. They come in different sizes and cost about $30 a year for the smallest box. (The smallest box is good for about 100 ounces of gold.)
About the author
Joseph J. Alotta, MBA, CFP™, a member of NAPFA, is a financial advisor in private practice in Oak Brook, Illinois. His gold holdings are limited to three Suisse Misses, (20 Swiss Francs, containing .1867 ounces of gold each) his father gave him, one St. Anthony medal (9.6 grams of 18 karat gold, .2315 ounces) also from his father, and one gold rapper chain, (36.8 grams of 22 karat gold, 1.0846 ounces) which his ex gave him and he doesn’t wear. Also, a gold Rolex watch worn by the Apostle Paul, (only kidding), a 1909 Honus Wagner baseball card worth $3.2 million (I wish!!) and a 1804 Silver Dollar, (fake unfortunately) (The real one was auctioned for $10.8 million in 2016 and the seller declined the offer). All these items are kept in a small safety deposit box at the Bank of America, (Costing $75 a year, deducted from his account automatically). His important papers are also in the box including deed to house, wills, and power of attorneys and a flash drive containing a backup of his computers. If you have a collectible question, please contact him at firstname.lastname@example.org. He likes to help people and he finds collectibles interesting.