How to Buy Gold Coins, Bars, Jewels? 4 Ways, Essential Pros and Cons

How to buy gold bars?
  • How to Buy Gold? An important question in crisis times.
  • Gold price is moving in an uptrend for years.
  • The trend may continue because of the unprecedented central bank and government measures.
  • There are many ways to buy gold, silver.
  • We made a guide about physical gold investments, listing many pros and cons.
  • (We don’t use any affiliate links in this post.)

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Gold Price in Uptrend, for Years Now

In the last couple of weeks, silver skyrocketed, and gold also surged close to its multi-year high in April by 1,788.80 USD. (Gold price is fighting with the $1,700 level and silver, the $18 peak at the time of writing.) The reason was simple, the renewed expectations that the US and other countries need more economic stimulus. The Federal Reserve started unprecedented measures earlier to boost liquidity. Also called “unlimited quantitative easing” – money printing, in fact. Very bullish for the precious metals, for the gold price in the first place. Some investors are expecting negative interest rates already in the US or the UK.

 

Chart 1: Gold, Silver Price, 5 Years
Chart 1: Gold, Silver Price, 5 Years (GC: Gold, SI: Silver.) (Tradingview.com)

In the last 12 months, the gold price surged 24 percent, silver, 15 percent. The yellow metal is moving in an uptrend for over four years, from December 2015. (From the bottom near $1,050.) Also, hedge funds and prominent investing professionals often declared a positive view of the future of the gold price. (We wrote about a possible surge in gold, silver prices. See Are We Facing Epic Inflation, Horrific Real Interest, and Brutal Gold Price Explosion?)

How to Buy Gold In Physical Form?

There are about a dozen ways to buy gold, silver, or gain exposure to the precious metal prices. These can be divided into main groups, such as physical gold, paper gold, and gold mines. All forms have advantages and disadvantages. Prices and risks, liquidity are different by all investment types. (See this post about the “magic triangle”.) Physical bars, bullions, jewelry, and coins can be robbed, for example. “Paper gold”, different ETF-s, other shares have “counterparty risks” –that means the issuer can go bankrupt. And derivatives are extremely risky. This time, we will detail the physical gold investment forms.

Chart 2: Gold, Silver Price, 20 Years
Chart 2: Gold, Silver Price, 20 Years (GC: Gold, SI: Silver.) (Tradingview.com)

Physical gold assets are bars (bullions), coins, jewelry and scrap gold (mostly used, broken jewelry). For a better overview, we created the tabs “Pros”, “Cons” and “Issues and Risks” by all subtopics. Most of the facts about gold apply also to silver, platinum, and sometimes palladium investments. Silver, platinum, and palladium demand is industrial in the large part. But these metals are also available as investment products or jewelry.

Part 1: All Forms of Physical Gold Buying

The gold price is determined by market forces, by supply and demand. The standard is in the first place, price on big commodity exchanges, in the US, UK, and Asian countries. But physical metal objects must be minted, shaped, formed, fabricated. Also transported, handled, secured, guarded.

Gold bars
Gold bars

All this comes at a cost, which is why the price of physical gold usually exceeds the stock market price. Sellers, like by any other product, use a trade margin. They buy back the product at a lower price than they sell it. This margin or markup is usually much higher by jewelry and numismatic coins. But lower by investment-purpose assets, standard weight units, like bars, bullion coins.

Security is very important when you buy gold, and also after buying. The storage of precious objects is a problem to be solved in almost every household. The main solutions are a home safe or a bank deposit box. We also need to decide whether to take out insurance for our values.

The Three Main Issues of Buying Gold

  1. Originality (prevent scam, counterfeit at buying)
  2. Secure storage (find the best method for you)
  3. Fair price (don’t pay too much)

Taxation is also important by the physical precious metals. Find out which rules apply in your country!

Main Gold and Silver Taxation Questions

  1. You need to pay attention to the tax on exchange gains (or capital gains) in your state.
  2. Also whether precious metal objects are subject to value-added tax (VAT), or goods and services tax (GST). In some countries, you pay it for jewelry, but not for investment-purpose gold bullions. Elsewhere, you may have to pay tax on silver, but not on gold.
  3. Find out which reporting requirements metal transactions require.

Every country has its own rules, make your research. (A guide about the tax rules in the USA on Investopedia.)

Warning Signs. Places to avoid buying gold include pawn shops, online dealers touting huge discounts, television hucksters who promise the “lowest prices,” and any dealer that charges a price for storing your gold. It’s better to store your gold yourself, either in a home safe or in a bank deposit box. (TheStreet)


 

(+) Pros of All Physical Gold Buying Types

  1. Complete control. You can take it with you whenever and wherever you want. 
  2. Privacy. If you hide your precious metal, no authority can take it away from you or tax it. 
  3. No counterparty risks. Your treasure is not affected by the bankruptcy of a bank, a company, or a state. 
  4. Inflation hedge. In the long run, gold provided a return similar to inflation.
  5. Stable for millennia. It may preserve its value even in case of a natural disaster, war, or hyperinflation.

(–) Cons of All Physical Gold Buying Methods

  1. Margins are usually high in the physical metal industry. (Higher than by “paper gold”, shares, funds, ETFs.) 
  2. Storage is costly. You pay fees of a bank safe, or expenses of a home safe. Sometimes, insurance. 
  3. Gold doesn’t pay interests or dividends. 
  4. The price is volatile and set by the market. 
  5. There is no guarantee that it will keep up with inflation in your lifetime. 
  6. Security. Neither solution is 100 percent secure. Metal objects can be stolen or lost. 
  7. If you die, your heirs can quarrel over it. 
  8. Maybe the heirs won’t even find your gold if you’ve hidden it.

(!) Other Issues and Risks of Gold Buying

  1. A safe storage method required. 
  2. Buyer beware. Scammers can sell you counterfeit or overpriced products. (State mints may be a secure source.) 
  3. Make your research. There can be many offers, different prices on the market for the same product. You should choose the best one. 
  4. Taxation is different in every country. Also, the Value Added Tax (IVA) may apply. 
  5. Make a testament (will) if necessary. 
  6. Include your gold in your home insurance if necessary.

 

Part 2: How to Buy Gold Bars, Bullions

Gold, silver, or platinum bars, bullions are pure, refined metal objects. They have standardized weight, but no extra numismatic, artistic or historic value. (Described later by coins.) Only metal content matters here. Take care of the originality and weight of the bullion, and prevent counterfeit, scam. But no other special knowledge is required. It is the most simple form of physical precious metal investment. Silver, platinum, and also palladium bullions exist.

Gold bars

Let’s take a close look at who we buy from and for how much. Some sources claim that gold bars in the industry are typically sold 5 to 10 percent above the stock market price.

Mass-produced investment size coins or bullion coins have high purity and standard sizes like metal bars. The two types with the same weight may have approximately the same value. Typical standard investment bars and coins have an ounce or a tenth of an ounce (1/10 oz). The numismatic value is near zero here because these coins are mass-produced in large series. Taxation of bars, bullions can differ from taxation of coins or jewelry.

Australian Kangaroo Gold Coin Set, Perth Mint, Australia
(Photo: Australian Kangaroo Gold Coin Set, Perth Mint, Australia)

Some famous standard gold or silver investment coins are the American Gold Eagle, the South African Krugerrand, the Canadian Maple Leaf. The Chinese Panda, the Australian Kangaroo, or the Austrian Philharmonics. By standard coins and bars, it is easy to determine the value of the gold content. (The case of other coins see below.) Serious companies selling gold or silver coins attach a certificate of origin and quality.


 

(+) Pros of Buying Gold Bullions

  1. All points mentioned in the first part. 
  2. Bars, bullions are pure metal, simple gold, or silver investments. 
  3. Easy to handle. They have standardized weights like an ounce or a tenth of an ounce. 
  4. With no other numismatic, artistic or historic value. 
  5. But many bullion-coins are also nice-looking, artistically designed.

(–) Cons of Buying Gold Bullions

  1. All points mentioned in the first part.
  2. Lack of numismatic, artistic, or historic value is a disadvantage for some buyers.

(!) Other Issues and Risks

  1. All points mentioned in the first part.
  2. Taxation of bars, bullions can differ from taxation of coins or jewelry.

 

Part 3: How to Buy Gold Coins, Silver Coins (for Experts)

Gold and silver coins aren’t only investment assets but have also a numismatic, artistic value. Coins are also collectibles, some are historical or archaeological treasures, are rarities. All these numismatics, artistic, collector aspects can have some value. The question is how much does this extra value cost when we buy the coin.

Numismatic old gold coins

Take into account how much the base material, the gold content itself, is worth. If the price of the coin differs too much from the price of the material, decide if this difference is worth the amount you pay.

It is like having two different investments. The first is the metal content. The second, the artistic, collectible, historic value of the coin. You invest in two assets, in precious metals, and in a piece of artwork at the same time. But for collectors, the metal content can be the secondary factor.

Counterfeit Silver Coin (Iron, Magnetizable)
Counterfeit Silver Coin (Iron, Magnetizable)

Determining the numismatic value can be difficult even for experts. Most collectibles have a small, illiquid market, and the price is fluctuating very much. Rare supply and rare demand are producing this illiquidity. Some coins may have emotional value (are “family heirloom”), and sellers are refusing to bargain. In other cases, collectors may give any price to complete their set, a series of coins.

Professional sellers, traders may have a high margin (markup) based on high risk and low trade frequency. (For example, the purchased illiquid coins remain in stock for years. Which causes high financing and storage costs.)


 

(+) Pros of Buying Gold Coins

  1. All points mentioned in the first part. 
  2. Coins can be nice-looking and interesting. 
  3. The numismatic value may increase over time. 
  4. Some collectors may pay a high price.

(–) Cons of Buying Gold Coins

  1. All points mentioned in the first part. 
  2. The numismatic value may decrease in the future. 
  3. Collectors may turn to other collectibles coin types. 
  4. High margins (markups) of professional sellers.

(!) Other Issues and Risks

  1. Coins may have numismatic value, that is a chance but also a risk. 
  2. Price estimation, the evaluation may need special expertise and even so stay unsure. 
  3. The numismatic value is volatile. 
  4. Beware of counterfeit coins. 
  5. Metal content may be a secondary factor.

 

Part 4: How to Buy Gold Jewelry

The vast majority of jewelry is purchased for non-investment purposes. Rather as a wedding ring, a gift received at graduation, or, for a birthday, Christmas. Many people keep it as a memory throughout their lives. If the precious metal content keeps its value, it is only a secondary factor, an extra benefit.

Jewelry is not a good investment in most cases. It is expensive to form the precious metal, manufacture the jewelry, or make it by hand. For most silver jewelry, only a small part of the price is the metal content. This ratio is higher for gold or platinum pieces, but even there it may be only half the price or less.

Family jewelry is difficult to price in
Family gold jewelry is difficult to price in

Most jewelry is unique, everyone needs something different. Who would want a T. K. monogrammed snake-headed ring if his monogram is D. A. and the dog is his favorite animal? A lot of gold jewelry is melted after being sold, destroying the jeweler’s work, forever. Extra costs apply, a new piece of jewelry must be produced, a new hallmark must be put into it, and so on. So, if you want to resell a piece of jewelry, you usually only get back a part of the buying price, such as a half or a third. The price of scrap gold.

Jewelry has also value in use. Many wear jewelry daily, others only on special occasions. There are events at which it is not appropriate to appear without certain jewelry. At least for women.

Some factors mentioned by coins also applies to jewelry. You invest in two assets, in precious metal, and also in artwork and souvenir. Professional sellers, traders may have a high margin (markup) based on high risk and low trade frequency. (The jewelry can remain in stock for years. Which causes high financing and storage costs.) Gemstones make the evaluation of jewelry much more complicated.


 

(+) Pros of Buying Gold Jewelry

  1. All points mentioned in the first part. 
  2. Jewels may have high artistic and emotional value. 
  3. Jewelry has also value in use
  4. Some old or special, expensive pieces may interest collectors.

(–) Cons of Buying Gold Jewelry

  1. All points mentioned in the first part. 
  2. Part of the jewelry is never sold because of its emotional value. 
  3. Most jewelry is unique. Selling it destroys a large part of its artistic, emotional value. 
  4. Margins are broad in the industry, reselling may cause high losses.

(!) Other Issues and Risks

  1. All points mentioned in the first part. 
  2. Jewelry has also value in use
  3. The investment aspect is only secondary.

 

Part 5: How to Buy Scrap Gold (not only for Experts)

Scrap gold, like used jewelry, broken pieces, damaged coins is a good opportunity for experts to buy cheap. Cheaper than the spot metal price on the commodity exchanges. But it is risky if you don’t have the necessary expertise. But you can learn it and you can become an expert, too. The question is whether it is worth it. For example, how much competition is there now that the price of gold is on an upward trend.

Mixed gold and silver jewelry
Mixed gold and silver jewelry

You need to determine the precious metal content and purity of each piece. The exact weight must be measured. In most cases, only the metal content should be taken into account. But for some pieces, the use value and aesthetic value of the jewelry can also be taken into account. (For example, standard silver chains, gold chains without a pendant. Or series-produced, popular pieces.) Gemstones in your jewelry is a much bigger challenge, requiring more specialized knowledge.

To get started, you can ask your relatives, friends, or post a newspaper ad. You can also post bids on online auctions. “Develop relationships with local pawnshops” –is the advice of Wikihow. But buying scrap gold is at least as much a job as an investment. If you have to sell your scrap gold pieces count with high margins like by other jewelry. All traders want to buy it low.


 

(+) Pros of Buying Scrap Gold

  1. All points mentioned in the first part. 
  2. Scrap gold may be a good investment if you can buy it cheap, cheaper than exchange price or bullions price.

(–) Cons of Buying Scrap Gold

  1. All points mentioned in the first part. 
  2. Scrap gold requires knowledge and expertise, efforts to find sellers, and investigate the pieces. 
  3. Margins are broad in the industry, reselling can cause high losses.

(!) Other Issues and Risks

  • All points mentioned in the first part. 
  • Are you an expert in gemstones
  • Taxation of gains in your country?

 

 

Disclaimer

I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

(Photos: Pixabay.com.)

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