The Most Cost-Effective Way to Invest in Gold
Invest in gold can be a sensible way to safeguard your financial future, but it requires knowledge and strategy to truly maximize your returns. This article is not for those who mix hobby coin collecting with gold investment or who seek unique designs. Here, we focus strictly on the most efficient methods for investing in gold with an eye towards resale value.
Table of Contents
The Downside of Purchasing Fancy Packaged Gold
Learning from Past Mistakes
I once invested in 10 gold PAMP Swiss bars. While they were genuine gold, I now regret buying them because the plastic casing holding the bar and serial number fell apart, leading to a potential loss of the gold bar. This incident happened while I was in Chinatown, and I nearly lost one of these gold bars entirely.
The Myth of the Premium Case
The perceived value of the premium case with the serial number is largely a myth. Dealers will offer you an amount as if the case didn’t exist, and any slight premium this might offer is usually marginal, maybe one or two percent. Currently, most dealers buy gold to sell it directly to refiners for melting, rendering the fancy cases and anti-counterfeit watermarks irrelevant.
Market Dynamics in Gold Trading
During periods of high selling, dealers often buy gold to melt it, focusing on its intrinsic value rather than any additional premium packaging. Thus, all the PAMP Swiss bars, PCGS graded coins, and casing products are treated equally—they are melted down. This situation is akin to a market crash where all stocks drop together, irrespective of their original category or value.
Understanding Gold Pricing Dynamics
Real-time Examples from Dealers
For a hands-on understanding, consider YouTube channels like Vermillion Enterprises, a coin dealer in Florida, that posts weekly buy and sell prices. As of December 16th, he was buying American Gold Eagles and Buffalos at spot prices and selling them at a 4% premium. Typically, these sell at 7% over spot, and fractional coins come with even higher premiums and potential losses.
Fractional Coins – A Cautionary Tale
Fractionals like 1/10 oz American Gold Eagles sell for 11% over spot, making them less financially viable compared to 1 oz coins. You pay more for smaller denominations and get less when selling them. Therefore, it’s more cost-effective to save up for larger denominations.
The Best Strategy for Buying Gold Coins and Bars
Buy 1 oz Only
The simplest and most efficient strategy is to purchase 1 oz gold bars or coins. This avoids the hefty premiums associated with smaller denominations. Regularly check for sales across reputable dealers like Kitco, Atmex, JM Bullion, and SD Bullion.
Avoid Sketchy Sellers
Steer clear of those flashy Fox News-endorsed companies that require you to talk to a salesperson. These businesses often sell overpriced gold products, making them an inefficient investment.
Myth-busting Gold-Backed Currencies
There’s a burgeoning market of plastic pieces containing minuscule drops of gold marketed as “new kind of gold-backed currency.” This is largely a scam, with exorbitant premiums—sometimes as high as $115,000 an ounce. Avoid these like the plague.
Debunking the Need for Small Denominations
The Savings Strategy
Many argue that they cannot afford 1 oz of gold all at once and resort to buying smaller denominations monthly. However, this approach is flawed since the premiums on smaller denominations are excessive, often reaching up to 40%. It’s far better to save monthly until you can afford a full ounce.
Play the Long Game
Even if it takes a year to save enough for a 1 oz gold coin, gold is unlikely to increase 40% in that time. Therefore, saving up is a better long-term strategy.
Evaluating Different Types of Gold Coins and Bars
American Gold Eagles: The Filet Mignon of Gold
American Gold Eagles are considered the gold standard, especially within the United States. They often have higher premiums, about $80 over spot, but their resale value makes them worthwhile.
Canadian Maple Leafs: The Competitor
Canadian Maple Leafs and Krugerrands are excellent alternatives often priced slightly lower than American Eagles but still widely recognized and valued. Maple Leafs, for example, can be found at about $40 cheaper than American Eagles.
Fractional Coins and Plastic Gold: Overpriced and Overrated
Avoid fractional coins and especially plastic pieces masquerading as gold currency. These often come with exorbitant premiums. Even trusted fractional coins like the 1/10 oz American Gold Eagle can have a 40% premium, making them a poor investment.
A Case for Gold Bars
While gold bars are easier to counterfeit, they remain the cheapest method to Invest in gold when purchased without unnecessary packaging premiums. Always choose recognized mints and purchase from well-known dealers.
Cheapest Gold on the Market
Keep an eye out for sales and discounts. Buying secondary market gold bars can often save you a significant amount. Always compare prices and look for the most recognized options.
Do’s and Don’ts
- Do look for sales: Price reductions are more common than you might think.
- Don’t invest in fractional gold or gold-backed currencies: High premiums make them less viable.
- Do buy from reputable dealers: Stick to well-known dealers to avoid scams.
- Don’t pay extra for packaging: It holds no value upon resale.
Conclusion
In summary, treat buying gold like you would shopping for steak. American Gold Eagles are the filet mignon, Canadian Maple Leafs and Krugerrands are more like ribeye steaks, and gold bars are the ground beef. Buy the steak you can afford, but always compare prices to ensure you’re getting the best deal. Avoid fractional pieces and plastic gold papers, and focus on widely recognized 1 oz coins or bars. Save wisely, buy strategically, and ensure your investments are liquid and valuable both now and in the future.