Common mistakes to avoid when buying gold.
Buying gold for the first time can be overwhelming, not only due to the sheer amount of choice of gold products on the market, but also a minefield of confusing terminology and abbreviations that are often used in the precious metals sector.
buygoldcoins.co.uk has a range of articles that aims to simplify a lot of the terminology used, as well as making it clear to any new investor the pros and cons of investing in gold bullion.
No investment comes without any risk, however, precious metals, especially gold, has proved to be a particularly stable and reliable store of wealth over time.
We have put together some of the most common, simple mistakes any new investor to the precious metals market can make and how to avoid them.
Check the spot price so you don’t pay too much.
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Always check the spot price of gold before making any gold purchase.
This shows the world gold market approved price for one ounce of gold.
You can check the current gold spot price on our website using the BullionVault gold spot price chart on the right hand side of this website.
Any precious metals dealer would obviously have to charge a small premium over spot to cover general business and storage fees. However, the spot price is a clear benchmark price where you can easily decide for yourself if you are potentially being overcharged for any gold bullion product.
It is best to find an online company or dealer you can trust. If the price of gold looks too low then it if often too good to be true. It would not be in any precious metals dealer’s interest to sell gold below spot price as gold is always in demand.
Buy Gold Bullion.
The general term for bullion is gold (and other precious metals) in the form of bullion bars, ingots and coins.
Gold bullion is primarily used for investment purposes, and is based on its purity level.
What makes gold ‘bullion’ is that it’s value derives entirely from its precious metal content.
Unlike other gold products such as jewelry, or numismatic coins, gold bullion has no artistic component in its value.
Most bullion has hallmarks or is defined by a particular gold bullion coin. Without these hallmarks or distinctive features, the gold could be gold plated or even fake.
You will often find the term ‘fine gold’ being used. Fine gold refers to purity in parts per 1000. For example, .999 fine would mean 999 parts gold 1 part other metals. You might often see .9999 fine gold which is 999.9 parts gold which, therefore, offers additional purity.
.999 is widely considered pure gold. ‘Millesimal fineness’ is common practice when it comes to the purity of fine gold.
Fine gold with a 999.9 millesimal fineness, could also be described as .9999 fine or 99.99% pure gold.
In the UK bullion enjoys some unique TAX advantages. Gold bullion is VAT free in the UK. Gold coins such as the gold sovereign or gold British Britannia coins are Capital Gains Tax exempt.
Physical Gold vs Paper Gold.
There are other ways to invest in gold such as ETFs (Gold Exchange Traded Funds) or gold futures.
It is important to understand that an ETF is when you essentially own a piece of paper (“promissory note”). This usually indicates the number of shares of the fund that you own. You do not own the physical gold itself.
ETFs are bought and sold like shares. These track the price of gold and are usually a more liquid way for investors to buy gold based on the spot price.
ETFs involve various broker fees. So it may be best to do your research when looking into this option.
ETFs, ETC and ETN are very complex financial products that are mostly full of long, legal jargon. Therefore, you should be aware of all risks before investing.
With physical gold you have more direct control over your gold investment.
With this in mind, you must always think carefully about where to store your gold coins or gold bars, as this could pose a security risk.
Storing gold bullion or silver bullion yourself might be a concern for some investors. Another option for investing in gold, is via an online bullion dealer who could offer you the option of holding gold in a secure vault that you can buy and sell whenever you require.
Have a long term plan for your gold investment.
Gold bullion is often used as a more long term investment, or it is used as ‘insurance’ against system risk in the financial system.
Gold tends to appeal to many investors when real returns on cash and bonds are negative and falling.
Gold has been used to store wealth for more than 3,000 years and golds wealth can be passed on through generations.
Although gold can jump in price and quick profits can be made, it is always best to have a long term plan when it comes to your gold bullion investment.
Develop a strategy. Many investors can change strategy too often or too soon if results are not immediate. Try not to constantly change your investment strategy, give gold the time to develop and work for you.
Don’t buy rare coins unless you know your stuff.
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Although the vast majority of bullion dealers are completely honest and transparent, a small minority can be dishonest and will try to sell you rare numismatic coins as an investment.
Numismatic coins are usually used more for collecting and not strictly for investment purposes.
Without your own numismatic knowledge, it is simply not a great idea, as there are obvious risks that the coin is not worth what you are paying for it.
There are also potentially more fake rare coins around, so you have to really know your stuff and be careful who you deal with when buying rare coins.
Make sure you buy gold and rare coins from a reputable dealer and check things like weight, discolouration, price and size.
Do your research.
Buying gold is not a get rich quick scheme.
Doing your own thorough research can be key to developing thorough knowledge of the precious metals market.
Spending this time researching can be vital to preserving and growing your wealth, creating your own thoughts and coming up with your own investment plan.
This website buygoldcoins.co.uk is a good place to start, offering simple guides and clear information about gold bullion.
There is a great precious metals community out there willing to help you on your precious metals investment journey, with plenty of gold market analysis, investment research, gold price commentary and forecasts.
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