How to Buy Gold – The Ultimate Guide for Beginners
Gold is praised throughout the globe for its value and rich history, which is prevalent in different cultures for thousands of years.
As a new Bitcoin investor, you have probably heard a lot about gold as well. Very often, the two are compared for their returns and praised for their ability to store value.
Generally speaking, precious metals aren’t the “go-to” investment of the millennial generation. The majority do not even know how to buy gold. Don’t blame the rise of digital currencies – young people were simply less exposed to it. This doesn’t mean that gold is any less valuable.
In fact, the market cap of gold is worth more than 7 trillion USD. And with many people hedging against the current uncertainty of fiat currencies, this number is expected to increase.
So, in this article, we set out to learn more about gold. This guide will cover everything you need to know and teach you how to buy gold in the safest and fastest way. So let’s delve in.
Topics we'll cover
- Where to buy gold
- How to buy gold online – A step-by-step guide
- Buy gold with Bitcoin
- Where to store gold
- Frequently Asked Questions
Why invest in gold?
The main reason people buy gold is to preserve the value of their money during an economic downturn (crisis). Gold is one of the best “safety nets” against a crash in the stock markets since it has both high demand and an element of scarcity.
More specifically, here are the main reasons to buy gold:
- It can provide financial security during geopolitical issues and macroeconomic uncertainty (e.g. Hyperinflation in Venezuela, wars, etc.)
- It can act as a great option to diversify your portfolio
- Gold does not only have high demand but also a limited supply since it needs to be mined.
Different ways to buy gold
The liquidity of the gold market is very high. As such, there are several ways to own the precious metal. This includes buying physical gold (in a form of coins or bars), cash-settled futures contracts, and ETFs (exchange-traded funds).
Physical gold is the best way to own gold. It offers direct exposure to the precious metal, making it a safer option compared to the alternatives.
Gold in its physical form is better known as bullion. When purchased in bulk, it is usually formed as bars or coins. These objects will all have a fluctuating price, depending on the market value of gold and their purity (gold content).
Owning physical gold also includes several costs. The most obvious ones include the insurance of your bars/coins, the storage location, commissions, markups, as well as processing fees.
Depending on the amount of gold you are buying, this can quickly turn into a large amount, especially for those looking to invest significant amounts of money.
ETFs are more commonly known as paper representations of gold. They can be purchased in the same way one buys shares in the stock market.
This method helps investors gain exposure to gold without paying all the additional costs described above. It is also a favorable option when it comes to security, since you won’t need to have the gold in your possession.
That being said, ETFs do have a fee structure. Investors will lose a % of their value on an annual basis (expense ratio) to cover the management expenses and administrative costs of the funds they bought from. This expense ratio is different for every fund but is usually fluctuating between 0.35% and 1.8% per year.
For example, an investor who holds $10.000 worth of gold will pay anywhere between $35 and $180 per year for his investment.
Aside from that, there is also a small fee when buying and selling paper gold. These commissions can either represent a small % of the amount you want to exchange or take the form of a flat fee. The rates are usually priced between $10-$25 per transaction, and depend on the order type.
All in all, there are many different gold-related exchangeable options available today. Since this is just a basic guide, you will need to do more research on the different options. This is a great overview that can help you get a better understanding.
When it comes to ETFs, remember that you never really own the physical gold that your ETF represents. You will not be able to sell your shares or redeem them in exchange for actual physical gold. As such, these should never be viewed as a substitute for physical gold ownership.
Gold futures contracts
If you are somewhat experienced in the world of crypto, you may have heard of the term “futures contracts” before. These are paper contracts that investors can purchase in order to speculate on the future price of the precious metal.
They are generally considered to be one of the riskiest areas in the investment game and are purely used for short term profit gains. The exposure of the buyer is leveraged, meaning that both increases and decreases in price are multiplied many-fold.
An investor can either take a “long” position, meaning that he expects the price to increase in the future or a “short” position. The latest means that the investor expects a drop in price to occur. Depending on the expiration date of the contract, one will either make or lose money through their bet.
Overall, we do not recommend this type of exposure to gold for beginners since the majority of investors end up losing money.
Where to buy gold
You can buy physical gold from precious metal dealers, private or governmental mints, or jewelers. Each seller will offer gold at different price points, so it is important to clarify the reason you are buying gold and find the best deal.
For example, if you are buying gold as an investment, you might want to avoid jewelers. It is well known that retailers add enormous markups on gold jewelry. This makes it impossible to sell at the same price or get a return on your investment. There are, of course, exceptions to this rule, but these only apply if you know what to look for.
An easy way to start is by looking into trusted wholesalers that deliver gold worldwide. Websites like APMEX and JM Bullion (the latest ships to the US only) are good places to start but you should definitely search for the most trusted websites in your region/country.
As far as managed Gold ETFs are concerned, you will need to create a Demat account and a trading account. Opening a new account requires ID verification, which is done by providing the following:
- A PAN card
- A copy of your ID document
- Proof of address
Once your account is created, you can proceed by placing an order. Similar to cryptocurrency exchanges, buy orders are automatically matched with sell orders and executed instantly.
Finally, if you want to test your luck with futures contracts, you might want to research the best digital exchange platforms that support this feature.
Generally speaking, non-US residents will have many different options available, since the regulatory framework is looser. As for US residents, the most trusted platforms are eCBOT and COMEX. These also offer futures contracts for other precious metals.
How to buy gold online – A step-by-step guide
While buying ETFs and Futures contracts is a pretty straightforward process, getting ahold of physical gold is a little tricky. There are many factors that need to be considered before making an actual purchase. Therefore, we will give you a short walkthrough to the process.
Step 1: Start by determining the % of your overall portfolio that will be committed to gold.
Generally speaking, it’s good to remember that you should diversify your funds as much as possible. Traditional investors tend to not place more than 10% of their portfolio in any asset. However, there are also those that don’t believe in the long term survival of their FIAT currency. Those may invest a larger percentage of their portfolio in gold, to protect their wealth.
Step 2: Decide on the type of gold you wish to invest in.
In this article, we focused on physical gold, ETFs, and futures contracts. Obviously, owning actual gold bullion and gold coins is the best way to start. Therefore, we will focus our guide on this option.
Step 3: Choose the right gold firm.
This is the most important step. Make sure you do a lot of upfront research and don’t trust blog posts that will offer lists of “trusted gold dealers”.
Ideally, you’d not only want to check the dealers by popularity but go through reviews from respectable platforms. Check the few complaints of the top dealers and how these were handled by the firm. Make sure you are certain of the choice you are about to make.
Here is a list of trusted gold dealers:
If you are able to find an actual “brick-n-mortar” store that sells gold in your area, it might be an alternative idea for those scared to make such large online purchases. This is the most important step in the process.
Step 4: Reach out and make an informed decision.
At this point, you will make the actual purchase. Usually, the firm you choose will put you in direct contact with an expert gold ownership consultant, who will help you out with all your questions and doubts. Once you feel confident in your decision, you can proceed to make the payment.
Step 5: Receive your gold.
Depending on the location of your dealer, you should receive your gold within 1-3 business days. Of course, this timeframe may vary depending on your dealer/broker.
And that’s it. You are now a proud gold owner. If you are interested to also learn how to invest in ETFs and Futures contracts, the process might look different depending on the platform of your choice.
Therefore, start by checking the educational resources of the exchange you end up using or contact their customer support team.
Buy gold with Bitcoin
In recent years, several companies have started to sell gold for Bitcoin. This goes for both bullion and paper gold, both of which seem to be in high demand by Bitcoin investors.
GoldSilver.com, Vaultoro, and BullionStar are just 3 of the many companies that accept Bitcoin payments for their gold. APMEX also accepts cryptocurrency payments for amounts of up to $250,000. You will be able to compare the pricing in USD value and receive free shipping at a low-price minimum.
Therefore, if you want to sell BTC, gaining some exposure in gold might be a good idea.
Where to store gold
Unless your home includes a vault, owning gold can be a risky practice. Accidentally losing your physical gold or having it stolen is a real possibility. Therefore, you might want to consider your options when it comes to storage.
Brokers and banks offer different ways to protect your precious metals. Before doing so, however, there are several things you should consider.
Costs of storage
Depending on the amount of gold you buy and where you buy it from, you may be able to store your gold in a secure location by paying a small fee. Some gold dealers will charge you based on the weight of your gold, while others prefer a sort of “subscription-based payment” in monthly or annual increments.
If you decide to hide gold in your home, or at a private secure location, you might want to invest in additional insurance. When it comes to your typical home insurance, you will generally have options that protect your precious metals.
Before you are able to get an insurance policy on your gold, you will need to get a current valuation for your collection. This is a simple process. Gold is measured by multiplying the ounces or grams in your possession with the current market price of gold.
Once a valuation has been made, you can start exploring the different policies that will offer the type of protection you need. Insurance of this type can be quite pricey and should be reserved for investors living in countries where the risk of loss or theft is considered to be high.
if you are buying gold as a long-term investment, insurance will most likely be more expensive than the potential ROI that you are expected to receive. As such, you will need to weigh the pros and cons, especially when living in a country were criminality is low.
Certificates of storage
This option looks a little like ETFs, with one main difference. At any point in time, you can use your certificate to redeem your gold from your dealer. This makes a great alternative to storing gold at home since each certificate is linked to particular gold bars, which are numbered and stored away safely.
When storing gold in this particular way, dealers will provide insurance for the funds. The policy will usually cover amounts up to the total value of their vault, which they use to store all the gold in their possession.
Buying gold is certainly not difficult. However, for those that are experienced with cryptocurrency investments, the process may seem a little more complicated.
The different types of gold investments, as well as the additional costs attached to the purchase, should be explored more before you make a decision.
In this article we discussed the following:
- Why you should invest in gold – Knowing your “why” will help you choose the type of exposure you wish to get. It will also limit the amount of research you need to do before making a purchase.
- The different ways to buy gold – Depending on your goals and risk tolerance, there are different options to choose from.
- Where to buy gold – There are different options to buy gold. Those are generally split in “brick and mortar” locations, and digital exchanges.
- How to buy gold – The actual steps you need to take in order to buy physical gold.
- Storage options – Store your gold at home or at a secure location and keep in mind that insurance is an option.
Frequently Asked Questions
Since you are dealing with large amounts of money, you will probably have many questions when researching how to buy gold. Here are some answers to your most common questions.
Is it safe to buy gold online?
Buying gold online is certainly not the safest option available. Ideally, you’d want to buy gold after you ensure its purity and weight. This is unfortunately not possible when you buy gold online. That being said, with a little bit of research, you will find several trustworthy gold dealers with a good reputation. It is best you contact them to discuss your questions and concerns before proceeding with your purchase.
Is gold taxable?
This depends on your location. Different countries have different rules and regulations. In most countries, buying gold is free of Value Added Tax (VAT), as well as tax imposed on Goods and Services (GST). If you sell gold at a profit, you will most likely have to pay Capital Gains Tax (CGT), an amount that will look different depending on your residential location. It is best to start researching how gold is taxed in your location.
When to buy gold?
Many people want to know when to invest in gold, in order to maximize their long-term profits. As discussed above, many people will seek “safe haven assets”, such as gold, during periods of economic collapse or geopolitical uncertainty. During these periods, the demand for gold will usually increase, and so will its price.
A great way to determine when to buy gold is to look at historical patterns. During the economic downturn of 2008, as well as the one we are experiencing in 2020, the price of gold initially dropped massively due to fear and uncertainty. After a few weeks, the price of gold saw a steady increase in price, returning to its pre-crisis levels.
How to buy and sell gold bars?
Gold bars are very expensive, and there are many risks when dealing with them. While you can buy physical gold bars online, we generally recommend not to do so for safety reasons. Ideally, both buying and selling should happen at your local gold dealer, given that the price point matches the market valuation of gold.
What does a gram of gold look like?
One gram of gold is very small in size. It is similar to your phone’s SIM card, only much more valuable. The following photo will give you a better idea of its size:
Gold coins vs gold bullion. Which one is best?
We get this question quite often. As discussed above, gold bullion refers to both gold bars and gold coins. As such, for the most part, this question is wrongly phrased. That being said, there are certain golden coins that are more valuable than the market price of gold. This happens when the coin’s print is of a limited edition, or simply more in demand than other coins. In this case, golden coins may be more valuable than golden bars on a gram-to-gram basis.