I have finally made the leap into owning my own wealth today, stripping my high street bank of the control it has over my savings and putting it into my own hands. Whilst this is my first leap into precious metals I have learned a great deal in the lead up to today which I would like to share with anyone else who wishes to take control of their money.
Firstly you do not need to have a vast fortune to start buying gold, although investing in larger quantities will yield a better return as I will explain later, so anyone can start buying today.
I guess the first port of call is what to look for in gold. Do not bother with buying gold in vaults, although the prices are slightly cheaper the whole point of owning gold is to have it in your possession. Many places suggest coins, the 1 oz Krugerrands seems rather popular, but I personally don't buy into the fad. You certainly pay an extra premium on coins as they are supposedly more tradable, however when we are looking at gold content per £ the bars are the way to go. If you do decide to go for coins do not be tempted by collector coins or anything substantially higher than the common Krugerrand, these coins have no extra gold content and are only valuable to collectors, selling prices will vary just depending upon how many collectors are looking for that particular coin, common coins are much better and actually worth their weight.
When looking at coins or bars check for fineness and carat, 24 is readily available so there is no reason not to get it and gold bars usually have 9.999 fineness, compared to only 9.167 in a Krugerrand which are more expensive, baffling really.
I suppose the next stop is price, what is considered a good buying price? Firstly I advise checking the current price (spot price), here is a good link or this one I personally use, but instead of worrying about the 24 hour price, which tends to vary by a few pounds and isn’t worth worrying about for the long term investor, take a look at the monthly or even better the yearly price. Where is the current price compared with the average for the month or the year?
Buying at the monthly or yearly average (blue line above) is obviously quite good and clearly buying in the dips is even better (see the above chart pre August or February/now), where gold is undervalued to the average. Although beware of buying on a slope or dip as the price may continue to fall, wait until the price flattens out or "finds the floor". Also note that it is virtually impossible to predict a dip or even notice it as it happens, keep an eye on the previous months/yearly price to get a better view of the average increasing/decreasing price.
Next think about the quantity you want, how much money are you willing to invest in gold and what denominations should you buy? You will find the highest mark-ups are on lower denomination bars and discounts can easily be bartered for with bulk/larger purchases. For long term investments there is no reason not to put all your money into one or two larger quantities to maximise your gold to £ ratio, however if you think you may need to dip into your investment in the medium term some smaller weights of gold will allow you to exchange them for cash without having to incur charges on your whole gold cache.
Even gold bars can be brought in small weights down to the gram, although these incur a considerable mark-up over the spot price (sometimes close to 40% on the gram compared to 5% on the oz), in all honesty I can't recommend going lower than 20g, which incurs a 7%ish mark-up. The mark-up on small denomination coins is usually less than gold bars, so I would recommend buying coins for medium term ("quick cash") gold investments.
Finally the last question is where to buy? Most places offer a very similar mark-up, thanks to a competitive market; look for no more than 5% on the ounce as a typical indicator, although this will vary as demand changes. Buying online will incur delivery charges, although shipping within the UK is relatively cheap. Also note buying on the internet will require you to post a cheque or make a wire transfer before they will ship, some people may be comfortable with this others will not. There are also a good deal of real shops to buy from, plus you have the added bonus of being able to barter based on the current spot price and take the gold away with you there and then, saving you a few pounds.
My pick has to be Bullion by Post, which offers free delivery on all purchases, although their mark-ups seem a little higher. They will also buy back the gold at 98% of the current spot price. I brought my gold from their shop and saved a small amount over the internet price, but considering the free delivery I think this is well worth it. I would also check out Kitco for cheaper prices, but as they are based abroad the delivery prices are very high (for me it eroded the saving on the gold), however for large orders I imagine this is the place to go. Most people will probably feel more comfortable buying their gold in person the first time, but bring a calculator to check their mark-up and always check the spot price as you buy (ask them if they don't tell you). A quick equation for the mark-up percentage is:
((store price - spot price) / store price) * 100
Remember everything mentioned here is only advice, buying any precious metal is a risk, although less risky than trusting your wealth to the Bank of England in my opinion, and I don't recommend beginners attempting short term investments or trying to play the market. I view and offer my advice on gold solely as a means to turn your cash into something which will retain its value. As a final piece of advice leave your gold in any container/plastic it comes in, I know it will be tempting to handle your new treasure but you will be in a stronger position to sell if your gold is untampered & undamaged (especially bars). If your gold bar is "loose" it is more likley a buyer will want to test its quality, not a good prospect if you want to sell over the internet.
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