Gold Investing 101
Investment in Gold - Reasons Why
- Storage of value in case of EOTWAWKI (End Of The World As We Know It) or Global Economic Reset
- Hedge against inflation and ongoing monetary debasement
- Diversification for a traditional retirement Portfolio of stocks and bonds
- Potential high return investment
- Leverage the future price of Gold with Mining stocks
How to Invest in Gold for Beginners
The foundation of a Gold investment Portfolio is physical Precious metal under your personal control.
Gold Bullion Coins and bars are preferred over numismatic Coins.
Gold Bullion Coins and Bars
Head Side of US American Buffalo 1 Ounce Gold Coin
Bullion coins and bars sell for a small premium over the daily price of Gold.
The premium varies based primarily on the mint of origin and metal weight of the Coin or bar.
As an example, I can go online today and buy one-ounce Canadian Gold Maple Leaf coins for a 1.6% premium over the cost of Gold.
The premium on a ½ ounce Maple Leaf is just over 4% while the 1/10th ounce Coin has a premium of 6.8%.
Although the premium on the smaller Coins is higher, I suggest that some portion of a Gold portfolio consist of sub-one-ounce coins from one of the recognized National mints.
The smaller Coins are easily transportable and widely recognizable as something of value.
Lowest premium to price of Gold
For most of our physical Portfolio we want to invest in Gold Bullion coins and bars from the major mints.
Our primary objective is to get the most weight of metal for our money.
That will usually mean South African Krugerrands although premiums fluctuate based on supply and demand.
Ask your Coin dealer what she has available with the lowest premium to the price of Gold.
On some days it will make sense to pay a little extra for pre 1933 Gold Coins, other times it will be bullion that makes the most sense.
Any of these Gold bullion Coins are fine: American Gold Eagle, Canadian Gold Maple Leaf, Australian Gold Nugget, American Buffalo.
And remember, the objective is to buy the most physical weight for a given amount of money.
Pre 1933 US Gold Coins
Prior to 1933 Gold circulated as currency in the US.
These beautiful Coins are considered collectibles (numismatics) because of their age and scarcity.
In addition to the premium paid for any Gold Coin, collectibles carry an additional premium for Numismatic value.
For example, I can go online today and buy an almost uncirculated $10 Indian Head eagle (0.48375 ounces Gold) Coin for $789 which represents a 7.2% premium to the price of Gold.
I can get a ½ ounce Canadian Gold Maple Leaf bullion coin and pay just 4.1% premium over Gold.
In this example the Indian Head costs over 3% more than the Maple Leaf.
The Maple Leaf offers more Gold for the money so it is the logical choice to make.
Paying the extra premium for the Indian Head (or other Numismatic Gold Coin) might be done for these reasons:
- Lower risk of confiscation
There is nothing wrong with purchasing some Numismatic Coins as part of your Portfolio.
Some of these pre 1933 US Gold coins are absolutely stunning.
Have a Coin or two out on your personal desk or dresser where you can appreciate the yellow metal.
My favorite is the $10 Indian Head eagle followed by the $5 and $2.50 Indian Head gold pieces.
The $5 and $2.50 Indian Heads have the distinction of being the only circulating US Coins with an inverse or sunken design.
Gold Confiscation Risk
Some dealers try to push pre 1933 US Gold Coins claiming they are less likely to be confiscated if the US government ever decides to recall Gold again like it did in 1933.
These dealers point to a distinction made in the 1933 Gold confiscation law where Gold currency had to be turned in but collectible Gold Coins could be kept.
Let’s recognize this for the marketing hype it is.
The US is no longer on a Gold standard and doesn’t use Gold for currency.
What would be the justification or point of the government confiscating Gold?
Gold Ownership Certificate Programs
For some Investors participation in Gold certificate programs may make sense.
If you want to Invest in more physical Gold than you can store locally, Gold ownership certificate programs like those offered by The Perth Mint are a possibility.
Investors are encouraged to pay the extra fees to participate in allocated Precious metal certificates.
In an allocated certificate program a designated amount of physical Gold is set aside and stored specifically for you.
Pool certificate programs set aside physical Gold but the metal is jointly owned with other Investors.
Gold trades as a commodity so commercial users and Speculators can buy and sell futures contracts based on the underlying physical metal.
This paper representation of Gold is not recommended for most Investors.
Gold ETF (GLD)
The SPDR Gold Shares ETF (NYSEARCA GLD) provides Investors with a vehicle that tracks the price of Gold.
The GLD ETF is useful for monitoring the Precious metals sector but it is not recommended as a Gold investment vehicle.
The physical metal category of a Gold portfolio consists of real metal accessible by the Investor and certificates for allocated metal.
GLD is not equivalent to physical Gold.
How to Invest in Gold stocks
Mining stocks tend to magnify Gold’s price movement by 2x or 3x.
Investors seeking leverage to the bull Market trend in Gold will want to assemble a Portfolio of select Mining stocks.
There are multiple categories of Gold miners to Invest in. They are listed below in order of most conservative to least conservative:
- Dividend payers
- Royalty / streaming companies
- Emerging producers
- ETFs – GDX, GDXJ
- Exploration and development companies
Best way to Invest in Gold
When making an Investment in Gold, start by understanding your reasons why.
Knowing how to Invest in Gold can be intimidating for beginners but the knowledge is available for do-it-yourselfers and there are Financial advisers who specialize in the precious metals.
Physical Gold forms the foundation of your portfolio so start there.
Gold futures are primarily for speculators and hedgers. They don't really qualify as investment vehicles unless they are being used to take possession of physical metal.
The Gold ETF GLD is not a substitute for owning physical metals and, in general, is not recommended.
Gold mining stocks leverage the price of Gold and can be added to a precious metals portfolio after some physical metal is acquired.
The stocks of advanced-stage developers and emerging producers are recommended for the best risk-to-reward in the current bull Market trend in Gold.
The best way to Invest in Gold is different for each individual depending on their Investing horizon and risk tolerance.
If you have questions about structuring a precious metals Portfolio, send an email to: support @ satoritraders.com.