What to watch out for when buying gold

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Gold mini bar 100 grams

G old is one of the most popular forms of investing money apart from savings accounts—not only in times of crisis. The advantages of the precious metal are as numerous as its possibilities. This article shows you what to watch out for when buying gold.

What influences the gold price?

In the case of precious metals, price developments are not only dependent on the demand from professional and private investors, who value gold as a particularly secure investment, especially in times of crisis. Economic developments also have an impact on prices, as precious metals are used in industry for a wide variety of purposes.

Simplified, it can be said that if the global economy runs well, demand for silver, platinum and gold will rise. Then prices will skyrocket—including the price of gold. As a result, gold mine operators are ramping up production in order to profit from the high price.

The rising supply will eventually curb the rise in the price of gold. After all, physical demand for gold is rising more slowly than production.

In addition, many investors are less concerned about security in good times and like to take more risks. Instead of buying gold, for example, they buy stocks that promise faster and higher profits. As soon as gold demand falls again, the price of gold also falls.

All these factors determine the price per troy ounce (31.1 grams) of gold every day. Therefore, when buying gold on an electronic scale, it is carefully balanced. The price to be achieved then depends on the weight, the degree of purity in carat and the spot price of gold.

How is gold offered?

The most popular form of gold investment are bars. The range extends from mini bars weighing 1 gram (0.032 troy ounce) to bars weighing one kilogram (32.15 troy ounces). Within the group of bars, the 100 grams, 1 kilogram and 250 grams are the leading in terms of turnover. The most common item purchased is the 1-ounce bullion.

Gold Mini Bars
Gold Mini Bars

Gold is also traded in the form of coins and offered as jewelry. Coins have the advantage that they are smaller than bars, making it easier to divide up the gold stock. As jewelry you can wear gold for special occasions instead of just putting it in the vault.

In what form should I buy gold?

Heavy gold bars are generally the best choice—if you can afford them. The profit margin that the trader withholds when selling gold is the lowest percentage for large quantities of gold. The smaller the bar, the greater the dealer’s margin in relation to the precious metal value. Ten bars of 100 grams each are therefore more expensive than a single 1 kilobar.

This disadvantage also applies to coins. However, smaller units have the advantage that you can resell the gold in individual pieces as needed. If you only have one large bar, but want to sell a part of it, you might have to saw it up. This causes the gold to automatically lose value.

Which bars and coins are the best?

Place your trust in globally recognised investment coins (American Eagle, Maple Leaf, Australian Nugget/Kangaroo, Krügerrand or Vienna Philharmonic) and gold bars from well-known suppliers accredited by New York Mercantile Exchange (NYMEX), New York Stock Exchange (NYSE), Commodities Future Exchange (COMEX), London Metal Exchange (LME), London Bullion Market Association (LBMA). These are standardised, so you will always find buyers if you want to resell the gold. The minimum allowed fineness for gold bars is 995, which stands for a minimum purity of 99.5% of gold.

Caution with collector’s coins and gold jewelry

Collectors’ and commemorative coins are only for true connoisseurs: their value is not only determined by the material value, but also depends above all on the collectors’ demand for them. Gold jewelry is also hardly suitable as an investment. The purchase price of jewelry is usually higher than the value of the gold it contains. Because when it comes to jewellery, you don’t just pay for the material but also for the manufacturing costs. In addition, fluctuating demand creates additional uncertainties.

Where should I buy gold?

Preferably from specialist dealers. The specialists offer you a wider range of products and often offer you cheaper prices than banks, for example. Many financial institutions have stopped trading in gold completely over the past few decades. Before you buy gold, you should check the current gold price and compare the prices of the individual traders. On the internet, this is child’s play.

Tip: Ordering online is the most convenient way to buy gold. It also offers you the greatest possible anonymity.

Who knows I bought gold?

If you buy or sell gold from a trader, you do not usually have to identify yourself with smaller amounts. You probably get the biggest anonymity when ordering gold on the internet. Sensitive data is processed online by reputable merchants using the SSL encryption standard. Delivery is made in standard packaging and with inconspicuous vehicles. The costs for shipping and insurance are between 20 and 50 dollars, depending on the provider and order value.

Where should I keep the gold?

If you want to store your gold in the vault at home, you should not only consider burglars when looking for a suitable hiding place, but also take into account dangers such as fire. A safety deposit box is more convenient and perhaps safer: for an annual fee of 40 to 70 dollars, you can accommodate up to 20 kilobars.

Why gold at all?

Gold was already valued as an investment form in antiquity, because even small quantities of it are extremely valuable: even larger assets could be transported easily and sold again if required. Especially in times of crisis, gold is frequently used as a substitute currency.

Even today, gold is still regarded as a safe haven in turbulent times. As a rule of thumb, experts advise that each investor should invest about ten percent of their assets in gold—as a safety reserve. Gold experts also point out, however, that the precious metal—viewed over decades—generates more returns than, for example, money that is deposited in a bank account and collects interest there.

Attention: Gold can only be used to make a profit if you get more money when you sell the gold than you spent when you bought it. No one’s paying you interest on your gold. And there are no dividends either.

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