5 Big Mistakes Investors Make When Buying Gold
Gold has been valued for both its monetary value and its beauty for centuries. The yellow metal is also prized for its rarity: all the gold in the world would form a cube about 90 feet high, according to the US Geological Service.
And, as inflation hit 40-year highs, gold is also being touted as a hedge to stay ahead of rising prices. It has increased by 16.2% in value since the end of March 2021, compared to the headline inflation rate of 8.5% for the same period. It’s no wonder gold, which was selling for $1.89 an ounce on April 28, has become a hot commodity. The US Mint sold 140,000 one-ounce American Eagle gold coins in March, up from 55,000 in March 2021.
But investing in physical gold poses two big problems: how to buy it and where to store it. When buying gold, you must ensure that it is gold, not painted lead, and that it is of correct purity, measured in karats (24 karat gold is pure; 18-karat gold is 75% gold). For this reason alone, the gold market is plagued with fraud. Mark Twain would have said that a gold mine was a hole in the ground with a liar standing next to it.
Once you have your gold, you need to find where to store it. If you keep it at home, a thief could walk away with your investment. If you put it in a bank vault, you will need to purchase additional insurance, as these vaults are not covered by Federal Deposit Insurance. And if someone else is storing it, you’ll have to pay them for the service and make sure it’s a legit business, and not some guy with a very lucrative PO box.
When you buy gold, you should therefore be sure that you are getting gold, and you may also need to hire someone to protect it. Plus, throughout the transaction, there are plenty of ways to spend more than you should – or get caught entirely. Here are some of the worst mistakes people make when buying gold and tips on how to avoid making them.
1. Buying too much
Scammers prey on investors’ fear of financial ruin and their hope that a single investment can save them. Gold, with its reputation as a hedge against inflation, is just the ticket to stoke fear among investors and belief in the promise of outsized gains. The combo is a big hit for sleazy gold traders, but can spell disaster for you. Joe Rotunda, director of the law enforcement division at the Texas State Securities Board, said that when gold fraud occurs, fear and greed often force investors to invest a large percentage of their savings. in gold. “These are not individuals with a lot of assets – they are looking to preserve what they have and live a comfortable retirement,” he says. Instead of listening to your emotions, try to figure out if gold would fit into your overall financial picture. According to financial planners, 5-10% of your portfolio might be about right, but probably not more.
One of the best ways to take advantage of novice investors is to charge a large difference between the wholesale or spot price of gold – the price dealers pay – and the retail price. You can find the spot price online on many financial websites: Yahoo Finance and Kitco.com are two good places. On average, you should expect to pay between 2-5% cash, according to precious metals dealer Kitco. Find another dealer if you are asked to pay more than that, and don’t be lured by special private coin offers.
3. Stock up on rarity coins
Unless you like rare coins for their beauty and know the market inside out, stick with genuine government-issued bullion coins. Rare coins can be difficult to value and difficult to sell. Additionally, they can sometimes cost much more than their so-called smelting value, which is their value based on weight and purity if the coins were to be melted down. If you buy well-known government-issued gold coins, such as american eagles, you will know exactly what you are getting and can easily sell them through coin dealers. Although the US Mint does not sell American Eagles directly to the public, you can find a list of dealers on the mint website.