Ok so you have never thought of investing in gold before. – Should you be thinking about it now?
It’s a common question that many amateur investors ask, particularly when considering investing in anything for the first time.
Buying gold can seem like a minefield, especially if you’ve never done it before so it’s important to understand what you’re buying and why it’s worth the money.
First, you need to understand a bit more about gold and ‘how it works’.
There are some basics, for example; every gold bar has an intrinsic value based on its gold content. We can all understand the simple questions; “how much gold is in that bar and what is the value?”
Assuming we are talking about pure gold, how much gold there is simply how much the bar weighs. Most bars are 99.99% gold, so if you purchase a 100-gram gold bar then at least 99.99 grams of it will be pure gold.
OK, so far so good… Now let’s talk about value:
The value of the gold bar is based on how much the metal is worth in the marketplace at that time, commonly referred to as the spot price. This is the price at which the metal may be transacted and delivered upon right now. – In other words, ‘what is the price of gold today?’
With me so far?
So, with a 100g bar the price its selling at is because of its weight and the price of gold. If the spot price suddenly drops, that bar of gold’s value will decrease.
Seems pretty straightforward right?
On top of the spot price there is an additional variable. This added extra is determined by the type of product scarcity, refinery, mintage and year of the bar as well as dealer mark up. This can add to the price of the bar, but can be beneficial as well.
Hmm, sounding a bit more complicated? – Let’s take the next step:
How much are you going to buy? Once you establish how much you wish to spend, you’re ready to shop.
This is where things appear to get complicated. As you browse the store you notice that there are several different ‘brands’ of gold bars, and each one is a different price.... but hang on a minute… didn’t you just learn that a gold bar’s value is based on the spot price, so why is there such a big difference?
Remember the additional amount added on each bar? That’s where the price variation comes in. – Each brand may be offering a slightly different price at the point you are ready to buy.
Think of it like this:
Imagine you’re in a department store looking for a pair of denim jeans in a size medium. There are several different pairs, all exactly the same but they range in price.
On closer inspection you notice the logo differs on each. You like the look of one so investigate that brand and find it’s British, something you like. Another pair is from a brand that has been around for over two hundred years whilst a different pair is made by an environmentally ethical company.
Well it’s pretty much the same with gold bars.
An established retailer will showcase a wide variety of gold bars from a number of different ‘refiners’. (A refiner is a company makes the gold bars from the original metal ore, ensuring its purity in the process).
Choosing a gold bar for more experienced investors might also be based on preference for a specific refinery, as well as the bar’s design and price.
There are lots of gold bullion retailers today.
Consumers have quite a choice of retailers when deciding where to buy from so it’s important to select the right store.
Choose one that offers a good selection, to give you more choice.
You need to trust that store, so do your research.
Do they offer free advice? Can you pick up the phone and chat to an advisor about your decision?
Make sure you read reviews to get a feel for the customer service and read their website; do they offer genuine help or are they looking for a quick sale?
Take your time and shop around. Investing in gold is a big decision and one you want to make with the right retailer.
But it’s not as scary as you think.