Buying gold isn’t like buying stocks
or bonds. For starters, you usually don’t contact a
broker to make a purchase. And, as opposed to when you buy stocks
and don’t take physical possession of anything other than
a statement, when it comes to precious metals, experts say it’s
vitally important to own the actual metal—not someone’s
paper promise.
The most common examples of physical metal that you can own are
coins, bars and high-karat jewelry, but the overwhelming majority
of investors in precious metals buy gold coins. The three most popular
gold coins are the American Eagle, American Buffalo and the Canadian
Maple Leaf. The coins are available in various increments, too,
from as little as 1/10th, 1/4th or one single ounce. Buying about
15 ounces of gold will cost you roughly $10,000.
Storing this metal shouldn’t be a problem—you can literally
put a million dollars worth of gold into a shoebox. Owning silver,
however, is different, since it is less expensive. In order to store
large amounts you may want to go with a licensed depository, several
of which are located in Wilmington, Delaware.
Not Just Another Commodity
Some of you may be wondering: why should I buy gold at all?
“A client told me that once a person puts a gold coin in their
hand, it’s worse than crack,” says precious metals expert
Barry Stuppler, past president of the Professional Numismatists’
Guild Consumer Protection Committee. “Owning gold is really
addictive.”
Central banks still hold gold as a last resort asset, and gold is
redeemable in any currency in any country in the world. It’s
considered a means of storing value in a way that is not possible
with paper currencies, such as the dollar, which can lose value
based on deficit spending by the federal government. The price of
gold is driven by a variety of factors that include supply and demand,
interest rates, the value of the dollar, the overall investment
environment, and even political instability.
Because of that, gold is considered a good hedge against currency
devaluations and inflation. It can be easily sold, and for many
people, it has a certain emotional appeal.
The “Midas metal,” as gold is sometimes called, has
earned respect based on its long history. Gold has been in existence
for 6,000 years, which trumps most other forms of currency, including
many national paper currencies that have come and gone.
In January 1980, the price of gold hit an all-time high of $850
an ounce in the wake of economic uncertainty in the U.S. (due to
high gas prices, inflation and unemployment), fear over major geopolitical
events, including the Soviet invasion of Afghanistan and the Iranian
revolution, which cut oil exports. Not many people are predicting
that gold will return to those 1980 prices anytime soon. But some
observers are nevertheless very bullish on gold. Noting that gold
hit a 26-year high of $730 an ounce in May 2006, Citigroup Inc.
analyst John Hill said in a June 4 report: “We have been positive
on gold for three years and expect it to ratchet much, much higher
over time.” Hill and the Citigroup global metals team expect
gold prices to average $632 an ounce in 2006, $700 an ounce in 2007
and $750 an ounce in 2008. “We would not be surprised to see
a test of the old highs of $850 an ounce,” Hill added.
Clearly, you can get a very nice return on your money by investing
in rare gold coins and other precious metals. According to Stuppler,
the CU3000 Index, a broad index of rare coins, has returned an average
of over 13 percent a year since 1970. Stuppler also notes that carefully
selected high-end rare coins have appreciated far more. Moreover,
he cites data from Penn State University showing that dedicating
five percent of your investment portfolio to rare coins not only
increases return, it also slashes the overall risk of your portfolio.
Stuppler himself has a long and extensive background in precious
metals. He’s a rare coin and precious metals consultant and
dealer of 40 years, and specializes in working with investors. He
is also chairman of the Professional Numismatists’ Guild Consumer
Protection Committee, and publisher of CoinMag.com and Gold News
Today, online publications that supply information about precious
metals. He says if you buy gold it’s best to take physical
possession of the gold, whether it’s a few ounces or substantially
more. You can always sell the gold and turn it into cash later if
necessary.
The Current Forecast
One disadvantage to investing in gold is that it’s non-interest
bearing. So, unlike a bond or a savings account, you’re not
getting paid interest on your investment. And one ounce of gold
today doesn’t change; it’s still the same one ounce
of gold two or three years from now. By contrast, if you owned stock
in a company, those shares could split 2-for-1, meaning 100 shares
today could turn into 200 shares in the future.
As of this writing (in mid-September 2006) gold was selling for
$588 per ounce. That’s up from $515 an ounce in early 2006,
but since gold is well off its recent highs in the 700-dollar range,
Stuppler says “it’s now a wonderful time to be buying
gold.”
Some experts also say silver looks interesting right now—mainly
because it’s attractively priced at just $11 per ounce. But
Stuppler says he would not recommend platinum or palladium for beginning
investors in precious metals. His reasons: Platinum is near an all-time
high of $1,200 per ounce, making it overvalued. And as for palladium—a
rare, silver-white metal that resembles platinum—although
it is down to around $300 per ounce, its price is being driven down
because manufacturers are coming up with others ways to replace
it.
“When you have gold, you have real value. Currencies have
come and gone for thousands of years, but gold is still a means
of determining wealth,” says Stuppler.
How to Get It
You can buy and sell gold online, through the mail, or via a local
coin or jewel dealer. One caveat should you decide to delve into
the world of precious metals investing: beware of fraudsters. Gold
scams are believed to be among the most popular of all precious
metals scams. You’ve probably received one of those annoying
Nigerian money scams in your e-mail inbox, right? Many of them are
linked to gold scams. But other cons abound—everything from
hucksters selling phony gold mines or non-existent gold bullion
to scam artists supposedly unloading gold that’s allegedly
maintained in Swiss vaults or held over from World War II Nazi seizures.
For any sizeable investment, you certainly want to have an experienced,
reputable precious metals expert handle your purchase.
To locate one, visit www.PNGdealers.com.
This is the website of the Professional Numismatists Guild. Once
you go to the home page of this organization, click on “find
a dealer.” You’ll be able to look up regional dealers
and sort out experts by name and state. Because the PNG only lists
professional dealers who are credible, have been around for years,
and who abide by a professional code of ethics, this is a great
way to weed out undesirables who may or may not be legitimate.
Stick with reputable gold dealers, and you’ll likely find
that your investment in gold will turn out to be—well, golden.
Lynnette Khalfani, The Money Coach, is the author
of The Money Coach’s Guide to Your First Million.
Get her free personal finance newsletter at www.themoneycoach.net.
Other articles:
For the remaining articles, subscribe to BeE Woman Magazine.
