A starter guide for aspiring gold bugs
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Listener Mary Garrett sent in this question:
What is the best way to buy gold bars?
Nick Mead made headlines last month when he found five gold bars inside of an old Russian tank. The gold bars — each weighing 12 pounds, or five kilograms — are worth about $2.4 million. Since not everyone is as lucky as Mead, you might have to go through more traditional channels to get your hands on some gold bars.
To find out the best way, we reached out to Peter Thomas, senior vice president at Zaner Precious Metals and an expert on gold. Here is his advice in four steps:
1. Find a trustworthy store.
If you are shopping for gold bars, make sure to find an established shop. Don’t be afraid to ask how long it’s been in business.
“First-time guys, fly-by-night guys, they are very high risk,” Thomas warned. “I always recommend a minimum of five years. Someone who has been around and been through the bumps of the business.”
Cautious buyers can perform a Better Business Bureau search to ensure that the store has had no issues in the past.
According to Thomas, there should be a gold shop in a neighborhood near you.
“There is probably more gold and coin shops in America than most people realize. They are everywhere, because they are like currency exchanges,” he said. There are also a number of online stores where gold bars can be purchased. “Yes, there are places nearby, and yes, they are very good online places that do literally hundreds of millions of dollars in sales every month. The gold market is over $5 trillion wide. It’s a very liquid market.”
2. Start small.
Buying gold is an investment. Your first-time purchase should be a small one, Thomas said.
“We recommend that you put your toe in the water first,” he said. “Don’t take a second mortgage out to go out and buy gold. The Cambridge school of economics recommends 5 to 10 percent of your equity in metals, no more. That’s a good guideline.”
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3. Find out what size and type of gold bar is best fit for you.
There are different types of gold bars available for purchase. For a first-time buyer, Thomas recommends gold bullion bars that come in blister packs. “Bullion” means the gold is 99.5 percent pure and has been shaped into bars.
“Those blister packs are difficult to counterfeit. In those blister packs, they have a scanbar, and you can scan it and get verification that it is a gold bullion bar manufactured by a reputable house,” said Thomas, who prefers Swiss gold.
Swiss gold comes with a high quality watermark. It’s used to make PAMP brand bullion bars — Produits Artistiques Metaux Precieux, or Artistic Precious Metals Products.
“It’s a little more expensive, but when you go sell it, it’s far more liquid,” Thomas explained. “People look at a PAMP bar and they pay you. That’s it. The last thing you want to do is haggle to sell your gold because it’s an unrecognized or non-stamped bar or unhallmarked bar.”
Gold bars come in different sizes, such as 1 gram, 1 ounce, 10 ounces and 1 kilogram.
Why do people buy gold bars?
“Gold bars have less of a premium on them than coins,” Thomas said. “Additionally, it’s a smaller outlay. A lot of people like the bar format. You’d be astonished at the amount of kilo bars we sell, which are the 33-ounce bar. We sell them all day long in Asia.”
4. Know your price.
When looking to buy a gold bar, Thomas said you should be paying attention to the London Spot, a composite of the price that gold is trading at that day, posted twice a day.
“It’s used by every gold dealer in the world,” Thomas said. “I always tell people on bars, you should never pay more than a 3 percent premium on a bar. Three percent over London Spot is pretty much your fixed point. Anything over that, and most of the time you are overpaying.”
The afternoon London Spot came in at $1,220 per ounce of gold.
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So you’ve got your gold bars. Now what?
Do you keep them wrapped in a towel, hidden in a freezer?
“There are two ways to go. One is to put them in a safe [at home], and a second one is to put them in a security box,” Thomas said. According to him, it’s “worthwhile to have them in secure place. Gold doesn’t have a name on it. It’s gold, you know. It could go anywhere. It’s not a registered security.”
And what if you want to sell your gold?
“You can go to your reputable gold dealer. There is actually a machine that they can set the gold in, and they fire a wave into it, and they find out that it’s real, and then they give you a price for that, and you can take it or leave it,” Thomas said. And remember to check the London Spot before you head to the store. “The price shouldn’t be more than 1 percent below the spot.”
If you want to get a good price for your gold, make sure to take good care of it, Thomas warned.
“Gold is very soft. You want to be careful with the way you handle it. You bring a bar that’s got nicks and dings all over it, because it’s been knocked around in a drawer or something, you aren’t going to get a lot for it.”
One way to sell your gold, according to Thomas, is to mail it to an authorized dealer.
“They will send you a check. It works quite well,” he said.
Wait a second, you can just go to the post office and ship a gold bar?
“Yes, you can ship it through the post office. It’s the cheapest way to do it.”
What if it gets lost in the mail?
“You want to send it registered and insured to your dealer,” Thomas said matter of factly.
That sounds dangerous.
“You are insured up to $25,000, so if it’s just one gold bar, you should be fine.”
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