Posted On 03 Jan 2012
What’s the best way to buy gold?
Please understand the context of my answers in these posts. For the simple reason that, like everyone else, I lack all evidence of what the future will be like and because the future consequences of our actions are relevant to their evaluation as right or wrong, I don’t know what would be right for you to do.
I don’t know what would be right for me to do.
Nobody else has knowledge of right or wrong, either.
In particular, nobody understands the future of the global economy. Nobody even understands the global economy today; it’s way too complicated.
So, like you, I am reduced to acting on the basis of opinions that may be false. I make decisions and live with whatever consequences unfold without understanding in advance what those consequences will be.
I approach the topic of deciding the best place to buy gold this way: “If I were to buy gold, what’s the best way for me to do that?”
Your opinions about the answer to the question may not be the same as mine. If they differ, that doesn’t not mean that I think you are ignorant or stupid. So, where we disagree, please don’t take the disagreement personally! Instead, think of it as an opportunity to re-examine your own opinion. If you do that, whether we wind up agreeing or not, my writing and your reading these posts will have a beneficial outcome.
In the case of financial issues such as the one about where to buy gold, there are two factors worth emphasizing.
First, it’s not just a matter that one of us is overlooking obvious facts. It’s important to understand why.
Nobody perceives what is there; we all perceive what we think is there. In other words, nobody has God’s eye view, an objective overview of what-is. What we perceive is infected by our opinions. So apprehending different facts becomes possible only when opinions change. It requires a lot of work constantly to examine one’s opinions, and, even if one does the work, there’s no guarantee of success.
Economists with different theoretical commitments simply “see” the economy differently.
Second, it follows that it’s not as if we can just ask an expert. There are no experts on the economy! If we understood enough to select an expert, we wouldn’t need to select an expert!
So, like everyone else, I’m just muddling along financially. Furthermore, when it comes to the best place to buy gold, I have no practical experience to rely on. My understanding here comes solely from reading.
Why buy gold? As Stephen Leeb noted in his 2006 book The Coming Economic Collapse, “when times are tough, gold springs into service as one of the few investments that can get you through . . . gold is an essential hedge during periods buffeted by inflationary or deflationary forces alike” (p. 171).
Gold is scarce and has intrinsic value, which explains a lot about why there’s been a bull market in gold for years. It’s not just that it’s gaining value against all the world’s fiat currencies, it’s also that, “If governments don’t want to reinstitute gold standards, private citizens will do it on their own” (Schiff & Downes, Crash Proof 2.0, p. 288). That’s not a prediction; it’s already happening!
To confirm that, have a look at James Turk’s goldmoney.com. It works like online banking except that your account is not measured in currency like dollars but in goldgrams and mils.
Once you realize that it isn’t just another commodity, that gold is money, you are ready to consider the question of where to buy gold.
‘Bullion’ refers to bulk gold (or silver). There are two kinds: (1) ingots or bars and (2) coins. It is the quantity and purity of bullion that determines its value.
If I were to buy gold , I’d only buy bullion. My preference of the two kinds would be coins such as the American Eagle, the Canadian Maple Leaf, the South African Krugerrand, or the Australian Kangaroo.
If, for some reason they were in short supply or I had hundreds of thousands of dollars or more to invest at once, I would buy bars.
Unless you are a wealthy, experienced investor in precious metals, I recommend against other ways of buying gold.
You could, for example, go for exchange-traded funds (ETFs) or buying stocks in gold mines or pool accounts or certificate programs or options or numismatic (collector) coins. Not for me! There’s way too much risk and volatility, and they require way too much sophisticated understanding. If you want to buy gold ETFs or set up a margin account or acquire heavy leverage with futures accounts or FOREX or whatever, my only suggestion for you is not to bet more than you can easily afford to lose. (I’ve personally known more than one person who gambled like that and got burned.)
Other possibilities are just scams, such as buying commemorative coins advertised on television, buying supposedly rare coins pitched over the telephone, or buying counterfeit numismatics.
Where should you buy gold coins?
Unless you already happen to know a trustworthy dealer, buying them online by wiring money to a reputable dealer beats buying them from a coin shop.
Before doing anything: have you thought through a plan for your portfolio? What percentage will be in precious metals? What percentage of that will be in gold? Where will you store your gold? Assuming that you don’t want to keep it all at home, should you use segregated (or allocated) vault storage somewhere within your own country or store it outside your own country or both? When the time comes, how will you sell your gold?
In you want financial peace of mind, you must train yourself to act and think long term. As Benjamin Franklin said, failing to plan is planning to fail.
If you actually buy gold without having at least read a few books on how to do it well, you are a fool. Good books on the topic will also alert you to some excellent newsletters, too. It’s also easy to find free talks online at YouTube and other places by such experts as Michael Maloney and James Turk.
[Incidentally, if you would like me to do posts on certain topics, I’m always open to suggestions.]
A related story: I’ve been a small-time landlord for about thirty years. Since I give good value and know what I’m doing, I’ve never had any serious problems with tenants. Occasionally, though, I’ll find myself chatting with someone who, upon finding out that I’m a landlord, tells me some horror story about renting real estate. When I ask the simple question, “How many books did you read about how to be a landlord before you started doing it?” I’ve always either been met with a blank stare or an answer of “none” accompanied by a sheepish look.
If you insist on going through life making all your own mistakes, please stay away from me!
Which dealer? Bullion coins have a relatively low bid/ask spread, but it still varies. Usually, buying in quantity can save you money.
Do your research. Check with the Better Business Bureau [bbb.org]. Is the dealer a member of the Industry Council for Tangible Assets [ictaonline.org]?
Ensure that the price you pay includes all shipping and handling charges as well as full insurance through successful delivery.
Should you buy gold at all?
Your answer should depend upon your analysis of the economy.
If you are attached to a certain metal, you have a psychological problem.
If you want temporarily to own a passive asset that has no tax advantages, that doesn’t provide a cash flow, and whose price has been increasing for years because you understand that its value is only going to continue to increase for quite a while, then your analysis is similar to mine.
If you’d like to own a hard asset that has tax advantages and provides plenty of cash flow such as a large apartment building, instead of trying to buy that apartment building now, consider putting your dollars into precious metals such as gold and wait until after the currency collapse to buy it.
In other words, at this time, I think it’s a good idea to buy gold. Eventually, the bull market in gold will end and it will be time to sell and transfer your wealth to other assets. A strategy to buy gold is just a way to buy gold low, ride the bull market up, and sell high.
It’s nothing but a way to win the game of wealth-building.
Unless you want to be poor, which has a negative effect on happiness for nearly all people, it’s a game that must be played. Since being rich is no more conducive to happiness than being middle-class, it is not necessary to master that game, to become an expert wealth-builder. In fact, there are much more important tasks in life. All that is required is to master it well enough to become and remain middle class.
A thoughtful strategy that includes a plan to buy gold low, hold it, and sell it high may be an integral part of such a strategy.
Actually, buying silver right now appears to be an even better strategy than buying gold. I intend to explain that in a forthcoming post. If you don’t want to miss it, just sign up to be notified automatically.