Buying physical gold demystified

Thinking of first-time and/or newer gold investors, Precious Metals Brokerage Group (PMBG) has launched an “ABC Guide to Investing in Gold.”

The manual covers some basic, but key topics, such as understanding the current market, deciding what type of gold product to focus on and finding a trustworthy brokerage dealer.

Here are the main points, from the company’s press release:

A) Understand The Current Market: The fundamental case for increased gold prices remains strong. In late December 2011, gold dipped to a 12-month low, below $1,550/oz. Traders who responded to the barrage of ‘buy’ recommendations were quickly rewarded as the metal soared to test $1,800/oz. again by late February. Since then gold has oscillated in price based upon several macro-economic factors (such as the Eurozone Crisis, an election year and a third round of Quantitative Easing). This oscillating pattern and the temporary pullbacks that have occurred over the last year gives first time gold investors a chance in the remainder of 2012 to establish a position before the metal makes its next move higher. Currently hovering right around $1,700/oz., gold has many leading experts signaling a significant move up by the beginning of 2013, especially since it has already tested or hit the $1,800 mark three times in the last 13 months.

B) Know What Type of Gold Product to Focus Upon and What Prices to Expect: In today’s climate, physical possession of gold as a hedge against inflation and global turmoil is bringing many new investors to the table. A savvy first-time gold investor is wise to look at buying “physical gold” (as opposed to security/paper-backed gold positions), especially since most individual investors are looking to build and store long-term asset value.

But what exactly should a new investor consider buying?

For most individual investors, buying gold typically means buying bars, minted gold coins, or minted proof coins in 1 oz. to 1.85 oz. increments. A very popular choice for both first-time investors and experienced investors are the American Gold Eagle Coin, the American Buffalo Gold Coin and the Canadian Maple Leaf Gold Coin, with the American Gold Eagle being the most popular with U.S. investors.

It’s important for new investors to know that nothing trades right at the “spot price” of the metal. The actual purchase price varies from coin to coin depending upon the purity of the metal content and its popularity (hence partially based upon historical ease of selling on the open market due to “demand”). The spot price is a baseline from which various gold investment products will include in the total price, which includes an individual product-specific premium, usually anywhere between 5%-15% for coins (which covers the cost of minting and fabrication) and 5%-10% for minted bullion bars.

C) Find A Trustworthy Brokerage Firm/Dealer: There are important rules-of-thumb when investors choose to buy physical gold, silver, platinum or palladium. Three important rules to follow to save first-time investors a lot of time and potential frustration?

1) Deal only with reputable dealers who have proven experience in the business. This can be determined by checking their reputation of online feedback from actual customers as well as looking for any potential red flags such as past (or current) lawsuits or customer complaints by web-searching the name of a company and the word “lawsuit” next to each other for any company an investor is considering purchasing from.
2) Seek out knowledgeable “customer-focused” Account Executives and/or Brokers that can offer a “customer-driven” buying process versus a “dealer-driven” buying process. A Precious Metals broker shouldn’t push a particular investment product at the expense of an investor’s goals. Find a company that has brokers that will take the time to walk through the various products and the pros/cons of each one in a no-pressure fashion to meet your goals.
3) Ask questions about their product guarantees and shipping insurance policies and make sure you don’t feel rushed. A “customer-focused” dealer should want to earn your repeat business versus push for a quick one-time transaction at the expense of your buying experience.

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