Gold prices have been all over the charts in recent years, from record highs to sagging lows, but one thing is sure: gold has maintained its value for six thousand years. Sought after by investors, the value of gold has withstood political revolutions, social change and economic trauma.
An entire culture can collapse and still gold will maintain its worth. That certainly can’t be said about investment instruments that are backed solely by the “full faith and credit” of a government.
What drives gold prices?
Much of the reason for the value of gold is because of its scarcity. If you could gather all the gold ever mined in the world, all of the gold jewelry, coins and bars locked in bank vaults, personal safes, buried in backyards – even in teeth – and melted it all down into one solid cube, it would measure less than 30 yards square.
Gold prices are determined by what is known as the “spot price”. That’s the specified value of an ounce of gold priced for immediate delivery on an exchange. These prices change constantly, as the global gold market trades around the clock.
But gold prices can also mean determining the value of bullion coins and bars, which contain a markup over the quoted spot price. Know as “a premium,” it covers the costs for minting, marketing and distribution.
Adding gold to your portfolio
As a smart investor, you’ll want to know that you’re getting a good buy. You should know that bullion coins such as U.S. Gold Eagles, South African Krugerrands and Canadian Maple leaf coins carry high sales commissions. Markups of 20 to 50% are common, and can be even more. Many times, dealers will attempt to switch you from bullion coins to numismatic or semi numismatic coins – better known as collector coins, which have even higher profit margins.
Regardless of which physical form of gold you prefer, most experts agree that it’s not a good idea to have a dealer store precious metals for you. It’s usually best to keep your gold investment in a secure location in your home, or in a safety deposit box at a bank.
Getting a good price on gold investments
Though usually quoted in ounces, gold prices are also measured in “price per kilogram” and “price per gram.” Investors in physical gold are usually quoted a price per ounce, but in the jewelry industry gold is usually quoted in grams.
For investors, just as with stocks, gold is sold at an “ask” price and purchased at a “bid” price. The difference between these two values is known as “the spread.” Of course, you can also expect to pay a commission to a gold broker or dealer. If you are taking actual physical possession you’ll also want to know the cost of shipping and insurance.
If you prefer gaining your gold exposure in a highly liquid, tradable form that doesn’t have to be stored or insured, you may want to consider gold stocks and exchange-traded funds. Of course, they are priced throughout the day on major stock exchanges such as the NYSE or NASDAQ. Mutual funds can also offer gold exposure and are priced and traded just once a day.
However you go for the gold, you’ll find pricing your investment to be a critical first step.
Gold or stocks? Simply owning a gold brick and storing it in a safe does nothing to perpetrate wealth.
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