Why buy gold – and how to buy gold today...?
WHY ARE MORE and more private investors choosing to buy gold today?
"People rightly Buy Gold when they see inflation ahead," said William Rees-Mogg, a former advisor to Margaret Thatcher and editor of the London Times, at a recent meeting of private investors in the City.
In fact, with the world's major central banks now struggling to maintain their inflation targets, the current lull in Gold Prices could prove a "table banging opportunity" to buy gold in "decent amounts" says John Reade at UBS.
But what's the best way to go about Buying Gold? Type "Buy Gold" into Google, and you'll be met with a huge range of choices. Most carry their own advantages and drawbacks, depending on your aims and concerns. Here are the four options now open to private investors wanting to buy gold today:
Buy Gold for Physical Possession
Buying gold to hold in your hand remains the ultimate in tangible wealth. But the big problem with storing gold coins at home or buying gold bars to keep at your bank is the loss of what professionals call "integrity". Gold stored and traded by professional bullion dealers always comes with an absolute guarantee of its history, weight and purity. If you buy gold outside that professional system, your gold will lack this guarantee – and loss of integrity is the single greatest cost in private gold ownership.
That's why gold coin dealers charge such wide spreads between the price to buy gold and the price to sell it. In Europe and the US, expect to pay spreads of 4% and above, both on purchase and sale. For modern-day bullion coins, such as the Chinese Panda or Australian Nugget, don't be surprised to get only "melt" value when you come to sell, even though you will pay up to 16% above the spot price of gold when you buy.
Buy Gold through a Storage Programme
If you're willing to cede outright ownership when you buy gold, then an "unallocated pool programme" will let you buy gold as an entitlement only, stored at low cost, with a view to taking physical delivery sometime in the future. Kitco.com currently quotes a 1% dealing spread on its pool programme; the Perth Mint Certificate is underwritten by the Australian government. It also offers an "allocated" programme, where buying gold bullion outright in your name costs an extra 1.5% per year in storage fees, plus a $50 flat fee with a minimum gold investment of $10,000.
Buy Gold via a Trust-Based Fund
The exchange-traded gold funds (ETFs) launched over the last half-decade let you track the price of gold – if not actually buy gold to own it outright – by trading a security on the stock market. The leading ETFs buy gold and hold it in trust at HSBC in London; ask your stock broker about LxyOr GBS in the United Kingdom and Europe, or StreetTracks GLD in the US. These shares can only be traded during your local stock market hours, and like the Perth Mint, they will also require a transfer of cash into dollars if you're not buying gold from the US.
Another drawback of buying gold through the gold ETFs is their daily shrinkage. These funds all charge 0.4% per year to cover storage, insurance and administration fees, deducting this fee from the physical gold backing each share. But while the amount of gold backing each share shrinks a little each day, the title on each share remains the same – typically one-tenth of an ounce. Over time, this gap only grows wider; the shares in Australia's Gold ETF now represent less than 9.876% of an ounce after just four years. By 2010, they will come to represent less than 9.75%. The sponsors of the leading gold ETF programs are likely to consolidate the shares soon, repricing them to account for this shrinkage.
Buy Gold Like a Professional Dealer Buys Gold
Thanks to the cost-savings enabled by the internet, there is now a way you can buy investment-grade gold bullion, outright in your name alone, at low cost. Stored in secure professional vaults in London, New York or Zurich (you choose which location you prefer), gold held at BullionVault costs just 0.12% per year, with insurance included, starting from a minimum of only $4 per month.
Buying gold at BullionVault couldn't be simpler, nor more secure. The site lets you set your own prices using a 24/7 online order board, and it gives you instant settlement with zero credit risk. One investor who chose to buy gold at BullionVault recently wrote to say that:
"Having ownership of physical gold in BullionVault's London vault is better than having AAA-rated bonds. Yes, we could have saved a miserly 0.12% per year by buying unallocated gold with a bullion dealer, but we now call that 'sub prime' gold!"