Even today when gold is no longer used as a currency, the precious metal has not lost its allure for investors. Gold retains its usefulness as a hedge against inflation. In uncertain or recessionary economic conditions it’s an excellent way to avoid the losses that can befall even the stock of a well-run company. Despite its mystique, there is nothing magic about gold. In order to invest money in gold intelligently and profitably, you need to know the types of investments available and how gold prices fluctuate in response to economic conditions.
- Understand the basics of the gold market. Gold prices tend to be cyclical. For example, if inflation is high, gold prices tend to rise as investors hoping to protect the value of their money drive up the price of gold bullion and investment coins. When economic times are good and inflation moderate, gold prices are likely to fall as investors seek other profit opportunities. The savvy gold buyer is one who develops a trading strategy opposite this pattern, buying when demand and prices are low and selling when demand pushes gold prices up.
- Arrange secure storage for your gold before buying. For small amounts, a bank safety deposit box is adequate. For gold bars or larger amounts of investment coins, arrange through your bank or broker to have your gold stored by a bonded storage facility. Storing your gold in such a facility is required if you use a 401(k), IRA, or other tax-deferred account to invest money in gold.
- Choose the form of gold that best fits your purposes. Investment gold (as opposed to gold jewelry or rare coins) is readily available in 22K and 24K (pure) gold bars and coins. The value of all of these is essentially the same. Some investors prefer coins because they are smaller so the per unit investment is easier to make on a regular basis. 22K gold is an alloy and more durable than pure 24K gold and is priced according to the gold content. If you are using an IRA or other tax-deferred account your options are limited to US gold investment coins (22K American Eagles and 24K Buffalo gold coins).
- Find a dealer where you can purchase gold. Many banks will secure gold bars and coins for a small fee, as will brokerage firms. However, you can invest money in gold by going to a jeweler or other dealer in precious metals. The US Mint maintains a list of dealers that carry US gold investment coins online (see link below).
- Check the current (spot) price of gold on world markets before you buy and ask the dealer what their price is. Good dealers mark up the price of gold only a few percentage points, but it may be worthwhile to shop around. Use the link below to get daily price quotes.