If you are learning how to buy gold, it is important that you know the basics on getting the best returns on your investment. For instance, dollar cost averaging can help you determine potential risks and minimize these as you go along over time. This strategy means you need to place a specific amount of money towards your gold investment on a regular basis and this must be made regardless of price.
There are several money managers that put about 3 to 10 percent in gold. However, bullish managers lean towards a higher rate that goes as much as 20 percent. You have to realize one important thing, though – there is always uncertainty with gold investment, so you need to be aware of how to protect yourself from risks involved with it.
Types of Physical Gold
There are different types of gold that you can buy including the following:
- Gold coins (1/10 oz, 1/4 oz, 1 oz)
- Gold Bars (1 gm, 2.5 gm, 5 gm, 10 gm, 100 gm, 1 oz, 10 oz, 1 kg)
- Pre-1933 US gold coins
- Certified gold coins (graded by NGC or PCGS)
When it comes to gold coins, the most popular ones are the American Eagle, American Buffalo and the Canadian Maple Leaf. These gold coins can either be stored in your home, a safety deposit box in a bank, as well as storage services offered by certain companies.
Some investors find an interest in purchasing numismatic or semi-numismatic coins. These are also referred to as rare coins, and they come with very high premiums that make it difficult to recoup their value.
If you are interested in purchasing collectible coins, then you are better off buying these from renowned rare coin dealers. Professional and high-level auctioneers are your best bet since they have knowledgeable staff who can grade coins in an accurate and objective manner.
IRA Eligible Gold
In the past, only gold and silver American Eagle coins were approved to be included in a precious metals IRA. However, this all changed with the Taxpayer Relief Act of 1997 due to the amendments added on IRA regulations.
For instance, several types of bullion are now accepted when investing in a Gold IRA, as long as these comply with the minimum purity standards. Gold bars and coins must meet the 99.5 percent minimum fineness, with the exception of the bullion and proof gold American Eagles. Hence, investors have numerous options to choose from in terms of investing in their IRA accounts.
Generally, gold is a relatively safe investment that you can count on for profits during times when your other investment options are not exactly doing well in the market. With this in mind, it helps to have your IRA account funded well, so you can explore other profitable opportunities such as gold.
When purchasing physical gold in an IRA, it is essential that you coordinate with a trustee, or professional who will handle your self-directed retirement account. The trustee will buy gold based on your directions and also serve in storing your bullion and coins for your IRA. The trustee will also give you an idea about the types of physical gold that are in accordance with tax rules.
If you decide to take some money out of your IRA account, there are penalties and income taxes to pay, based on the amount you withdraw, which can be 10 plus percent for account holders who are under 59 1/2 years old. It is also possible for you to have the IRA custodian to withhold the taxes, as this spares you from having to pay a massive tax bill upon filing income taxes. This money is then sent to the IRS, which qualify as taxes withheld.
Getting the Best Price
There is a small premium that is included in gold bullion bar prices, and this is usually over the spot price. This way, it can cover all manufacturing costs of the gold bar. Larger bars come with smaller premium in percentage, so it is only practical to purchase large sizes of gold bars to make sure you only pay a lower premium.
If you decide to buy a gold bullion or gold coin, it is important that you steer clear of high premiums. Ideally, you should buy at or very near the spot price and no more than a 10% premium over spot. The higher the premium, the higher it has to rise before you make a profit.
Typically, coins are produced by the national mint and are sold at a 4% markup where the retailer’s margin is between 1% and 3%.
It’s easy to calculate the premium of a gold product, by subtracting the spot price from the price you paid, divide that number by the spot price and multiply it by 100.
If you purchased an ounce of gold from a dealer for $1225.90, with a spot price of $1200, the bar has a 2.1% premium. This means that the gold price has to rise over 2.1% for you to make a profit.
The best way to buy gold and insure excellent returns on your investment is to know your short and long term financial goals. If you have a long term outlook it makes more sense to buy gold that is closest to spot price.
If you have a shorter term outlook and are looking to buy gold to use as money, then you can purchase smaller coins like the 1/10 ounce, but be willing to pay a premium. While it is not usually recommended for you to spend over a 10% markup each time you purchase gold, there remains the truth that each investor has his or her own threshold.
These are only some of the things you need to remember when it comes to investing in gold. By learning how to buy gold correctly and being knowledgeable about the basics, you can maximize returns on your investment and continue growing your portfolio over time.
I’ve been a financial retirement planner for over 30 years and have been investing in gold, silver and other alternative investments since 2008. When I’m not spending time with my wife and 3 beautiful children, I am learning more about new emerging technologies such as the blockchain.