5 Worst Mistakes When Buying Gold

For generations, gold has been treasured for its monetary worth as well as its aesthetic appeal. The bright metal is also appreciated for its scarcity: according to the United States Geological Service, all the gold in the world would create a 90-foot-high cube.

Gold is also being marketed as a hedge against increasing costs, as inflation has reached 40-year highs. It has increased in value by 16.2 percent since the end of March 2021, compared to an overall inflation rate of 8.5 percent over the same time period. It’s no surprise that gold has become a desirable item, with an ounce selling for $1,891 on April 28. In March, the United States Mint sold 140,000 one-ounce American Eagle gold coins, up from 55,000 in March 2021.

Investing in actual gold, on the other hand, has two major drawbacks: how to purchase it and where to keep it. When buying gold, be sure it’s genuine gold, not painted lead, and that the purity is right, as measured in carats (24-carat gold is pure gold; 18-carat gold is 75 percent gold). The gold market has been riddled with fraud for this reason alone. A gold mine, according to Mark Twain, is a hole in the ground with a liar standing next to it.

Once you’ve obtained your gold, you’ll need to decide where to keep it. If you keep it at home, it’s possible that a thief will steal it. You’ll need to get extra insurance if you store it in a bank safe-deposit box since such boxes aren’t protected by federal deposit insurance. And if you have it stored by someone else, you’ll have to pay them for the service and make sure they’re a genuine company, not just some man with a very profitable P.O. box.

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When purchasing gold, you must ensure that you are purchasing gold, and you may need to employ someone to secure it. Furthermore, there are several opportunities to spend more than you should — or to be completely taken advantage of — during the transaction. Here are some of the most common gold purchase blunders, as well as tips on how to prevent them.

  1. Excessive purchasing
    Scammers rely on people’s fears of financial collapse and their faith that a single investment can rescue them. With its image as an inflation hedge, gold is ideal for instilling anxiety in investors while also encouraging them to believe in the potential of large rewards. For dishonest gold dealers, the combination is a tremendous hit, but it may be disastrous for you. Fear and greed typically drive individuals to put a big portion of their money in gold, according to Joe Rotunda, head of the Texas State Securities Board’s enforcement section. “These aren’t people with a lot of money; they just want to keep what they have and have a decent retirement,” he adds. Rather of responding to your emotions, consider how gold could fit into your broader financial picture. According to financial advisors, five to ten percent of your portfolio is approximately appropriate, but no more.
  2. Paying too much
    The discrepancy between the wholesale, or spot, price of gold — the amount dealers pay — and the retail price is one of the most common methods to take advantage of inexperienced investors. Many financial websites, like Yahoo Finance and Kitco.com, may provide you with the current spot price. According to Kitco, a precious metals broker, you could anticipate to spend between 2 and 5% more than spot. If you’re requested to pay more than that, choose another dealer, and don’t be enticed by offers from private mints offering “special discounts.”
  3. Amassing a collection of rare coins
    Stick with genuine government-issued bullion coins unless you like unusual coins for their beauty and are well-versed in the market. Rare coins may be difficult to appraise and sell. Furthermore, they may often cost considerably more than their melt value, which is the value of the coins based on their weight and purity if they were melted down. You’ll know precisely what you’re receiving if you purchase well-known government-issued gold coins like American Eagles, and you’ll be able to sell them quickly via coin dealers. Although the United States Mint does not sell American Eagles directly to the public, the mint’s website has a list of dealers.
  4. Hiring the incorrect storage firm
    The ultimate gold scam, in the eyes of a con artist, is to have someone pay you money for gold you don’t have and never have to deliver. Many trustworthy firms will keep your gold safely and securely, but if you decide to have someone else store your gold for you, do your homework. Rotunda recommends looking for a firm with a lengthy track record and checking their record with the Better Business Bureau. You may also contact your state’s securities commissioner, who will be able to inform you whether the firm has had any regulatory issues.
  5. Demanding actual gold
    Several exchange-traded funds, or ETFs, invest only in gold and have share values tied to the yellow metal’s price. Many gold ETFs are backed by real gold stored in vaults, whereas others follow the price of gold using futures contracts. To learn more about how the gold ETF you’re considering investing in works, read the prospectus. ETFs are handy since you may buy and sell shares at any moment throughout the trading day and you don’t have to worry about where your gold is stored. You’ll have to pay a monthly charge for the ETF’s services, as well as a brokerage commission if you purchase it, but keep in mind that you’d have to pay commissions and storage costs if you bought actual gold. It’s important to keep in mind that certain gold ETFs invest in gold mining equities rather than the commodity itself. Before investing, always read the prospectus. The value of mining equities may be significantly more volatile than the value of gold.

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