Editor's Note: Today's Gold World again comes from our new research analyst, Alex Koyfman. Below, Alex reveals 10 gold investing mistakes... and how to avoid them.
With gold prices pulling back toward $900 an ounce, there's never been a better time to buy. With investment demand hitting record highs and global supplies tightening, we can expect the parabolic rise in gold prices to continue.
Once gold prices find strength over $1,000 an ounce, all bets are off. There is still a lot of speculation on exactly how high gold prices will go by the end of the bull market. But we can be absolutely certain gold prices will increase over the next several months.
Enjoy the easy profits from gold,
Luke Burgess
Managing Editor, Gold World
As an investor, you already know that the best thing you can do to protect your wealth in times of economic uncertainty is transfer it into tangible assets such as precious metals. Inherently valuable by virtue of rarity and universal demand, a metal like gold has historically served as a value preserver when everything else is at risk.
Today, perhaps more than any other time since the 1930s, it is essential that you take steps to safeguard everything you've worked for. Gold is an ever-popular method of stabilizing the assets you've accumulated.
However, buying and owning gold does not come without its own potential pitfalls. With so many choices available to you in today's market, making the correct one is anything but straightforward. Following these easy steps, however, you can protect yourself against the vast majority of hidden and not-so-hidden risks associated with owning gold.
10 Gold Investing Mistakes and How to Avoid Them
1.) Having Unrealistic Short-Term Expectations — Do not make the mistake that so many advisors are hoping you will make. Use gold as a value stabilizer, not a vehicle for turning a small lump of cash into a fortune overnight. Although spikes in price do happen from time to time, the smart investor will always look for the long-term utility of a position before putting their hopes into short-term winnings. Keep your expectations realistic. And remember, patience is key.
2.) Overpaying on Premiums — Contrary to popular belief, just because the market evaluates gold under one price doesn't mean you're guaranteed to pay that price when you buy the metal. Depending on the minter, gold prices may vary quite a bit. Credit Suisse, for example, one of the world's most reputable minters, may charge more for the same quality metal than a smaller, lesser-known outfit. Bearing this in mind, also remember gold purity plays a major role as well. Look to buy only purity, not the brand name.
3.) Buying from Multiple Dealers — If you buy gold from several different dealers, you'll pay several different markups. Buying from one will limit this expense and likely lower your overall costs, due to discounts on bulk rate purchases. Research your vendors carefully; find one that suits your needs and stick with them. Do not test-drive vendors any more than is absolutely necessary.
4.) Owning ETFs over Physical Gold — Although an attractive proposition for many consumers who do not want to deal with the hassle, an ETF does not give you actual physical metal, but rather an interest in it. Add to that the exposure to management fees and the gradual bleeding of certificate value, and an ETF will corrode your investment — thus defeating the purpose of your purchase in the first place. Buy the physical metal and store it yourself.
5.) Owning Gold Stock over Physical Gold — If owning an ETF adds risk, then owning gold stock can be downright speculative. Gold stocks give you no interest in gold whatsoever, just an interest in the company that mines and refines it. Subject to market fluctuations like any other company, gold producers' share prices will experience gains and losses out of proportion to the price of gold and will be further affected by such things as management decisions. If your true goal is to preserve your net worth, and you don't want to spend your days analyzing company performance and balance sheets, stay away from gold stocks.
6.) Knowing How Much to Invest — A common mistake is either putting too much or too little into precious metal. For gold, shoot to invest no less than 10% and no more than 25% of your available assets.
7.) Buying Numismatic Coins Instead of Bullion Coins — Whether you're buying bars or coins, at the end of the day, your goal is to own gold. Numismatic coins derive their value not just from their precious metal content, but also from their rarity and collectability. Again, the demand for such things is hard to predict over time, plus gold purity in old and rare coins is often hard to confirm. To avoid the risk of buying coins at prices inflated by dealers, or coins containing significant percentages of non-precious metals such as copper, stick with standard bullion coins.
8.) Buying American Gold Eagles — I feel the need to point out the American Gold Eagle specifically when mentioning gold coins. Avoid this one! American Gold Eagle coins, first of all, are minted from 91.67% gold and are, therefore, vastly inferior to those minted from .9999 fine gold. But this does not stop their minters from applying high premiums. You end up spending more money on less gold. Furthermore, as US legal tender, the American Eagle actually leaves you exposed to inflation — which you're trying to avoid by buying gold in the first place. Find a better bullion coin like the Canadian Gold Maple Leaf or South African Kuggarand.
9.) Buying Natural Gold Nuggets — Gold nuggets may be appealing those who want to avoid paying premiums for expensive coins, but they create more problems than they solve because of an inherent lack of uniformity in the gold purity. Without precisely screening and evaluating the metal — as would be done prior to the minting of a coin — the gold in gold nuggets will often be darker in color, signifying impurity, or the batch itself may contain non-gold particles. Unless you want worthless material to be included in your gold purchase, stay away from nuggets.
10.) Buying Gold Jewelry — As with nuggets, jewelry is an unreliable source of gold. Not only is the purity of the metal once again a concern, but there is also the added artisan's premium present in all jewelry. The cost applied by the craftsman who made the piece will always inflate the price well past the value of the metal alone. Therefore, while jewelry may have value in its own right, it has no place in the hands of an investor who is looking to own gold as an asset.
Good Investing,
Alex Koyfman
Contributing Editor, Gold World
Editor's Note: In this article, Alex mentions that gold stocks carry a much higher risk that physical gold. And while this true, gold stocks can also provide amazingly higher investent returns. . . returns over 1,000% in many cases. Gold World editor Greg McCoach recently uncovered a tiny, virtually unknown gold exploration stock that he thinks is one of the best gold stories he's seen in 14 years... a stock that could shoot from 30 cents to 37 dollars in short order. Greg recently told me all about this amazing opportunity, and I'll admit I'm a bit jealous he found this stock before I did. You can learn all about this truly unique money-making opportunity here in Greg's new report.
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