Bullion Buying

How to Buy Gold

Gold Bars

When considering how to buy gold the obvious choice is to go for bars. Gold bars have been produced for centuries. They are the standard form of investment gold bullion. The bars that you see in pictures of bank vaults are 400 oz. and thus worth some $600,000 - $800,000 each, putting them out of the reach of most individual investors. This causes some dealers, but not BullionRock to sell part-ownership shares of ‘fractional bars’ at more affordable values.

Smaller bars are produced for individual ownership, but come at a premium. Many investors prefer the whole-ownership peace of mind that they confer, especially if they are going to store them at home. By trading with BullionRock you can obtain good delivery standard bars and have the option to sell back later. Many reputable dealers will offer prices of around 2% - 2.5% below marlet price for resale of their own supplies.

The way to ensure that you have a genuine asset is to buy only in Good Delivery bars.

Good Delivery bars come from a reputable refiner registered at the London Bullion Market (LBMA), with a verifiable chain of custody. Many choose the products of German, Dutch and Swiss refiners such as Umicore, Heraeus and Metalor.

Investors should be aware when considering how to buy gold, that around the world counterfeit hollow bars, or bars produced from inferior metals, have been produced. This emphasises the importance of having any non-good delivery gold holding 'assayed' (tested) by experts. Whenever a good delivery bar is transported out of secure storage it should be re-assayed on its return to vaults, to restore its provenance and hence maximise its market value.

In times of crisis, banks in major financial centres may be tempted to use their precious bullion to underwrite other transactions and it is possible that other parties have an ‘unallocated’ part-share in bars that are already sold to investors. Arguably, buying and storing your bullion in a well-regulated island jurisdiction like Guernsey is the most reassuring option.

Gold Coins

Coins were traditionally produced using gold and even when this became economically impossible, countries prudently linked the value of their currency to the cost of gold, to provide stability and maintain its real worth. The last state to leave this Gold Standard approach was Switzerland, which floated its Franc in 2000.

Most gold investment coins are not pure gold (which is described as 24 carat) as it is normal, and perfectly acceptable, for them to be strengthened with other metals and therefore to have a 22 carat rating. This is done to make them easier to handle without damage. For market value purposes they are converted into their actual pure gold bullion value by weight.

Coins generally trade at their bullion weight and do not attract a significant premium because of their age, design or condition: some mint rare stampings may attract a premium due to collector interest, but it is unwise to expect an additional benefit from this when you come to sell.

The majority of coin investors choose to keep their collection at home and avoid vault charges: but do bear in mind what contents insurance might cost when compared to the annual fully-insured fees offered. Coins are easy to sell individually and their smaller individual value makes it simple to break up holdings for gift or inheritance purposes.

Gold Grains

Fine gold grains are the cheapest form of gold bullion that one can buy. Each is only about 1/8” and there are 480 grains to 1 troy ounce. One grain weighs just 0.648 gm. Only buy grains from a reputable supplier, to ensure that it is genuine pure gold. Unknown Ebay sellers and other internet vendors with no track record are unlikely to be secure sources of genuine grains. If it seems to be too cheap to be true – it probably is.

Unallocated Ounces

BullionRock Invest, who provide investment opportunities within the bullion sector, offer the option of setting up an account whereby you become an unallocated creditor of the leading refiner Metalor of Switzerland. They effectively owe you for some of their gold supply.

It is the cheapest route to gaining physical exposure to the bullion market – but you are not actually the owner of the gold. Metalor is a very well respected firm but in the unlikely event that they went out of business you would have to wait to see whether your money would be returned.

This may represent a worthwhile element in a diversified commodity portfolio, where the slightly higher perceived risk can be weighted against the lower cost of entry: and it can be balanced against a basket of physical bullion holdings, probably in a variety of precious metals and physical forms.

Exchange Traded Commodities (ETCs)

ETCs are a form of ‘electronic gold’ – they take you close to the real thing, but with some important differences. An ETC is a traded financial instrument that aims to tracks the gold market price without you having to be involved in the riskier futures and derivatives markets. In theory the physically backed ETCs confer on you ownership of actual gold. However some ETCs are not backed by actual gold. Rick Santilli, financial analyst on the CNBC channel, has accused some funds of ‘excessive leveraging’ of as much as 100:1 so that you really are no safer than in any paper fund and you really are not a sole owner in any sense.

Some ETCs may lack transparency, not revealing their physical holdings, which are unaudited and liquidity may be an issue. Reporting requirements make them less private than bullion investments (which, within limits, are not declarable). And if the worst happens, ETCs may have no intrinsic base value.

Management charges are also relatively high, and together with storage and insurance these costs are taken away from the value of your investment each year so that your capital holding declines over time (unlike physical gold investment where you pay separately and your capital is undiminished).

Please click HERE for further information from Guernsey Mint Refined


Gold Certificates

Otherwise referred to as ‘paper gold’, these are issued by banks and offer ownership of ‘allocated’ (fully reserved) bars in their vaults. In theory this is a secure investment, but in some cases banks have been suspected of selling the same gold bar more than once.

Questions have also been raised about the desirability of entrusting your investment to a bank when many are suffering credit rating warnings: financial commentators have reminded us that the whole edifice of ‘fractional reserve’ banking, whereby banks re-lend money to multiple borrowers because they bet on not having to return all their investors’ money simultaneously, means of course that if there is a run on the bank you may not get your capital back.