How To Invest In Gold

For an increasing number of investors, the question of how to invest in gold has become more important in recent years. The 2008 financial crises, the dot.com bust and now inflation at 40-year highs after years of easy Fed policy have all driven investors into the welcoming and comforting arms of gold. When considering how to invest in gold, there are two primary ways an investor may go: Paper gold and physical gold.

Paper Gold

Paper gold refers to assets that are not themselves gold but are based on gold. Stock in a gold-mining company, gold certificates and gold futures are all based on physical gold yet are not themselves gold. The gold ETF GLD is a very popular gold-based exchange traded fund. This ETF is designed to mimick or track the actual price of spot gold. Gold ETFs are typically structured as trusts. The trust will buy and hold a certain number gold bars for every share of the ETF sold. This, in theory, allows investors the comforts of gold ownership without having to buy any actual gold.

The problem with this type of setup, however, is the same as it is with any other type of paper gold investment: counterparty risk.

How do you actually know how much gold the trust owns? How do you verify the trust is having the gold stored where it say it is? How will the ETF assist you in buying groceries, gasoline or shelter if the dollar were to collapse? The answers to these questions is it cannot, and neither can you. Although gold carries with it enormous upside price potential and profits that may come along with that, it is often bought for reasons outside of simply making money.

Gold is often bought as a hedge against inflation or a currency, to hedge geopolitical risks and to protect wealth and preserve value. Gold can also provide much-needed diversification within a portfolio. There are numerous reasons to buy and hold gold, just ask any global central bank.

Unfortunately for holders of paper gold, it does not provide the same level of use or comfort compared to physical gold bullion. A gold coin or bar could be sued to purchase everyday necessities such as food or fuel. Shares of a gold ETF or mining stock would be unable to do the same.

Physical Gold Bullion

Physical gold bullion, on the other hand, provides the owner with actual gold bullion. This gold bullion could be used in a variety of situations and may provide benefits to the owner whether it is used or not. Just like paper gold investments, the value of gold bullion will move based on the market and the laws of supply and demand.

In addition to the profit potential of owning physical gold bullion, ownership comes with other perks as well. These possible benefits include:

• Inflation hedge
• Currency weakness hedge
• Wealth protection
• Geopolitical hedge
• deflation hedge

That’s all fine and great you may be thinking, but why is physical gold bullion better than paper gold? The answer is simple and can be narrowed down to just two words: Counterparty risk.

Physical gold bullion in bar or coin form has zero counterparty risk. It cannot go bankrupt, default or otherwise let you down. The metal cannot be manipulated by a central bank looking to change its economy. Its value is what the market says it is-nothing more and nothing less.

Physical gold bullion can be used as a medium of exchange. If the dollar or U.S. Government ever collapsed or was on the verge of collapse, gold could become the primary global currency overnight. Gold coins or small bullion bars could be used to purchase food, energy, clothing and shelter. Its value is intrinsic, and everyone would know the value of gold under such circumstances.

Physical gold bullion can be used as a medium of exchange anywhere on the globe. Its value is the same, whether you are in the U.S., Canada, Asia or Europe. Many argue that gold is the only true form of money left. This may be a fact, as paper currencies have shown a very strong tendency to lose value over time.

The bottom line is this: If you are going to rely on an asset to protect your wealth, preserve your purchasing power and potentially increase in value, it does not pay to purchase paper assets with counterparty risk. It only pays to buy and hold assets that you control and that have zero risk of default.

How to Invest In Gold

Once you have decided to invest in gold, the next question you may have is how to do so. The route may differ depending on whether you have chosen to buy physical gold bullion or paper gold. Paper gold products can be purchased from local banks, stock brokers, investment advisors and more. Gold bullion must be purchased through a precious metals dealer.

Assuming you have chosen to buy gold bullion, here is the process simply laid out for you:

1. Choose a precious metals dealer. Companies such as Regal Assets, Goldco and others can offer you the choice of buying gold using a cash account or even investing in gold using an IRA account. For many investors, buying and holding gold within an IRA makes more sense, and for that reason will be the focus of our discussion. Step #1 is pick a metals dealer.
2. Pick a self-directed IRA custodian. Per IRS guidelines, an IRA account must be held by an approved custodian. There are hundreds if not thousands of custodians you can choose from, and a good precious metals dealer may be able to offer you a discount at their custodian of choice. Once you pick an IRA custodian, you are ready to purchase your gold, silver or other eligible metals.
3. Fund your account. An IRA can be funded with an initial contribution, an IRA transfer or a 401k transfer. Funds need to be at the dealer of your choice before you can purchase bullion, and a good precious metals dealer can show you the fastest way to get funds ready to purchase.
4. Choose a depository: Per IRS guidelines, your precious metals must be held at an approved depository. Places such as the Delaware Depository will ensure your metals are safe, secure and regularly accounted for.
5. Decide on the bullion products you want and make your purchase: Once your funds are available, you can choose the gold and silver coins or bars you want to purchase. Your metals dealer will be able to assist you with this, as per IRS guidelines only certain products are eligible for IRA inclusion. Once you have chosen the gold or silver bullion products, they will then be insured and shipped to the depository of your choice.

That’s it! Five simple steps can help ensure your financial well being and provide you with enormous peace of mind. Choosing the right precious metals dealer is the key to a simple, convenient transaction and account setup.