Gold Investment

If you haven’t watched the Columbia Business School parody video of The Police’s “Every Breath You Take,” go grab it now. A bit low in quality, but the lyrics are hilarious (and sad). Check it out here. Stagflation, indeed.

More and more readers have been asking about how to buy gold, and I’ll be replying to them publicly (when acceptable by the writer). Here’s one, anonymously:

I’ve read some of your slashdot comments these past few months. One of your early slashdot comments this year led me to your various sites regarding gold investments. Some questions re: investing in gold. How does one find a reputable gold dealer?

I created a site called local gold dealer where I hope to slowly build a reputable list of gold dealers to buy from. I do expect it will take time, but it is gaining traffic like hotcakes, so watch that site for more details. I will be adding dozens of dealers a day in the coming weeks (I have a list of about 5000 gold dealers worldwide). Until then, your best bet is to track down your local collectible store in your area. I had a previous e-mail from a reader a few months back that covered how to invest in gold slowly, and that is a good place to start. Finding a reputable dealer can be tricky, especially for your first purchase. My recommendation is that your first 2-3 purchases be made based solely on seeing if you really want to own gold (or silver). The “loss” you risk is that you might pay too much but the gain is worth more: you’ll learn if you can love the metal more than the paper money. At worst, you might pay US$20-US$30 more than you should, but you’ll quickly learn about gold and silver just by owning those first few ounces (or fractions of an ounce).

Is it best to find one local, internet, etc…

I prefer buying locally as I find I build a nice rapport with the dealers nearby. This comes in handy when they have junk gold or junk silver that I can buy (they call it melt metals) cheaper than the coins they usually try to sell as collectibles. For me, gold is gold as long as its 20-24K, and silver is silver as long as it is .900 to .9999 fine. The rest is irrelevant.

There are MANY good internet dealers, but their shipping costs MIGHT be prohibitive. Some states charge sales tax on gold purchases under a certain amount, so you have to balance the sales tax costs versus the shipping costs. I’ll write up an article on which states charge what amount, probably tomorrow.

How does one verify that an ounce of gold is truly an ounce of gold (not .8 ounces of gold and the rest lead…).

This is a tricky one, but it is also a reason why gold has held value for thousands of years. Gold is denser than almost every other metal. You can not counterfeit gold with lead, not without a complete dupe not realizing what they’re buying. Lead is half as dense as gold — to buy a counterfeit gold coin made of lead, the coin would have to be twice the size for the same weight. I keep a site active called the Museum of Gold Coins which lists the weights and sizes of many gold coins. I am currently typing it in as fast as I can, and I will be updating information over time. In the coming weeks I will have a free PDF on that site to download which lists the details you need to buy gold coins.

When I buy, I weigh the coins on a digital scale (2-4 decimal places) to confirm the overall weight. I take thickness and diameter measurements. If they’re within spec, the coin is good. To counterfeit the coin to the same size would require much more expensive metals than even gold, so it would not be cost effective (yet). I believe it could be done with palladium, but working with palladium is much more costlier than working with gold, which is a softer and more ductile metal.

I also recommend another article in the archives: buying silver coins as an introduction to hard money.

Thanks for the question, and if you have more questions, feel free to e-mail me. You can discuss this article or ask more questions at the gold investment forum.