Buying Physical Gold: The Basics

Economic turmoil has many concerned about the future — including the future of the dollar.

All of the talk about another round of quantitative easing has some worried that hyper-inflation is right around the corner.  Since gold is seen as a hedge against inflation, it isn’t surprising that some feel that physical gold is a protection against the problems that can come when the Fed is pumping trillions of dollars of created money into the economy.

Others are just worried that the economy is on verge of complete collapse, and that physical gold might be the best currency available if the entire economy falls to pieces.

But before you jump on the gold bandwagon, it’s important to understand some of the basics of investing in physical gold.

Bullion

When most of us think of owning physical gold, we have visions of gold bars, or of gold coins.

You can usually get it in weights ranging from one gram to one kilogram.  You will have to pay a little more than the current market price as a premium.  You may also have to pay to have it shipped to you.  You can purchase gold from online dealers, and even local coin shops.

When you buy bullion this way, you will need to find a way to store it.  

You can store it at home, where you have easy access to it, or you can store it somewhere else, such as a bank safety deposit box.  It is usually a good idea to keep your gold in some sort of safe, especially a fire safe, in order to reduce the risk of theft from your home, and to make it fairly easy to protect — along with your most vital documents — in the event of flood or fire.

A safety deposit box can be a good idea as well, but it is important to note that the contents of safety deposit boxes are not protected against bank failure by the FDIC, and in some cases might not be insured in disasters (although the value may be protected from theft).

Pooled Accounts

Another option is to purchase your physical gold through what is known as a pooled account. In this case, your physical gold is present in a vault somewhere.  There is a very slight markup on the price of the gold, but it is usually less than the premium you will pay when buying bullion on your own.

You can choose between two types of pooled gold accounts:

1. Allocated: In this type of arrangement, you have specific gold numbered to you.  You have a record of which bullion bars are yours.  You usually have to pay fees, though, for insurance and for storage, and the fees can eat into the value over time — especially if it turns out gold was in a bubble and it bursts.
2. Unallocated: Rather than numbering specific gold to you, you are told that you have an assigned sum of gold.  You usually don’t have to pay fees, though.  The downside is that the gold often remains in the name of the bank or company holding the gold for you, so you could actually lose your gold if the company goes out of business and creditors come calling.

The main disadvantage with keeping your physical gold anywhere off site is that you may not have immediate access to it. From a pooled account, delivery of your gold will result in the payment of fees, and if the bank is closed, or inaccessible due to a natural or financial disaster, you won’t be able to get your gold.

Bottom Line

Before buying physical gold, make sure you have a plan for it, and that you understand your options.  Choose what you think will work best for you.  Also make sure if buying physical gold is the right thing for you!

Do you own physical gold?  How do you invest in it?