Gold Buying
Paper or Physical Gold?
Physical gold is delivered to you or your storage operator and owned by you.
Paper gold refers to a written agreement to receive physical gold or the market value of the paper gold at some point in the future. Examples of paper gold include gold certificates issued by banks & mints, shares in exchange traded funds (ETF’s), mining shares and futures contracts.
With paper gold you don’t actually own gold, you own a promise. The organisation issuing the paper gold owes you physical gold or the market value of the paper gold and therefore paper gold does not have the unique benefits of physical gold. So if the organisation goes bust then you may not get your gold or the value of the paper gold. This is similar to putting money in a bank. Paper gold agreements may contain clauses allowing settlement in cash instead of the market value of the equivalent amount of physical gold under certain market conditions.
The only way to achieve gold’s unique benefits is to buy physical gold, not paper gold. Gold bullion is physical gold that comes in the form of gold coins or gold bars.
Gold Coins
Gold coins can be either “bullion” coins or “collectors” coins (also called numismatic coins). The price of bullion coins reflects the underlying value of their gold content. Whereas, the price of collectors coins is driven by the supply and demand of collectors. So, I only recommend buying gold bullion coins, not collectors coins.
Gold bullion coins are issued by many national mints and come in different weights and purities. The market for gold bullion coins is liquid, so sellers and buyers can be found easily. Gold dealers will buy gold bullion coins more easily than gold bars, which may need assaying (verifying for gold content) or refining first. This is because fake gold coins are less common than fake gold bars and easier to identify.
Gold bullion coins have the added endorsement of a government mint, which provides a level of guarantee. The purity of gold bullion coins varies between about 0.9000 and 0.9999.
Gold Bars
Most gold bars are 999.9 pure (99.99%) – also known as “four nines” or 24 carat. Gold bars can be either small bars or big bars. Small gold bars come in weights ranging from 1g to 1kg. The market for small gold bars is liquid so sellers and buyers can be found easily and small gold bars are available in many different weights.
Fake gold bars can usually only be spotted by dealers and are harder to spot than fake coins. This is because gold bars can be drilled out and filled with an alternative such as lead. As a result assaying (verifying for gold content) or refining may be necessary before a dealer will buy gold bars, unless they supplied the gold bars in the first place.
Small gold bars are obviously more convenient for larger value purchases, but you should also consider what denominations you might want to sell the gold in and any tax implications.
Big gold bars (also called good delivery bars) have a standard gold content of 400 troy ounces and weigh about 12kg. They are made by accredited refiners, kept in accredited vaults and moved by accredited couriers. Due to big gold bars costing many hundreds of thousand of pounds, they are not usually suitable for private buyers. However it is possible to buy partial ownership in big gold bars.
Gold bars usually have the following information engraved on them – the refiner’s name, serial number, weight and purity.
The next thing to understand is how to value gold bullion.