When Gold Buyers Overpay | Long Island Fee Only Financial Advisors

When Gold Buyers Overpay

It’s nearly impossible to watch TV for more than an hour without coming across at least one commercial from a gold dealer. But even if you’ve already decided to invest in gold and want to get your hands on the physical asset, the loudest gold proponents won’t necessarily give you the best deal.

The explosion of exchange-traded funds that hold gold, such as SPDR Gold Shares and iShares Gold Trust, has made owning gold, at least on paper, cheaper and easier. In the last year, its price per ounce has shot up nearly 25% to $1,735. More than 44% of gold purchased in this year’s third quarter was for investment purposes, according to the World Gold Council, an industry association representing 22 gold miners—up from 39% in 2009 and less than 10% in 2001.

But for a certain subset of investors, nothing beats owning the actual metal.

People Are ‘Scared’

“People buy [physical] gold because they’re scared,” says David Ader, head of government bond strategy at CRT Capital Group, an institutional brokerage in Stamford, Conn. “If you own the physical gold, you can look at it and go, ‘Well, I can always buy a can of something with this.'”

Investors who have reached the point of wanting to own physical gold probably will want to have it easily accessible if an emergency strikes. So most should keep it in a safe at home that’s bolted to ground, says Bert Whitehead, a financial adviser in Franklin, Mich.

With the rise in gold prices, advertisements for gold salesmen have multiplied, and regulators are worried that some consumers might be taken advantage of.

The city attorney for Santa Monica, Calif., recently accused prolific advertiser Goldline International and some of its executives of using high-pressure sales tactics to sell collectible coins to unwitting consumers at huge markups. A Goldline spokesman referred to a statement made by the company last month that said the attorney’s complaint is without merit.

However that case plays out, it pays to be wary.

First, be clear on what, exactly, you want to purchase. Most gold investors seek exposure to the actual metal and care less about the collectible value of “rare” gold coins that might be pushed by some gold dealers, says Mr. Ader.

In that case, you will want to target gold that carries the cheapest price per troy ounce, whether it’s in the form of a coin or a gold bar. Bars will typically be the cheapest, he says.

Looking for a gold dealer? Steer clear of ones who advertise on TV or radio, says Donald Dempsey, a financial planner in Williston, Vt. “As a general statement, with all the ones you hear advertised on talk shows, you pay an extra premium,” he says.

Charging a Premium
Instead, he suggests getting recommendations from a financial planner. Alternatively, the World Gold Council has a listing of dealers on its website. The site also shows the spot price of gold. Gold dealers typically charge a premium of 2% to 5% for gold bullion and extra if you want to pay with a credit card rather than cash or a wire transfer, says Mr. Dempsey.

You should check prices with at least three gold dealers before buying to make sure you’re getting the best deal, says Mr. Whitehead.

Also, check the price at which the company would buy your gold back if you need to sell, says Chris Wills, a senior wealth adviser at R.W. Roge, a wealth-management firm in Bohemia, N.Y. Dealers will usually pay more for gold they originally sold, since they can more easily verify its authenticity, he says.

But most investors should buy physical gold only if they’re not planning to sell except in an emergency, he says, since the trading costs of frequently buying and selling are high.

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