There are two main reasons to head towards precious metals as a major investment. One reason one might significantly invest in metals is the belief that the value of gold and silver will increase more than other types of investments like stocks and bonds, or that the investment in metals will provide a certain type of diversification. Another reason is the belief that the dollar will eventually lose all purchasing power and metals, due to their “intrinsic value,” will be all that’s left to pay for daily needs.
In the doomsday scenario, banks fail, governments fall, and currency becomes worthless. Those who hold gold and silver, in theory, would have no problem. With the first situation above, ETFs representing gold and silver will often suffice, but for the second situation, in which the world is in turmoil, holding physical gold and silver is the best course of action.
Earlier, I received this question from Consumerism Commentary reader, KT:
I know nothing about purchasing precious metals. I have wanted to purchase some gold and have it delivered to me in its pure form, but after three years I am still looking for a company that can deliver this type of service. Can you recommend to me solid companies so my chances of getting taken in this endeavor are decreased? I would not trust a company who sends a piece of paper with the transaction it rather than the actual metals. I would like to purchase the gold, have it in my possession, and use it when my money runs out for the chemotherapy I am having to pay for out of my own pocket.
First, determine the amount of gold or silver you want to buy and what form suits you. You may want to take delivery in the form of coins (rounds) or bars. The choice is based on your preference; any amount you buy can take the form of rounds or bars. Keep in mind that the fewer pieces you buy, the better you chances of getting a good price. For example, buying a ten-ounce bar will probably be less expensive than buying ten one-ounce rounds.
Second, you’ll need to find a shop. There are many dealers online, and this is likely where you’ll find the best price. For example, APMEX is a reputable dealer. They were selected by the US Mint to be one of the few dealers allowed to purchase government-minted metals directly and sell to customers. From this list, the Mint further narrowed down the list of approved dealers for handling a major metal sales event featuring the first of the American the Beautiful five-ounce silver rounds, a special coin designed by the Mint that went on sale earlier this year.
You’ll find many options from a dealer like APMEX. To get the most for your money, buy as much as you want in one transaction and look for the least expensive option. Usually government-minted or branded metals, like American Gold and Silver Eagles, will cost more money than the APMEX house brand, yet they have the same composition.
Also look for coin dealers in your area. When you shop online, you will need to factor in shipping and possibly tax. You may be able to avoid at least the shipping cost by walking into a dealer’s storefront. They may charge a higher price per ounce for the metal, but you could end up paying less in total for your purchase. The phone book was once a reliable source for local dealers; these days, it may be better to search online for dealers in or near your town. Use Google Maps to help you locate the dealers rather than Google’s web search.
KT also asks:
Finally, what degree of purity most gold is being sold these days?
For gold, look for .9999 fine (or .9999 pure). This is 24-karat gold. American Gold Eagles, by contrast, are 22-karat, the long-held standard for gold coins for commerce. You won’t go wrong with American Gold Eagles or similar gold coins produced by other mints, however, although the composition includes slightly less gold.
With silver, look for .999 fine.
The purpose you state for buying gold doesn’t make too much sense, though. First, it’s unlikely that your doctor or healthcare provider will accept gold as a form of payment, despite the metal being considered legal tender. Therefore, you would need to sell the gold to pay for your chemotherapy.
Second, you’re guaranteed to lose some money. While no one can be sure what the value of gold will be in the future, I can guarantee that you’ll pay fees for buying the gold, and you’ll pay fees to sell. When you buy gold, you’ll pay a price per ounce that is a little higher than the market price, and when you sell gold, you’ll receive cash at a price per ounce that is lower than the market price. The winners are the dealers who make money regardless of whether customers are buying or selling.
The price of gold relative to the dollar might increase from the time you buy to the time you sell, offsetting some or all of the fees you pay, but you’re taking a bet with money you know you’re going to need.
Updated September 22, 2011 and originally published May 16, 2011.