More tips to buy gold

Gold is a great investment option, more so now. The U.S. economy is yet to recover from the over $1.4 trillion deficit, which in turn has turned the American dollar feeble. Since the dollar is the dominating currency, many people the world over are turning to gold as a hedge against economic uncertainty. Gold can well be the only constant when stock portfolios implode.

eye of a girl with gold color hair

The best time to buy gold is when current market prices have depreciated a bit. However, there are various other factors that come into play if you want to purchase gold at slightly lower rates. These are:

  • Opt for gold coins or bullion that is available at a maximum premium of 8 percent: Do not pay too much for the gold you want. The average price of gold over the years has been $400 an ounce, adjusted for inflation. When there is economic turmoil, the price of gold shoots up, leading to a bubble that won’t last when the economy improves over time. When this happens, gold rates will go back to the pre-bubble range. It is recommended that you not purchase gold that is only being offered well above an 8 percent premium over the current spot price for an ounce.
  • Choose certified dealers who outline purchase minimums, but also offer discounts on higher volumes of gold, and/or free or cheap handling and shipping charges.
  • Many people believe high profile gold firms or companies that advertise heavily are good choices. This is not always the case. Advertising campaigns are expensive, due to which their costs are included in the rates investors have to pay for coin or bullion. These markup rates can be as high as twice the real value of the gold.
  • When choosing gold coins, go for the bullion varieties rather than collectibles. Collectible coins, although sometimes profitable for selling purposes, are not recommended if you don’t have adequate knowledge about evaluating and grading them.
  • Gold of a lower value may be more affordable at the outset, but it trades less often. This means you will only end up paying a higher premium for the in the long run.

Note: Ensure that you buy gold only from established dealers, banks, and other institutions that offer a reliable guarantee of purity, weight, and content. You can also try online auction sites like eBay if you have in-depth knowledge about ascertaining the purity of a gold item and separating the wheat from the chaff.

The history of gold prices

Gold has been considered sacred for millennia, with historical records showing that it was used for both ornamental and trade purposes as far back as the Mesopotamian era. The Ancient Egyptians mastered the art of refining gold, but used it more for adornment purposes rather than a form of money.
In the middle ages, gold was used as a form of value storage, while silver became the common mode of coin payment. It was the Crusades and the trade boom in ancient Europe and beyond that brought back gold as a mode of payment.

Gold’s increase in value and fluctuating rates

The yellow metal witnessed a sharp rise in value in the 14th and 15th centuries due to the dip in European mining, which resulted in a low supply of gold that could not meet existing demands. This subsequently made gold coin production rarer and triggered a consistent deflation over time.
Gold production increased with the discovery of the Americas, and this helped curb deflation in Europe to the point where an inflation in gold prices became the norm in Europe and later on, even in Asia. However, the value of gold coins dipped sharply in the late 16th century, when the practice of mixing other metals with gold became commonplace

the trend of gold price graph

Sir Isaac Newton’s role in determining gold prices

As Warden of the Royal Mint, Sir Isaac Newton played a key role in determining silver and gold prices. This helped establish the Gold Standard in UK in the early 19th century, and then in other countries over time. Fixed conversion rates became standard thereafter.
The emergence and might of the British Empire made the British Pound the official reserve currency at the time, but the American Civil War and the gradual rise of the USA as a strong economic force played a significant role in upping gold rates yet again. This was until 1934, when the American dollar was devalued, and gold prices spiked by over 65 percent.

The 1970s up until today

President Richard Nixon axed American dollar’s convertibility to gold in 1971, which put an end to the pivotal role gold played in global currency systems. World crises over the decades such as the Oil Price Shock of the mid-70s, Iran’s Islamic Revolution, the Soviet invasion of Afghanistan, and the 1986 sanctions on South Africa prompted the continuous upsurge in gold rates.
This equated to an ounce of gold being worth $2,300 per ounce in inflation-adjusted U.S. dollars, as of 2008.

historical graph of gold prices

How to invest in gold ?

Gold is considered to be one of the safest investments in times of economic turbulence. Despite being a commodity that has its share of volatile price fluctuations in the short-term, its remarkable long-term returns make it a favorite among investors.
What is the best way to invest in gold? While there is no concrete answer to this question, there are a bevy of options investors can choose from.

physical gold bullion

Gold bullion and coins

Bullion and minted coins represent pure, tangible value and are the investment of choice for many. Direct ownership of gold coins in particular is desirable because of their easy storage, portability and aesthetic value, due to which many investors are willing to pay a premium for them.
Gold bars can be purchased through bullion dealers, but since doing so isn’t always easy, investors can choose gold certificate schemes that are offered by several organizations. These schemes allow for investments in bullion without worrying about the storage aspect since the bars are stocked in secure vaults. A certificate of deposit is handed over to the investor when he/she purchases the gold.

Exchange Traded Commodities (ETCs)

ETCs are inert investments that track the commodities sector. If you opt for a gold ETC, the worth of your investment in the yellow metal will be proportional to the rise and fall in gold prices. ETCs also give investors two options:  to leverage their savings, or bet against a rise in gold prices.

Shares and mutual funds

Gold shares and mutual funds are a feasible option for those wary of investing in physical gold. These consist of the stock portfolios of gold mining companies. It is always advisable to invest in mutual funds or shares of well-established mining companies rather than go for cheap stocks of relatively younger firms.

The above mentioned gold investment instruments are just a few in the pick of many. Gold Accumulation Plans (GAPs), gold orientated funds, and other choices may be more to your liking. You must ideally consult your financial advisor before making any investment.

Five tips to buy gold at the best price

Everyone wants to buy gold at cheap rates regardless of current prices. Some bonds and stocks, and even mints, online sellers, and antique dealers come up as options. However, the collector’s gold offered by such sources is not always pure. So how can a serious investor buy gold at good prices?

eye gold

1 – Factors that affect gold rates

Before deciding to buy gold at ‘bargain’ prices, one must be aware of the dynamics that influence rates. These include:

  • Gold quantity and quality
  • The form of gold on offer
  • The source of the gold
  • The dealer

2 – Buying physical gold

It is recommended that investors buy gold bullion or coins of a significantly higher weight/value, since purchasing high-demand coins such as Krugerrands ensures that their prices appreciate faster and yield better returns. Buying gold of a lesser weight/value may be easier on the pocket at first, but will yield lower returns in the long run. This is because storage, insurance, and shipping costs are passed on from the mint to the seller, which eventually reflects in the retail price. To summarize, this makes bullion or coins of a higher weight more desirable since they have fewer price mark-ups and are more inexpensive per gram.

3 – Purchasing gold online

If you would rather buy gold from the convenience of your home, take note: make purchases only from accredited dealers who are part of the World Gold Council (WGC). You can find out more about these dealers on the WGC website to avoid getting cheated or scammed by unscrupulous or fake online vendors.

4 – Going straight to the source

Travelling to a gold mine sounds like a ‘far off’ idea, and it is. However, the fact is that gold prices are cheapest when the metal is just mined, because there is no value chain involved. Entrepreneurs and businesspeople in particular can consider opening dealerships in a gold-producing nation to make the most of low costs due to closer proximity to mines.

5 – Buy gold after its price has fallen

The best time to buy gold is, of course, when its rate depreciates a bit. However, don’t wait for prices to hit absolute rock bottom, as there’s no telling if anyone can get assumptions down to the T.

How is the price of gold determined?

The precious metals market is a highly dynamic one, with most of its activity being spurred by gold prices. The price of the yellow metal is propelled by demand and supply, but there are several other factors that influence its day-to-day value. These include its viability as a long-term investment, which makes it a global currency in the truest sense of the word.

people looking for gold in africa

Gold prices have skyrocketed over the decades in comparison to other national currencies. What drives this momentum, and why?

Gold and global currencies
The gold market is largely influenced by the trade of both physical and ‘contract’ gold, as well as the value of the U.S. dollar. The need to buy gold in any form is inversely proportional to the might of the American dollar: the stronger the U.S. dollar, the lower the price of gold, and vice versa.

However, any change in the buying and selling patterns of gold is owing to currency fluctuation worldwide and is not just limited to the U.S. dollar.

Gold and central reserves

Central reserves the world over hold the highest concentration of gold bullion. As a result, gold prices are also highly dependent on the policies of, and the reserves in such institutions. If a central bank sells off a certain percent of its gold reserve, the price of the metal may fall. On the opposite side of the coin, however, its value may increase if banks fail to provide adequate investment returns to customers.

Other factors

Global crises of a political or economic nature also have a significant impact on gold prices. National currencies can take a hit during times of uncertainty, and this is when the demand for gold rises since it is then viewed as a ‘safe investment’.

Conclusion

The above mentioned points present a very brief overview on what drives global gold prices. The standard accepted benchmark for determining the value of the metal is the London Gold Market Fixing, which comprises of five firms that buy and sell gold bullion. These firms are:
- Barclays Capital
- Deutsche Bank
- Scotiabank
- HSBC
- Societe Generale