To Gold or not to Gold
Written By: Brian Zinn | Posted: Tuesday, May 25th, 2010
In today's economy purchasing gold has become a much debated topic. Though the reasons may vary from family to family the end result is the same, trading U.S. dollars which are decreasing in value, for gold which is historically a hedge against that loss in value. A few days ago the price of gold topped $1240.00 per ounce and the newspapers read, "GOLD SETS RECORD HIGH". But I ask you to think about that; is the price of gold really going up or is the value of the dollar going down? The headlines could have easily been, "DOLLAR FALLS TO NEW LOW". To understand this loss of value in the dollar here is one over used but appropriate illustration comparing the cost of a pickup truck from the 20's which could be purchased for 20-25 U.S. twenty dollar gold pieces or $400-$500 dollars. Those same 20-25 U.S. gold coins could purchase a nice 2010 pickup the coins now are worth $26, 000.00- $36, 000.00 Has the price of gold gone up? The answer is no, the value of the dollar has simply gone down and it now takes more dollars to buy that gold.
If you've reached the point where purchasing gold seems like something you're ready to explore, here is a brief primer on the two main ways of buying.
The first we will discuss is purchasing old U.S. gold coins. These are gold coins used for trade and minted prior to 1933. The value of these coins is determined by more than just the gold content alone; other factors to consider are quantity minted, population remaining, place of minting, level of preservation, and collector demand. Before investing in old gold coins you'll want to learn and understand all those factors.
The second and most popular way to purchase gold is gold bullion. In the United Sates the mint began producing American Gold Eagles to sell to the public in 1986 with 4 different weight sizes to choose from the bullion coins value is determined by the price gold is trading for daily, which is called the spot price.
If you're out to buy an ounce of gold expect to pay the spot price plus 10-15% commission to the dealer you're buying from for handling the transaction.
Determining the value of old U.S. gold coins is far more complicated. To use an example, a $20 gold coin contains about 96% of an ounce of gold yet it can sell for 3 or 4 times the gold value or more to a coin collector for its numismatic value. Beware of companies that market these coins by telling you that if the numismatic value is high enough you may be able to avoid government confiscation. While it's true good profits can and have been made buying and selling numismatic gold, it is best left to the knowledgeable collector. If protecting your wealth by purchasing gold is what you want, then buying gold bullion is the way to get the best value. A stake of 10-15% of your portfolio in precious metals is a good goal. One last thing, take possession of your gold. Companies that offer to store or hold it for you have all too often disappeared leaving everyone they were holding for without.