Buying Physical Gold for Small Investors

By / / Gold / 4 minutes of reading

Buying Gold

In the present economy, interest in gold ownership is growing. Financial uncertainty in recent years has convinced many that precious metals – namely gold – are an economic refuge and solid hedge against inflation. As a consequence, the airwaves and cyberspace are filled with advertisements by gold dealers and traders. Yet investing in gold is not as simple as commercials imply, particularly for the investor with modest resources.  Expensive transaction premiums and indirect ownership turn many investors away. Investors can take heart, however, since these obstacles can now be avoided.

Limitations on Smaller Investors- Buying Gold 

Buying GoldInvestors with perhaps only $10,000 to $20,000 to apply to precious metals may be concerned with taking delivery of the actual bullion. Instead, investment advisors point to Exchange-Traded Funds as worthy instruments that yield the value of gold without the worries of physical possession.  At first glance, ETFs appear to solve several problems. Storage concerns, questions of purity and large investment requirements do not plague potential stakeholders in ETFs, sometimes known as “paper gold.” However ETFs are not what they seem. The investor ends up owning no real gold at all. ETFs offer shares in an index fund that tracks the price of gold. Consisting of contract derivatives, ETFs can not be exchanged for physical gold.

Gold Transaction Costs

Those modest investors who appreciate the value of owning physical gold are faced with  additional barriers: commissions and fees. Transaction fees can run from one to five percent of the gold’s value. Adding commissions can bring the brokerage cut up to 10 percent. Obviously the small investor will feel this pinch more than the buyer who has several hundred-thousand dollars to put down. In fact as the Federal Trade Commission points out to prospective gold buyers, the purchaser ends up paying much more for gold than it is worth. Reducing this overhead makes the stability and potential of gold more accessible to moderate-income investors. Fortunately such reductions have arrived.

A Cost-Effective Approach to Owning Gold

There are a variety of vault services that have sprung up in recent years to aid investors in owning gold with out the necessity of worrying about storage. One such company is Gold Bullion International which was founded in 2010 and has vaults in  New York (USA), Salt Lake City (USA), Zurich (Switzerland), London (United Kingdom) and near Melbourne (Australia). It serves the needs of the small investor by keeping costs low while maintaining the safety and quality of its customers’ physical gold. GBI can either sell directly to customers or work through affiliated financial advisors like Merrill Lynch.  Upon receiving an order, GBI forwards the request to its long-established dealers. The customer then receives a bid from a GBI vault. When all is said and done, transaction and vault fees may total about 2.15 percent for an average deal.

Some Other Gold vault companies are:

  • BullionVault which was founded in 2003. BullionVault operates similar to a gold exchange for private investors: Customers can buy and sell or trade gold with other customers and currently manages US$ 1.4 billion in gold: total precious metals holdings and currencies of about US$ 2 billion.
  • GoldMoney was founded in 2001 with four vault locations: Zurich (Switzerland) and Zurich Airport, London (United Kingdom) and Hong Kong. More than USD 1 billion in gold; total precious metals and cash/currencies of ca. USD 2 billion.
  • GoldRepublic was founded in 2010 and has since then offered vaulted gold for private investors over the Internet. It offers three different vaults in Amsterdam (the Netherlands), Zurich (Switzerland) and Frankfurt/Main (Germany). Total Assets unknown.
  • Bullion Management Group Inc. (BMG) offers two different types of investments. BMG BullionFund, an open-end mutual fund trust since 2002 which purchases equal dollar amounts of gold, silver and platinum precious metals bullion. BMG BullionBars since 2008 offers gold, silver and platinum bullion sales and storage. 557 Million CAD under management.
  • The Perth Mint Depository Program (PMDP) stores gold and other precious metals and was founded in 1899. It currently stores 3.3 AUS of clients gold.
  •  EverBank® started offering vaulted gold over the Internet to private investors in 2006. It offers Precious Metals Select Accounts in the form of allocated accounts and unallocated accounts. They also offer Checking accounts, CD’s (denominated in various currencies) and brokerage services.

For more information about these and other Gold storage programs see: http://www.trustablegold.com/compare-gold/

See Also:

 

Photo Credit: By digitalmoneyworld  Gold and Silver Bars

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