Investing in gold.

The small investor's guide.

Although many people would like to invest in gold, they really donít know how to go about it and fear, that in their ignorance, they are likely to be taken advantage of. Consequently I have written this quick guide for those who would like to invest some money in gold but donít wish to get taken advantage of.

However, before buying any gold the first thing to do is find out what the current price is and one of the best ways to do this is to go to kitco dot com. At the bottom of the home page there is a chart which lists the current price of gold per Troy ounce in several different currencies; including British pounds. This is known as the Ďspotí price and once you have determined this, you know how much you should pay for your gold.

The first option to consider are gold certificates but personally I donít trust these because although there are many reputable companies which deal in them, there are also a number of shonky ones and as I donít know enough about the financial market to tell the difference, I prefer to stick with gold I can put in my pocket.

Krugerrands, on the other hand, are a very good investment for someone who wishes to invest a small amount of money in gold. Each coin contains a full ounce of pure gold and can be bought and sold for cash. The way to work out how much you should pay for one is to take the spot price and add three percent. That means that if the spot price of gold is £440 a krugerrand should cost you around £457. But this price may vary slightly depending on the dealer. If he has a lot in stock and wants to reduce his exposure he may offer you a reduced price whereas if he is short of stock, he may want to charge a little more. You can also buy half krugers, quarter krugers and even tiny tenth krugers which contain one tenth of an ounce of gold. (However, with these smaller coins you can expect to pay considerably more than a three percent premium.) To sell krugerrands you should expect to receive the spot price minus about three percent and most dealers will pay cash provided the quantity is not too great.

Gold sovereigns are also a good investment, particularly in the UK where, to the best of my knowledge, they are free of capital gains tax. There is nothing complicated about buying them because except for a few specific dates most sovereigns are treated simply as bullion coins and sold at spot plus a dealer percentage.

But how much should you pay for a sovereign? Sovereigns contain only a portion of an ounce of gold and so to know the bullion value you must multiply the spot price by .2354. This will give you the value of the gold the sovereign contains and to this you must add the dealer percentage which for a single coin shouldnít be more than five percent. Less if you are buying a number of coins and much less if you are buying a significant number. Selling a single sovereign is much the same as selling a kruggerrand as itís the bullion value less three to five percent - but that does depend on the number you are selling.

Gold ingots all usually carry very high premiums and so although they are .999 fine gold as opposed to 22 carat like the sovereign and krugerrand, they are not really such a good investment. Other gold coins like the Canadian Maple Leaf also tend to have high premiums in the UK because they are .999 fine but the trouble with gold of this purity is that it is quite soft and the coin is easily damaged if it is not looked after properly. The sovereign and krugerrand on the other hand are robust coins and so make the best Ďput in your pocketí gold investment.

Its important to note that outside London jewellers often charge considerably more than three to five percent over spot when selling sovereigns and krugerrands, but in London in Hatton Garden and the Charing Cross Road area there are a number of dealers who will buy and sell these coins at reasonable rates.

If you decide to invest in coins from the Royal Mint it is important to remember that although they may have a lot of sentimental value and also be good conversation pieces, from a financial point of view they are poor investments. The major problem is finding a collector who is willing to buy your coin for more than you paid and as the world in awash with limited issue coins, they are not important enough for serious collectors to pay a premium on and they will usually only pay for the gold content. In fact many people who have bought coins from the Royal Mint, or any other mint for that matter, have been serioously disappointed when they tried to sell their coins.

Finally, as you will often find gold quoted in grams, the way to work out what any (pure) gold item should cost is to get the spot price and divide it by 31.1035 - the number of grams in a Troy ounce. This will give you the value of a single gram of gold and by multiplying that by the number of grams the dealer is offering, you will know if you are being asked for a fair price.

Hereís hoping you find this helpful,

Best wishes,


Jewellery: People donít usually buy jewellery for investment purposes but if you do have some gold jewellery it would be advantageous for you to know the value of its gold content. This is quite easy to calculate and, as most gold jewellery in this country is 9 carat, I will use this in the example. The first thing to do is weigh your jewellery on a modern electronic kitchen scales and find out how many grams it weighs. Then go to Kitco dot com and find out the current spot price of gold in British pounds. Divide this figure by 31.1035 to find the value of a gram of pure gold and then multiply this figure by .375 (point three seven five) as this will give you the value of 9 carat gold per gram. (9 carat gold is 37.5% pure.) Multiply this figure by the number of grams of gold jewellery you have and you will know the Ďmeltí value of your jewellery. Should you decide to sell your jewellery most jewellers will offer to buy it for Ďscrapí but scrap is really only melt and although 80% of melt or higher is reasonable, shop around for the best price and donít accept anything less. If you have a reasonable amount of gold jewellery you wish to sell you can always take it to Covent Gardens in London and there, if you shop around, you may well be able to get up to 97% of melt which is a much better deal than you would get from a jewellers outside London. (For 9 carat gold the number to multiply by is .375 but for 18 carat gold the number is .750 and for 22 carat the number is .916.)

Added notes:

October 5,2008: At present there is a rush for physical or put-in-your-pocket gold and so the premium on buying sovereigns or krugerrands is higher than normal. Even dealers are finding they have to pay considerably more for gold. On the good side however, if you are selling, you should be able to find a dealer who will pay spot price or spot minus 1% for gold bullion.

January 1, 2009: There seems to be quite a shortage of physical gold so at present dealers are charging up to a seven or ten percent premium on Krugerrands and sovereigns. On the good side, however, they are paying one or two percent above spot to get the coins in. Sometimes even more.

---August 15, 2008---

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