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Posts Tagged ‘spreads’
What does it Cost to buy Gold
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Buying gold coins should be a process of discovery; for you and for you representative. You will begin to discover the ins and outs of owning gold in your portfolio and what it can do for you. On the other side your broker should discover what your goals and objectives are. Items like: are you more concerned with asset protection or growth, are you long-term or short-term, what are your concerns about the future, how much of your overall portfolio do you want in gold, as well as other questions that may arise.
These questions will help you both narrow down to the right type of gold and or silver that is right for you. Once you have a strategy in place it is easy to begin to acquire the appropriate precious metals for you. This can take place in one lump some or your strategy could include a plan to acquire pieces over time.
There are various costs of doing business in each category of gold and silver. Bullion gold or silver, meaning loose coins and bars of a more recent issue, typically can range anywhere between 2-10% on average throughout the industry. This is what is known as the spread. The spread is the difference between retail and wholesale. Typically you will buy at retail and sell at wholesale. Common dated numismatic gold coins with typically rage anywhere between 15-25% and better dated or rare gold coins will typically range between 25-35%. These are averages; some can be higher or lower depending on the company. Make sure to choose a company that discloses their spread verbally and in writing and that it is clear exactly what their spread is (not a range).
Do not be afraid of high spreads! You want to use the right tool for the right job. That might mean owning rare gold coins which fetch a higher premium. This type of gold has outperformed gold bullion in the mint state rare category (according to PCGS) close to 4-1 over the past 40 years, and has some other very important benefits that other types of gold do not have. This type is a typically a longer term hold. For these reasons it is important to understand your options and your goals, in order to apply the right tool for the right job.
Where Can You Buy Gold?
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There are many places to buy gold, both brick and mortar and online. Most gold purchases are done via telephone from broker/dealers around the country. However you can also purchase from a local gold coin shop. You should be very careful when making a purchase in gold as the industry for physical gold is unregulated. Therefore choosing the right company to buy from is the most important decision you will make.
Searching for the right company can be easy if you are armed with the right questions.
How long have you been in business? There are a lot of gold companies popping up in order to take advantage of the growing demand. You want to deal with a company that has been in business for at least 10 years. You want the company you buy from to be around when you are ready to sell because they will most likely be the ones to buy your gold back from you at a good price (especially when dealing in numismatics/rare gold coins). 90% of companies will fail within the first 10 years of doing business.
What are your spreads (not commissions)? This is how you compare companies. The price of a coin is usually less important than how much they will buy it back from you. Spreads on numismatic coins can range greatly, the average spread being 28-35%. Spreads are based on a company’s retail price; if you buy a coin today for $1,000 at a spread of 35% and nothing changes in the market you will get back $650. If you buy a coin today for $1,000 at a spread of 28% and nothing changes in the market you will get back $720. This is why the price of the coin is less important than the spread at which they will buy it back.
Do you deal in sight-seen coins when you sell and when you buy them back? Some companies will sell you coins at what the industry call sight-seen prices but then buy them back at sight-unseen prices. This could mean hundreds to thousands of dollars based on the particular coin. You want to deal with companies that deal in sight-seen coins going in and out of the market.
What service do you provide after I receive my gold coins? Some companies, especially local shops offer nothing to the buyer after the sale is complete. Or they only call you to sell you more. You need to work with a company that is going to help you track values over time and that can give you input over the course of your coin ownership.
Here are my goals and objectives, what do you recommend and why? This is a very important question. Different types of gold do different things for your portfolio. Some companies only sell what they have on hand or what will make them the most money. It is more important for your consultant to get to know you and your goals in order to really help you meet your objectives.
Being armed with these questions should help you to narrow your search to a company that has integrity and that will help you meet your goals objectives.
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