Gold Facts About Buying Gold

Basically, there are Three ways of buying gold:

1. Physical Gold:

This is the simplest way to invest in gold. Physical gold includes, gold jewelry, Krugerrand, ingots, gold bars and gold coins. It's also very physical work panning for gold. Read the story about getting flecks of gold from rivers here.

The main problem of buying gold is storing physical gold. Where do you store gold Bullion? A Bank?

Buying antique gold jewelry is one way around this problem. How many people do you know who doesn't like wearing gold jewelry? But how do you store 5 gold bars?

Storing physical gold also involves liabilities and also expenses, such as in storing gold bars in bank deposit boxes, and vaults.

Another big problem here is that most investors who buy gold do so believing that it is the one asset which is no-one else's liability. Wrong!

There is a nasty legal subtlety which causes many of these types of gold buyers to hold onto gold in such a way that achieves the exact opposite, exposing themselves to a hidden risk, exactly the same risk they were trying to avoid in the first place.

Common sense and the gold facts tell us, that money can't easily belong to a saver and his bank at the same time. It's a well established law that money deposited in a bank becomes the bank's property and its liability.

Simultaneously it stops being the saver's property and becomes his asset. Meaning, that if a bank fails the saver must stand in-line with the other creditors and maybe accept a few cents on the dollar (although governments in many countries offer depositor protection, which might reduce the loss).

If the economy continues to decline, as many gold investors expect, it is really important that you understand the consequences as there is a critical difference in how gold buyers are treated as account holders.

The two types of treatment are: CUSTODY and ACCOUNT. They have similar sounding names in the gold market. In the gold market these treatments are called ALLOCATED and UNALLOCATED storage.

2. Gold Contracts:

Paper gold contracts where the price is fixed to the price of gold is another way to invest in gold. Gold contracts track the gold prices but you do not take physical ownership of the gold.

3. Gold Shares:

Adding gold-mining companies to your share portfolio. This type of buying gold, involves buying shares in a gold mining company or companies. This kind of gold investing is quite complicated.

For example, some gold mining companies may have excellent gold reserves or gold and mineral reserves but may not be managed very well. Or on the other hand, the gold mining company may be very well managed but not have good gold reserves.

Lots of gold is also held in bullion form by banks. Banks use physical gold as an instrument of currency for covering losses and moving their own currency around. For example if the currency is weakening, the banks may be selling their gold off.

The price of gold is "fixed" daily and can move in unexpected directions.

The beauty of wearing and the comfort of owning antique gold jewelry aside, Gold Market Intelligence; knowing the facts about buying gold is so important for the person considering investing in gold today.

Have You Seen the jewel of the Month Yet?

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