How to Buy Gold Bullion

So, you want to buy gold?

bullion includes gold coins gold bars and silver bars, and the easiest way to buy gold bullion is at local coin shops, or via the web presences of large bullion dealers.  gold bullion is also sold by private sellers using online auction sites such as ebay. The advantages of these types of sellers is that they are convenient – there may be a coin shop down the street, and most online dealers make buying gold over the web very easy.  However, there are disadvantages.

The first disadvantage is what we’ll call transactional risk – will you get what you paid for?  There is always a greater risk in buy gold bullion bars from a local coin shop or from a stranger online than via a regulated stock or commodity exchange.  In addition to transactional risk, there are the transaction costs associated with buying physical gold.  Although many online dealers will ship your gold for free, you have to also consider the cost of storing your gold at a bank if you’re not comfortable having gold coins stashed in your closet.  Finally, the premium you have to pay over the intrinsic value, or market price, tends to be high at small coin shops.  Even with the large online dealers, it pays to shop around to determine which offer the best deal.

You can determine the premium you would pay by comparing the asking price of various dealers for a specific coin, such as the 1 oz Gold American Eagle, against the spot market price.  It helps to do this after 1:30 ET when the New York mercantile exchange (NYMEX) closes to make the comparison as easy as possible.  You can even use the automated gold charts posted on the right side of this page, to see how much you might have to pay over the intrinsic value.

All standardized national gold bullion coins trade at a premium to the spot price for gold at the NYMEX due to the fact that the national backing offers an additional measure of security to the buyer than does non-national gold bullion.  The amount of premium differs between countries since investors prefer the bullion coins of some countries over others.  For example, the 1 oz. Gold American Eagle usually trades at a premium to Canada’s Gold Maple Leaf, even though the Gold Maple Leaf actually has a higher content of gold sovereigns.

Our recent analysis  on the gold sovereign value revealed that you can expect to pay about a 5% - 8% premium for a 1 oz. gold sovereign American Eagle compared to the spot price for an ounce of gold on the NYMEX.  And that is just for the first half of the transaction – double that amount to calculate what the total premium would be for a ‘round trip’.