Should You Buy Gold or Gold Stocks ?

by on March 7th, 2015
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There is no question that gold should be a part of anyone’s portfolio but how to buy it, and where, is often the question. Since I have dabbled in the stock market for many years and have had some success, I find my friends and relatives are always asking me for the next stock tip and, since gold has risen so much in the last couple of years and constantly in the news and ads on television, invariably the question always comes around to gold and should they purchase gold for their accounts. Well, the first thing I ask them is do you want gold stocks or the physical gold?

Buying Gold Stocks

Buying stocks are certainly the simpler of the two, but the question here is which stocks do you buy that follow the price of gold? The one important thing you should know about gold stocks is that there is really two categories, that of gold mining stocks and that of Gold Trusts or ETFs. You would not want to buy the gold mining stocks as they have not brought the high returns that gold has given and you really wouldn’t be buying gold but a company that mines for it. The pure play in the stock market would be to buy Gold Trusts that actually holds physical gold and the most reputable companies on the New York Stock Exchange are shares of (GLD) and (IAU).

Buying Physical Gold

When you talk about the physical gold, you may think about these big gold bars you see in the movies but in actuality they are sold in much smaller amounts, in fact you can purchase fractions of an ounce which in metals is called a troy ounce but as you buy less, the commissions or spreads are higher. The most popular are the one ounce gold bullion coins such as the American Gold Eagles, Canada Gold Maple Leafs or the original Krugerrands minted in South Africa. You can also purchase gold bullion bars by the troy ounce or smaller as well. I will use the one ounce American Gold Eagle as an example as it is the preferred purchase for gold and is also authorized for use in IRAs. Now you just can’t go to your local bank and buy one, the U.S Mint authorizes wholesalers such as coin dealers, banks and brokerage houses to sell them. You can also buy them from your local pawn shop and even on eBay, but that is not recommended. I would look for a company that is online but also has been in business for over 20 years, a couple that fit that criteria are Goldline.com and Monex.com.

Fees For Buying Gold

Shop around and you’ll find Gold Eagles going for $1,800 to $1,820, even though the spot price of gold is $1,740, that’s because you pay a premium for Gold Eagles. Before you jump in, you should be aware of all fees involved and one would be a transaction fee of up to 3% to buy or there may be a spread in which there is a buy price and a sell price. There is also a storage fee when you keep your gold in your account at that establishment and if you want it mailed to you, shipping costs would be around $19.95 to $24.95 and then you would have to store it yourself, either in a safe or safety deposit box. Those would be the best avenues. One more important thing to mention is that when you go to sell your gold and you have made a profit, you would be on the hook for capital gains tax and, unlike stocks that you would pay a 15% capital gain, gold is 28%.

So Here’s the Bottom Line

So I looked back at the charts of December 2008 and saw the price of gold was $850 an ounce, so add at least a $50 premium for a Gold Eagle and you would have spent approximately $900 and, at that same time period, the stock (GLD) was $80 a share. To make this simple, I am rounding out the totals, $900 bought you one Gold Eagle or 11 shares of (GLD). Fast forward to the present January 27, 2012 and that one ounce of gold is now $1,740, plus the 50, your Gold Eagle is now worth $1,790 and minus your original $900, that comes to $890 profit, which is almost double. The 11 shares are now $165 a share and that comes to a net worth of $1,860 minus the original $900, that would be a profit of $960, a little more than double. As you can see it’s not really a huge difference in the profit between the two, so I would consider it your personal preference. If you do decide to add gold to your investment strategy, experts recommend that it be no more than 10 to 15% of your portfolio.


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