How To Buy Gold
June 14, 2012
(This item originally appeared in Forbes.com on June 14, 2012.)
More people are thinking about gold as an investment. With banks in
distress, bonds paying zilch, and “easy money” the operating
principle for currency managers around the world, it makes sense.
Unless you want to trade actively, I suggest owning physical gold
bullion. This is a lot easier than it may appear, and the costs are
nearly as low as various “virtual gold” alternatives like ETFs.
For basic bullion products (as opposed to collectible coins), I
suggest a well-established dealer that does large amounts of
business at low prices. For small size, I suggest The Tulving
Company, which, despite its barebones website, does a lot of volume.
Tulving lists both bid and ask prices for common bullion products.
At this time, they offer to sell 1 oz. Krugerrand coins for $27.95
over spot, and they offer to buy at $6 over spot, for a spread of
about $22. With gold around $1600/oz. recently, that’s a spread of
1.4%, which is not too shabby at all. Plus, they offer free
The most popular and liquid 1 oz. coins are the Krugerrands,
Canadian Maples, and U.S. Eagles. Apmex also offers a wide selection
of bullion products at reasonable prices.
If you want to go larger, the next common stage is the one-kilogram
bar, or kilobar. This is about 32 troy ounces, and they are popular
in Europe. The 100 oz. bar is the standard delivery size for the
Comex futures contract. However, for large size, the most common
format is the 400 oz. ingot, which is about the size of a
construction brick and weighs about 28 lbs. This is what you usually
see in the pictures of “a vault full of gold.”
Dealers like Apmex sometimes carry these larger sizes, but for large
volume, an institutional dealer like Scotia Mocatta is a good
source. Scotia is a division of the Bank of Nova Scotia, and is one
of the largest bullion dealers in North America.
The most common forms of silver bullion are 100 oz. bars, 1000 oz.
bars, and bags of pre-1965 U.S. dimes and quarters, which are 90%
silver. A dollar of face value (for example, four quarters or ten
dimes) contains about 0.72 of a troy ounce of silver.
For storage, I would not recommend using any storage facility
affiliated with a bank or other financial institution. There are too
many horror stories. Also, don’t ask your dealer to store it (any
good dealer will refuse). I would look for an independent
depository. If you are in the Northeast, you might try First State
Depository Company, which is located in Wilmington, Delaware. They
will allow you to audit (visit) your holdings on 24 hours’ notice.
Any good depository should do so. Like any good depository, their
holdings are insured. If Delaware is too far away, you might have a
similar alternative in your region.
Storing some bullion at home is not a bad way to go, as long as you
can maintain secrecy. Even today, people are finding hoards of gold
coins stored by Roman families nearly two millennia ago.
As for transport, it is easier than you think. Your dealer and your
depository are experts in this, so you just have to do what they
say. Probably, they will just send the bullion via Fedex – insured,
of course, probably under the dealer or depository’s umbrella
policy. For larger amounts, they may be able to offer armored
Some hybrid options are also available, which allow something like
direct physical ownership of bullion with much of the convenience of
an online brokerage account. These are GoldMoney and
BullionVault. For large accounts, BullionVault has some whole-bar
services which might be a good alternative to setting up an
independent vaulting arrangement. Although these solutions can’t, in
my opinion, be considered as safe as bullion directly held,
nevertheless they offer much more independence from the financial
system than various ETFs and closed-end funds available through your
brokerage account. Also, costs are lower than for owning physical
People have been trained to be comfortable with only the most
abstract kids of assets. The typical broker margin account really
just makes you the beneficiary of some stocks via a broker, which
can go bankrupt (MF Global? Bear Stearns? Lehman Brothers?). The
broker, in turn, is a beneficiary in the Depository Trust and
Clearing Corporation, whose subsidiary, Cede & Co., actually
owns almost all the publicly traded equities in the United States.
Even if you could establish ownership of an ETF, what do you own? It
is an equity holding in a trust, which, by way of convoluted
legalese, obligates the trust to … do nothing for anyone at any
For some reason, people are more comfortable with this than a gold
coin in their hand. However, there is a remedy to this disease: buy
some coins, even if it is only one or two. Take delivery yourself,
hold them, and hide them. You will understand just how abstract and
tenuous most investments are, which is particularly relevant today
when banks and governments are one the verge of failure across
Europe, and perhaps, in the U.S. too before long.