Gold is a great investment and a great way to guard against inflation. It will also ensure your funds are safe if the worst should happen and the world’s economies collapse. There is also no better feeling than owning a stack of gold, it brings out the Scrooge in all of us. In this article we aim to answer many of the questions that first-time investors put to us concerning investments in gold.
What is a spot price?
You will encounter this a lot, and as it is a term not used in any other industries, it will confuse you when you first get involved with precious metals.
We’ve all been there, don’t worry. The “spot price” is simply the market value of gold. This means that if someone says they bought a ounce of gold at $1 above spot, they paid $1 more than the market value for an ounce. Generally, you don’t want to pay much more than spot, and the bigger quantity that you buy, the closer to spot you will get. You will not be able to purchase for less than the spot price from a bullion dealer, but if you know an individual trader who is selling off their collection or part of it, then you might be able to negotiate a quick sale for less than spot price.
Do I need to pay VAT on gold?
In many European countries there is a VAT charge on silver, platinum and some other previous metals. Here in the UK that fee is a ridiculous 20%, which pretty much rules out silver stacking as an investment in this country. However, there is no such charge on gold. You can also buy gold without capital gains tax, but more on that next.
What is Capital Gains Tax?
This is a tax on the money that you make from buying and selling gold. In many countries, not just here in the UK, you have to pay tax on all profits that you make from investments. This includes shares, binary options and precious metals (although, strangely enough, it does not include gambling). If the gold you buy is legal tender, such as Gold Sovereigns, then there is no Capital Gains Tax, which is why these coins tend to be so popular.
Should I only buy 24-Karat?
The purer the better, but in truth it doesn’t matter as long as the price of gold is relative. For instance, an ounce of 24-Karat gold is worth more than an ounce of 18-Karat gold, so you should expect to pay a little less based on the reduced gold content, because when all of it is melted down, you’ll be left with less gold.
Pure gold is very soft and this is why it isn’t used to make jewellery, however, it is used to make coins and bars and these are widely available. The same goes for 22-Karat gold, which is what Gold Sovereigns (from the Royal Mint) are made of. When faced with gold that is not pure, be prepared to test your maths skills.
How do I buy real gold every time?
Many investors will buy from many places, searching for value and shopping around. When it comes to major purchases, however, they will stick to a reputable dealer. You should do the same thing. There are many of these around and they are easy to find, just be sure to do your research on them before committing to a big order. Google them, check out reviews from customers who have used them and make sure you check all licenses that they display on their website. Never commit to a bullion dealer just because you saw an advertisement of theirs in a newspaper or on TV, because that only means they have money and it is no indicator of whether they are genuine. You will never be given fake or low quality gold from such a dealer.
That’s not to say that you should ignore auction sites and individual traders, as this is where the best deals can be found. Just be extra cautious when dealing with them.
Can I check my gold is real without damaging it?
There are many ways you can check that your gold is fake or real, but these tend to damage the metal. The “scratch” test, which involves running it along a ceramic plate and seeing if the mark it leaves is gold, will damage your cold and your plate. Acid tests will also damage your gold.
The biggest and best dealers check their gold is legit in a matter of seconds, using only a small magnifying glass, their hand and their eye. It’s all about feel, weight and sight. Gold has a number of inscriptions, it is also unique in weight and density, which means an ounce (or any other weight) of gold will have unique dimensions. It may take you some time before you can get to that standard, but always be sure to look at your gold, even if you know it is legit. In fact, the more legit gold you study the better, as you will then learn what you should be looking out for.
You can also use magnets to check your gold. Many of the metals used in fake gold are magnetic, but gold itself is not, so if your coin or bar is attracted to the magnet then what you have in your hand is not real gold.
Will the price of gold increase?
It’s hard to say. We personally believe that it will, otherwise we wouldn’t have invested in it. The same can be said for all gold stackers. Gold has been increasing year on year for over a decade and many experts believe that it could double in a few more years. However, there are also those that think it will plummet, that it will be near-worthless in those few years.
The trick is to listen to both sides and then form your own opinion. Study the markets, how things were in the distant past, how they are today and how they could be tomorrow. You might decide that the price of gold will drop, but if you think it will increase then you can invest with confidence.