Protected: Module 6 of 8: What, Where and How to Buy Your Gold Insurance?
“The Gold Survival Guide eCourse: Why Gold is your must have insurance and 9 ways to profit from it”
So you’ve read the previous modules and if you’re still reading you’re probably on the way to being convinced about your need to purchase gold – your shiny yellow insurance policy. Today we show you how to do that.
Module 6 of 8: What, Where and How to Buy Your Gold Insurance?
How much insurance should you have? The traditional answer has been 5% or so of your personal net worth. However, the true answer is that it all depends on the nature of the rest of your portfolio. If this contains investments in natural resources (which will also increase in nominal value as the intrinsic value of money declines), 5% may be sufficient.
Marc Faber, editor of the Doom, Boom and Gloom Report, who is also an extremely knowledgeable and astute investor, suggests that 20% in bullion related investments is more appropriate, if the rest of your portfolio consists of paper assets only. Read more on this topic here: What Percentage of Gold and Silver Should Be in My Portfolio?
But how do you go about getting your insurance, and from where and who?
Below we outline 9 possible options you have and what you need to consider to determine which of these is right for you….
(Please note: These opinions are based upon our personal experience but you should conduct your own research into any of them prior to purchasing. Some links may be affiliate links and we may receive a commission if you purchase from these providers).
Physical Bullion Coins and Bars
Pros
- This is the safest way to gain a foothold in the gold market as a form of investment.
- Owning a bar of gold ensures that there is no counter party risk and the gold price will never go to zero, unlike the possibility of fiat currencies and other forms of investments
- There is always a lot of satisfaction from physically holding your own gold.
- It is owned by you and is not connected to the banking system
- 5 benefits of owning physical gold
=> portable
=> divisible
=> durable
=> generally accepted worldwide
=> an ounce of gold is an ounce of gold anywhere
Cons
- You have to take possession of it and therefore risk losing it or having the bar stolen.
- Other options are to have it stored for you in a vault, but this carries costs of storage, security, and insurance.
- Buying physical gold carries a price premium. This ranges from 3% to 15% above the spot price, depending on the quantities and types you buy
- Gold bars may need to be tested for gold content (assayed) if held privately to ensure that they do indeed have their stated gold content, and this is an additional cost.
Our experience
We highly recommend that you own a percentage of your portfolio in physical gold as absolute insurance, that you hold yourself away from third party risk. Always check what percentage over spot price you are paying, aiming for 6% or less for imported gold, or less than 3.5% for locally refined 99.99% pure NZ gold.
For more information on how to buy gold and silver bars and coins see: How to Buy and Invest in Gold and Silver
(Or visit the below link to see what physical gold and silver products are available to buy here in New Zealand:
Get a Quote for Gold or Silver in NZ)
BMG BullionBars – http://bmgbullionbars.com
Pros
- BMG Company, provides a secure and reliable means of purchasing investment-grade precious metals bullion bars
- Bullion holdings are fully insured, and stored under a custodial agreement with the Bank of Nova Scotia on a fully segregated, allocated basis.
- The Bars are London “good for delivery” meaning they don’t need to be assayed when sold
- Extremely high level of security and privacy as no client details are recorded on the Internet
- The accounting firm of KPMG inspects and verifies holdings annually.
- Storage is outside your own country (at least it is if you don’t live in Canada!) so safe from government confiscation
Cons
- Minimum purchase size is a 1 kg bar
- Still in someone else’s possession (held in Scotia Bank vault, Canada) Counter-party risk in transferring funds to purchase bullion
- You have to have trust in their storage operations
Our experience
While we haven’t used BMG directly, we are closely acquainted with one of their agents in New Zealand. Our investigations and due diligence we have performed to date satisfies us that there are limited downsides, however as always we would recommend that you conduct your own research.
Bullion Vault – www.BullionVault.com
Pros
- BullionVault.com: a very cost effective, safe and simple way of buying gold, owning, storing and selling gold
- from one gram up
- There is a marginal fee over spot (current price of gold) for trading and storage
- Has allocated storage (for very small yearly charge) under your name and stored in a vault in Switzerland, New York or London so little chance of government confiscation
Cons
- Internet security issues when transferring money
- Some counter-party risk while your funds are held in their trust account before purchasing any bullion
Our experience
Bullionvault provides a simple method of buying, regardless of how much you have to spend. The premiums over spot price are the lowest a small investor is likely to be able to get, therefore a very cost effective method. Money is only ever transmitted to and from a single client nominated and verified account; this greatly reduces the risk of fraud. Two of us have dealt with Bullionvault and been very satisfied with their service.
Gold Money – www.GoldMoney.com
Goldmoney accounts can be set up over the internet, and once the account holder has been verified, he or she is open for business! The account is funded by either depositing gold directly or by transmitting funds in US dollars. Once the account is funded, you can buy units of gold (typically gold-grams). It is possible also to buy silver, and silver can be exchanged for gold, and vice versa.
Pros
- Security. GoldMoney® enables you to hold physical gold & silver that is fully insured and stored securely in specialised bullion vaults in Zurich, London and Hong Kong. All metal is owned directly by you with no counterparty risk.
- Convenience. Straightforward to buy gold and silver, and to take delivery of physical bars, if you want.
- Payments. You can pay for goods in goldgrams, if the seller also has a Goldmoney account.
Cons
- Cost. Premiums can be a bit on the high side.
Our experience
One of us has dealt with Goldmoney, and is very satisfied with their service. James Turk, the founder of Goldmoney, is highly respected throughout the gold community.
ETF’s (Exchange traded Funds)
Pros
- There are no storage, insurance or shipping issues to deal with
- There are no dealer markups, and there is no spread between bid and ask prices
- You can buy or sell your shares at any time the Stock exchange is open, so this type of investment is extremely liquid
Cons
- Unfortunately this type of investment is not physical gold.
- There is counter-party risk associated with buying ETF’s as you are relying upon the custodian to actually have the metal they say they have.
- Audit trail to prove holdings may be somewhat lacking
Our experience
While EFT’s may be very cost-effective and easy to invest in, we rank these way down the list. The main question to ask yourself is – “If I am owning gold because it has no counter-party risk why involve a counter-party that can’t guarantee they hold what they say they do?”
Perth Mint Certificate Programme (PMCP) – http://www.perthmint.com.au/investment_certificate.aspx
Pros
- The Perth Mint is owned by the Government of Western Australia and is strictly regulated and run on strict and ethical guidelines
- Is audited by the auditor general of the Western Australia as well as by internal auditors Price Waterhouse Coopers
- It does not lease metal out to mining or exploration companies and does not undertake precious metal derivative transactions
- The AAA rated government Perth Mint is a safe option when it comes to third party precious metal ownership.
- Western Australia is rated AAA by the US international credit rating agency, Standard and Poor’s
- All PMCP precious metals are insured (at The Perth Mint’s expense) by Lloyds of London
- PMCP investors can convert from unallocated to allocated and take delivery at any time
- No storage charges if you choose unallocated bullion
Cons
-Probably the only minor concern would be that Perth Mint is still a third party, but being owned by the Western Australian government and having a AAA rating should ease these fears. You can always take possession of part or all of your gold
Our experience
If you choose to go with PMCP then go the route of unallocated bullion as there are no storage charges. Because if you have any doubts about the integrity of the Perth Mint you shouldn’t invest with them. Paying 1.5% a year for storage in an allocated account might give you some piece of mind but it won’t necessarily guarantee the metal is there that much more than the unallocated account. Asset Strategies International are an approved dealer we recommend www.assetstrategies.com (this is not an affiliate link, we receive no compensation should you choose to go with them). If you live in Australia or New Zealand you can buy directly from the Mint itself.
Comex Gold Futures (and options) – http://www.nymex.com/GC_spec.aspx
Pros
- A futures contract is an obligation to either purchase or sell a certain amount of bullion at a certain price in the future for fraction of the future cost. You are effectively betting on whether the price will rise or fall in the future.
- Therefore you have the ability to control a large position for a small amount of funds down
- Therefore the most highly leveraged and potentially the most profitable
Cons
- Should only be played with money that you are prepared to lose
- Can be wiped out very quickly as highly volatile
- And in fact you can lose more than your original investment!
Our experience
- Purely for trading purposes and should only be for experienced Gold players with funds you are okay to lose. Not a means of wealth preservation and protection unless you use it to take delivery of a 100 ounce bar.
Please note: buying options contracts limits your loss to the cost of the options.
Gold Mining Shares
Pros
- A good way to leverage off the price of gold
- Possibility to receive dividends
- Highly liquid and easy to transact
- Can take a position as small or large as you like
Cons
- Buying gold mines is highly speculative and there are many risks that one needs to be alert to when purchasing such investments
- Exposure to all sorts of corporate and geopolitical risks
- Mining is very energy intensive, so rising commodity prices often impact negatively on gold mines
Here’s an even more detailed comparison of: Gold Mining Shares vs Physical Gold Bullion – Which to Buy?
Our experience
- As we believe gold remains in a long term bull-market, gold mining stocks are a great way of leveraging off this trend. However a large amount of knowledge is required to separate the good companies from the bad and also to ensure a good entry price when purchasing.
- A broad way to evaluate gold mines is by working out the valuation ratio for a mine. To do this you need to work out the Net Asset Value of the mine vs the market capitalisation. A low ratio indicates that the shares are still cheap.
Everbank – http://www.everbank.com/001Metals.aspx
Pros
- Options of: (1) Pooled Account: A less expensive way to own gold or silver–your purchased metal is “pooled” with other investors, saving you from paying storage or maintenance fees. Or (2) Holding Account where a storage fee applies
- Similar to Perth Mint Certificates unallocated and allocated options.
- Premiums over spot price as low as 1%
- Low deposits from $5000US
- Ability to request delivery
Cons
-For US citizens only
-Still relying upon the integrity of another party
Our experience
- We’re not US citizens so do not have first hand experience with Everbank.
Why Do We Share These Other Options for Buying Gold When We Sell it Ourselves?
The options above all have their uses. And so we are happy to share them with people. Plus holding some bullion outside of your home country is not a bad idea (if you own enough of it near home first). See: 4 Reasons You Should Store Some Precious Metals Outside of New Zealand
But first and foremost we believe you should have some physical gold and silver bullion in your possession.
We think you are likely to see the benefits in that too. So hopefully when you want to buy your first portion of bullion, you’ll do it through us.
Now that you know where you can buy your gold, coming up in Module 7, we’ll outline the options you also have as far as storage goes.
What are your thoughts on these different gold buying options? Let us know at info@goldsurvivalguide.co.nz if you have any queries.
Remember knowledge is the key to protection and profits!
David Deutsch and Glenn Thomas
Founders
Gold Survival Guide
Disclaimer: We are not certified investment advisers and you should not construe what we write as personal investment advice but rather information of a general nature and as a basis for you to conduct further research.