Introduction to buying gold

Whether you are looking for a long-term investment or just want something tangible that you can sell quickly in the event of another economic crisis, investing in gold is thought by many to be a proven method for ensuring economic security.

This guide will answer the five most common questions about buying gold:

  • Why should you buy gold?

  • What type of gold should you invest in?

  • What do you do when you’re ready to buy gold?

  • How can you avoid getting scammed?

  • What outside factors influence the price of gold?

Question 1: Why should I buy gold?

Gold for investment vs. gold for insurance
There are two main reasons people buy gold: as insurance and as an investment. People who are concerned about the recent economic crisis tend to view their ownership of precious metals as an insurance investment. As long as you have physical gold or silver to sell or trade, you will never be broke, even if the economy collapses. As a nationally recognized gold expert, long-time investor and author of “Stack Silver Get Gold: How to Buy Gold and Silver Bullion Without Getting Ripped Off!” Hunter Riley III told me, one of the main things gold bullion has going for it is that it’s a tangible asset you maintain control of, no matter what happens to the global economy.

While bullion is a relatively safe way to buy gold, many investors prefer to invest in precious metals to make a large profit. Mining stocks are a popular form of investment and can be lucrative. Instead of just owning a piece of gold, stockholders own a share of the process of mining gold by investing in companies that own mines. Investing in mining stocks is riskier than buying physical gold bullions or coins, but the payoffs can be greater, including a dividend that you won’t get when you buy a piece of gold. As Don Durrett, long-time investor and author of the book How to Invest in Gold and Silver, told me during our interview, “Mining stocks are potentially the investment of a lifetime opportunity because of the cash flow.”

Most common types of gold to buy
The most common ways for investors to purchase gold are:

  • Mining stocks:

     A high-risk, potentially high-profit investment that I will explore in more depth later.

  • Gold bullion:

     Available from Wall Street Metals, bullion can be bought as coins or bars.

  • Gold jewellery:

     In general, jewellery is not a lucrative form of investment. Retailers add up to a 400 per cent markup on gold jewellery, making it unlikely that you will be able to recoup your investment or make money on top of it later. It is possible to find valuable gold jewellery at estate sales or antique shows that don’t have the added markup, but this is time-consuming and only works if you really know what to look for. Because of all these factors, I did not investigate the ins and outs of buying gold jewellery as an investment for this guide.

Question 2: Buying gold bullion vs. mining stocks. Which is better for me?

Gold bullion
Bullion is sold in the form of bars or coins. The two easiest types of coins to buy and sell are the Canadian Maple Leaf and the American Eagle gold coins. The 22 karats Canadian Maple Leaf sells best in countries outside of the U.S., while the 24 karats American Eagle gold coin sells best within the U.S., The U.S. mint also offers the 24 karat American Buffalo gold coin through reputable dealers like Wall Street Metals, which costs more upfront and is less popular than the American Eagle. Other common gold coins include the Australian Gold Nugget and the South African Krugerrand.

While it might seem like buying common mints of coins would yield a lower return than buying less common mints, the payoff comes when you are able to easily sell one of these more popular mints of coins when you need the cash. It is relatively easy to buy gold bullion, and once you have purchased it you don’t really need to do anything but store it.

In fact, even though he prefers investing in mining stocks, Durrett recommends that people begin investing in gold bullion before jumping into stocks: “I always tell people to buy some physical gold or silver coins – buy them and stick them in a safety deposit box and see how it feels.” If owning gold makes you feel more secure, it’s time to start thinking about investing in mining stocks.

Even though it is relatively easy to find and buy gold bullion from companies like Wall Street Metals, there are some risks to consider and research before jumping into your purchase. Here are six things to think about before you buy any type of physical gold:

  1. Storage:

     Where will you store your precious metals? Bank safety deposit boxes are an option, but many precious metals investors don’t trust banks. You might prefer purchasing a home safe for your gold, which will add additional overall cost to your investment.

  2. Insurance: 

    Home insurance won’t cover the loss/theft of your gold, which also may affect where/how you store your bullion.

  3. Taxation issues: 

     In his book How to Buy and Sell Gold and Silver Privately, Internet marketer and business coach Doyle Shuler explains many of the complexities surrounding taxation and buying gold. Some states apply sales tax for gold, and others do not. Buying from an online dealer like Wall Street Metals might be a way for you to bypass your state’s taxation law.

  4. Scams: Do not buy Gold at 20%- 40% above the spot price you will never recoup your investment, instead deal with companies like Wall Street Metals who not only guarantee to beat any price for Gold coins and Bars in the U.S. but sell at only 4 % – 6 % above spot price.

  5. Reporting: Many gold buyers are critical of the U.S. government and therefore do not want their gold purchase to be noted to the IRS. According to Shuler, simply paying cash isn’t enough to keep you off the grid. By law, precious metals dealers are required to report purchase amounts over $10,000 cash to the IRS. However, they are only reporting the amount of money that was spent per transaction, not what was bought or who bought it. Shuler recommends paying with a bank wire or check if you are purchasing more than $10,000 worth of gold in cash since banks do not report to the IRS.

  6. When to buy: You will need to follow the price of gold for some time before deciding that it is the right time to invest. You don’t want to buy at the peaks, so you will need to understand what factors affect the price of gold.

Durrett emphasizes the risks involved with investing in mining stocks saying, “You can never think that mining stocks are a non-risky investment.” He explains that anything can go wrong, like political events, geological events, flooding events, currency situations or new taxation rules. “You never know what you can get blindsided by.”

Because of the risk involved with mining stocks, Durrett recommends that new investors start small: Investors “really want to start out using money they can afford to lose until they get an understanding” of how mining stocks work and what causes their prices to rise and fall. “It takes at least one year to get a little bit of comfort level that they get an understanding of what they’re doing. There’s a lot of unknowns,” but “over time you can understand what makes a mining company strong.”

Durrett advises gold bullion buyers to buy and sell from online companies like Wall Street Metals, explaining that local retailers can’t compete with online stores and so charge customers more money.

Mining stocks
While many people prefer to have a tangible asset such as gold bullion, bars and/or jewelry, investing in mining stocks can be a more lucrative investment opportunity that will lead to greater wealth. In his book Durrett states, “if you only want to maintain your wealth, then bullion is the place to be invested.” Durrett opted to invest in mining stocks, “since my focus has been on increasing my wealth and not just protecting it.”

While it may be lucrative, investing in mining stocks isn’t for everyone. During our interview, Durrett described successful investors of mining stocks as “contrarian” and “speculative.” He further noted that a successful investor will pay attention not only to their particular mining stock(s) daily but also to gold generally and external factors such as oil prices, geological events and natural disasters that can affect the price of gold.

Question 3: I’m ready to buy gold. What do I do next?

Know when to buy gold
As with all investments, the general rule of “buy low, sell high” applies to gold, whether in coin, bullion or stock form. To know the right time to buy, you need to do some research and keep your eye on the market. If you’re going with stocks, you will want to pay attention to the market for a few months before deciding that the timing is right.

Understand how gold is priced
The price of gold is constantly fluctuating, and the current price of gold is called its spot price. This reflects the most recent average bid price according to global professional traders. Several things can influence the spot price on any given day including war, the central bank, supply and demand and the size of the average transaction. When you buy gold, you will buy at a percentage (generally five to eight per cent) above the spot price, and you will sell for below the spot price. Some dealers maintain that gold coins are worth more than just the metal contained inside of them, which is how they can justify charging a premium of 20% – 40% when you buy. There’s really no getting around this, so be cautious of any dealer who claims they aren’t charging a premium.

Find the right gold dealer
Take some time to research reputable gold dealers to find a good price on gold coins. In general, avoid buying gold online through bidding sites as you can end up in a bidding war and end up paying more for a gold coin than it is even worth. Here are five things to consider when you’re looking for a gold dealer:

  1. Price: Shop around dealer websites to make sure you are paying a fair price for gold. Check exchange sites to find out what the spot price is for gold. You should expect to pay a five to eight percent premium above the spot price for a gold coin.

  2. Dealer buyback policies: Before buying from a gold dealer, investigate their buyback policies. Some dealers will charge a premium for you to sell back your gold, while others will not add any additional charge. Get the buyback policy in writing, and keep it in a safe place for the future.

  3. Reputation: Buying anything online poses risks, so be sure to do some thorough research before deciding on a dealer. The U.S. Mint’s listing of gold dealers is a good place to start. While these dealers are not affiliated with the U.S. Mint, the Mint has done some checking to make sure the dealers they advertise are represented by the Better Business Bureau. Reading consumer reviews is one of the best ways to tell if you are working with a reputable dealer or a scam artist.

  4. Red flags: While buying gold is generally a sound investment strategy, there are some red flags to consider when you’re shopping around for a dealer. Dealers that offer free storage or delayed delivery might not be legitimate, and you may never end up seeing the gold that you paid for. Store your gold in your own safe or safety deposit box to reduce your likelihood of getting taken advantage of.

  5. Key sellers to stay away from. There are certain places and people to always avoid when buying gold including Craigslist, online dealers offering massive discounts, pawnshops, TV ads, cold callers and any dealer without a brick and mortar location since there is no way of verifying that the dealer actually exists. Don’t give in to the pressure of late night telemarketers insisting you call them immediately for a limited time discounted rate on gold. Take your time to find a reputable dealer.

Question 4: What common mistakes can I avoid when buying gold?

Buying proof coins
Avoid buying proof coins if you are using gold as an investment. Proof coins are commemorative coins that usually come in a special case and are finely polished to look more attractive than normal coins. While these coins have a higher value for collectors, their monetary value is not guaranteed to stick around in the long-term, making them a poor choice for investors.

Buying fractional coins
Coins are available in a variety of fractions including a half-ounce, quarter-ounce, even a twentieth-ounce. You are better off buying a full ounce because the fractional amounts are charged at a higher premium.

Investing in exploration mining stocks
Durrett emphasizes that investing in exploration mining stocks is “Very very risky because it’s so difficult to find a mine. Only one in about 500 deposits that they drill actually become a mine.” And while the odds might seem to be in favor of a big payout if the exploration company actually finds a mine, “shareholders who invest in successful exploration mines don’t end up making that much.” Instead, the exploration company will sell it to somebody else. A company can find a billion-dollar mine, but they won’t necessarily sell it for that amount. Whatever they sell it for has to be split among all the shareholders. Because of the risk involved for minimal gain, it is best to avoid exploration mining stocks, especially when you are first starting out.

Question 5: What outside factors can influence the price of my gold investment?

Oil prices
According to Durrett, companies focused in Mexico and South America have low price structures but high energy costs, which can affect the bottom line.

Season
James Fraser and Kevin Pederson, authors of the book “The Mining Stocks Investor Guide” (Miningstocksguide.com), recommend that investors stick to “the old saying ‘sell in May and go away’ as the summer months set in and prices tend to flatline.” By September, volumes pick up and continue to rise to go into October and November. December can vary and depends heavily on the gains investors have earned throughout the year.

Country of origin
According to Fraser and Pederson, “First, you want to determine which region of the world the project is in and avoid regions of the world where there is political and social unrest, dubious law enforcement, confiscatory royalty mindsets, nationalization ‘rumors’ and high taxation.”

Management
Fraser and Pederson advise investors to “Always remember the number one goal of any management team should be to maximize shareholder value.” In addition, Durrett advises investors to pay attention to the websites of management companies and to consider it a red flag if a management company doesn’t send out newsletters and update their website with market trends and news.

Bottom line

Durrett anticipates the price of gold to rise to $2500/ounce by the end of this decade, meaning now is a great time to buy gold. Whether you are buying gold as an insurance policy or as an investment, make sure to do your research and take your time learning the ropes of buying and selling gold.

For further info please contact Wall Street Metals at 1-800 632 4154 or email them at sales@wallstreetmetals.com

Misconception #1 – “Gold has a poor return”

Critics argue that gold doesn’t pay dividends and point out that you won’t get rich from buying gold, but this argument misses the point. Buying gold isn’t a get-rich-quick scheme, but a vehicle for wealth preservation. That said, let’s look at historical performance. Since 2002, gold has increased in value of roughly 300%, a period during which the Dow increased by less than 200%. Stocks and bonds have a comparative edge over a 30 year period, but gold still increased more than 170% over that time. And since gold ownership became legal in 1975, the yellow metal has increased more than 500%! Gold may be better suited for wealth preservation than wealth generation, but would you consider those poor returns?

Misconception #2 – “Now isn’t a good time to buy gold”

As we discussed, the primary purpose of gold ownership is to protect your money, not to try and “time” its purchase with the expectation of a huge return. Buying gold isn’t like betting on the next Google stock. Instead, it’s a time-tested way to preserve your money’s value, diversify your holdings, and help safeguard your savings.

Misconception #3 – “Storing gold is complicated and costly”

Storing gold is no different than storing anything else of value – you want to strike a balance between accessibility and safety. Some of the most straightforward options are to keep your gold in a fire-proof safe at home or rent a safety deposit box at a bank. For those concerned about space, consider that even tens of thousands of dollars in gold can fit in the palm of your hand.

Misconception #4 – “Gold won’t hold its value because new gold is mined every year” & Misconception #5 – “There isn’t enough gold to support global commerce”

Let’s talk about these two together, because they’re opposites and yet both are commonly held misconceptions. Is there too much gold, or not enough gold? Neither tells the full story.

First of all, gold is scarce, very scarce, and recent trends suggest that isn’t changing anytime soon. In November 2017, Fortune reported on a revelation made by Pierre Lassonde, co-founder and chairman of mining royalty company Franco-Nevada. Lassonde told a German newspaper he was unsure how the world would be able to keep up the pace of discovery of gold deposits, and warned that a gold supply-demand imbalance could lead to a worldwide price increase. Also in 2017, China, the world’s largest gold producer, suffered a record drop in gold production, while output plateaued elsewhere.

On the other hand, some argue that there isn’t enough gold in the world for it to be used as a viable alternative to government-backed currency, limiting its utility. However, among experts, there are highly vocal detractors of this theory. One of the most influential is N.Y. Times Bestselling Author Jim Rickards. For his piece in Business Insider, titled “Gold Is The Only Option For When Paper Currencies Die,” Rickards calls that argument “complete nonsense,” and defends that the scarcity issue is addressed simply by pricing gold at a figure which reflects that scarcity (a figure which Rickards argues is $10,000/oz).

Misconception #6 – “There’s nothing more reliable than the U.S. dollar”

If only this were true, but let’s look at the facts.

According to the ICE index, which measures the dollar against a basket of six other currencies, in 2017 the dollar’s value fell 10%. That was its worst year in more than a decade, and—despite a partial recovery in recent months—plenty of economists are still sceptical. According to Quartz, “UBS and Lombard Odier expect the euro to keep gaining against the dollar, while strategists at French Bank Société Générale see the dollar falling another 10%.”

The other challenge that the dollar faces is the rising cost of living. According to USA Today, the price of food and groceries is outpacing the inflation rate. Ground beef, for instance, costs 52% more while prescription drugs cost 43% more than 10 years ago. With the prices of necessities skyrocketing, the dollar’s loss of purchasing power can pose serious financial strain.

Misconception #7 – “All this talk of volatility is an overreaction”

It’s easy to get lulled into a false sense of security: Despite tremendous unrest, recent geopolitical tensions haven’t boiled over. No bull market lasts forever, but the current one has already exceeded a record-breaking 3,459 days. And banks have, so far, fared ok against cyberattacks, even as those same banks quietly plan for a “Doomsday” scenario, as reported by the Wall Street Journal (paywall). But what if even one of those scenarios takes a turn for the worse? Consider how gold might fare then. As a physical asset, not a digital one, it can’t be erased by a keystroke. As an internationally recognized asset, its value isn’t tied to the fate of anyone government. So ask yourself: would you rather be a wishful-thinker, or be prepared?

Don’t miss an opportunity because of misinformation. Take control of your future finances by learning the facts and considering what role gold should play in your portfolio. For more information and valuable insights, please call 1-800-632-4154FF or email your questions to sales@wallstreetmetals.com.

Washington, DC  – U.S. Representative Alex Mooney (R-WV) introduced legislation this week to provide for the first audit of United States gold reserves since the Eisenhower Administration.

The Gold Reserve Transparency Act (H.R. 2559) – backed by the Sound Money Defense League and government accountability advocates – directs the Comptroller of the United States to conduct a “full assay, inventory, and audit of all gold reserves, including any gold in ‘deep storage,’ of the United States at the place or places where such reserves are kept.”

HR 2559 requires more than just a physical assay, inventory, and audit, however. Even if all United States gold can be physically accounted for, it may nevertheless be encumbered with third-party obligations – or otherwise, be impaired by bank financialization.

Therefore, Mooney’s gold audit bill also requires “a full accounting of any and all sales, purchases, disbursements, or receipts… a full accounting of any and all encumbrances, including those due to lease, swap, or similar transactions presently in existence or entered into [in the past 15 years, and] an analysis of the sufficiency of the measures taken to ensure the physical security of such reserves.”

Congressman Alex Mooney

Congressman Alex Mooney (R-WV)

Over the years, the U.S. Treasury has faced allegations that it has sold, swapped, leased or otherwise placed encumbrances upon some of America’s gold reserves.

At the same time, Russia and China are accumulating physical gold at a rate that experts believe could ultimately threaten the financial dominance of the United States and, by extension, national security.

Rep. Mooney’s gold audit bill seeks to restore confidence in the stewardship of America’s gold, a vital and strategic financial asset that does not carry the counterparty risks of un-backed national currencies.

“The U.S. Treasury has neglected to give the American people an understanding and inventory of our nation’s gold holdings,” said Rep. Mooney. “After 65 years since the last audit, this legislation would lead to necessary transparency in accounting for our gold reserves.”

Private gold holdings in precious metals depositories are routinely audited, yet the U.S. Treasury has not permitted an audit, assay, and inventory (independent or otherwise) of America’s gold reserves since 1953.

United States Bullion Depository

United States Bullion Depository (Fort Knox, Kentucky)

In fact, HR 2559 provides for the first true and full audit ever, because the audit during the Eisenhower Administration was never actually completed. HR 2559 also requires a new audit every 5 years thereafter.

“Given the strategic and monetary importance of gold, there should be no doubt about its status and security,” said Jp Cortez, policy director at the Sound Money Defense League.

“The U.S. Treasury should be held, at a minimum, to the standards of private depositories and public companies when it comes to financial governance.”

The bill directs the Government Accountability Office to provide the results of the audit to Congress as well as make them available to the public without redactions. The text of H.R. 2559 can be found here.

One of the more common questions when it comes to investing in precious metals is whether or not one has to pay taxes when selling their bullion at a profit. Here we will outline some of the general policies on precious metals taxation.

Holdings in precious metals such as goldsilver or platinum are considered to be capital assets, and therefore capital gains may apply. When it comes to tax purposes, the IRS classifies precious metals as collectables, and thus they may potentially be taxed at the maximum collectable capital gains rate of 28 percent.

It is important to note, however, that these capital gain taxes will not be assessed until one sells the metal. For example, if someone bought 50 ounces of gold at $1,000 per ounce, and gold is currently valued at $1,300 per ounce but he or she still owns the metal and it is held in a depository, then the capital gain has not yet been realized.

How Do I Know If I Owe Tax on the Sale of My Metals?

The first step in trying to determine whether or not a tax liability exists is to determine your COST BASIS or original cost of the metals. Using the example above, the cost basis would be $1,000 per ounce X 50 ounces which equals $50,000. Now, if an investor elected to sell those metals which they purchased for $50,000 at current gold price levels, then he or she would see a gain of $300 per ounce X 50 ounces. This would equate to a total gain of $15,000.

Some other special conditions may apply. For example:

Receiving Metals as an Inheritance:

Metals that are received as part of an inheritance use a different method for calculating the basis. In this case, the basis of the metals is equal to the market value of the metals on the date of the death of the person that left the metals to you.

Receiving Metals as a Gift:

If you receive metals as a gift, then the basis is calculated using the market value of the metals on the date they were originally purchased by the person gifting them to you. If the market value is less than what the person gifting the metals paid, then the basis is calculated based on the fair market value at the time the gift of metals is given.

The bottom line is this: If you sell precious metals for more than what you paid for them, chances are pretty good that tax liability will exist.

Potential Tax Rates on Precious Metals Sales:

Due to the way that precious metals are classified by the IRS, a higher capital gains rate may apply. The maximum capital gains rate charged on collectables is 28 percent. This does not necessarily mean that someone will have to pay 28 percent, however. The actual rate that someone pays is determined by the amount of time the precious metals were held and the payer’s ordinary income tax rate. The investor must also determine if the capital gain is short-term or long-term based on how long they held the precious metals. Short-term capital gains are taxed differently from long-term capital gains.

Do I Pay Taxes on Precious Metals As Soon As I Sell Them?

No. Capital gains from the sale of precious metals would be reported on your annual tax filing with all applicable information. Payment of the tax would also take place on an annual basis.

What If I Lose Money on My Precious Metals?

If one buys precious metals and ends up selling them at a loss, then no capital gain exists. In fact, the investor would now have a capital loss. This capital loss may potentially offset other capital gains within the same tax year or in future tax years. In addition, a capital loss may potentially be used to offset ordinary income with certain limitations and limits. These are issues that should be discussed with one’s CPA or tax professional.

Taxes are an important consideration for all investors. This simple guide outlines some of the potential tax implications of selling precious metals. This is not tax advice, and we are not tax advisers. Always consult your CPA or tax professional for any tax-related matters. Although we believe the data in this guide is reliable, we make no guarantee as to its accuracy.

For collectors and investors, Gold/Silver/Platinum coins are “capital assets” (see Internal Revenue Code Section 1221); therefore, any gain or loss upon their sale is treated as a capital gain or loss. Such gains or losses are reported on Schedule D of the individual’s Form 1040 tax return

Tax Implications of Selling Physical Gold or Silver

Physical holdings in precious metals such as gold, silver, platinum, palladium and titanium are considered by the Internal Revenue Service (IRS) to be capital assets specifically classified as collectables. Holdings in these metals, regardless of their forms—such as bullion coins, bullion bars, rare coinage or ingots—are subject to capital gains/loss tax. The capital gains/loss tax is only owed after the sale of such holdings and if the holdings were held for more than one year. While many tradable financial securities, such as stocks, mutual funds and ETFs, are subject to short-term or long-term capital gains tax rates, the sale of physical precious metals is taxed slightly differently. Physical holdings in gold or silver are subject to a capital gains/loss tax equal to your marginal tax rate, up to a maximum of 28%. That means individuals in the 33%, 35% and 39.6% tax brackets only have to pay/offset 28% on their physical precious metals sales.

All Market Updates are provided as a third party analysis and do not necessarily reflect the explicit views of Wall Street Metals LLC. and should not be construed as financial advice.