The safest way to buy gold addresses value, transportation and storage of the gold. This is because the amount of gold, how its price changes over time, and the market, political and economic conditions in which the gold is bought all affect the relative safety of the gold purchased. Moreover, the safest way to buy gold depends on more than one factor, specifically the objective of buying gold, the length of time the gold is to be held, the amount of gold that is to be purchased and the aforementioned purchasing environments. Ideally the safest way to buy gold is when the price is at its lowest and in bullion form either through exchange or physically, and via a safe and stable banking or dealing medium.
• Buying gold when prices are low
In terms of value, a safe way to buy gold is often during an economic boom and rising ‘secular’ market when the value of currency is rising. The reason being, gold prices tend to rise when currency declines in value and when the strength of an economy weakens. In societies where the value of money is unstable, gold is often purchased for its ability to hold value relatively well.
Buying gold when prices are low is a safer long term gold buying strategy as the price of gold could continue to decline and hold at a low price for several years before rising again. For example, if an ounce of gold were purchased in 1947 it wouldn’t have begun recovering significant value until the late 1960’s to early 1970’s.(2) Similarly, if gold were purchased in 1984, its value would not have appreciated until approximately 2 decades later.
In the United States the value of gold has experienced a tremendous incline since 2002 when the value of dollar began to decline.(1) A similar pattern took place in the 1970s, when the price of gold also rose. A part of the reason for this rise in the price of gold was the dropping of the gold standard in the U.S. and instituted by President Nixon. The trend didn’t reverse until approximately 1983, when the value of the dollar again began to rise.
• Storage and issuance of gold ownership
When storage, record of purchase and transportation are a matter of concern, a safe way to buy gold is to purchase gold stock. Gold stock is a share position in a company that is involved with gold production and distribution. For example, Barrick Gold (GLD) and Newmont Mining (NEM). If the company is a risky investment however, and one chooses to diversify that risk, a gold fund such as the Spider Gold Fund ETF (GLD) may be a safer option. When buying gold through stocks, other factors come into play such as the company’s financial solvency, strategic planning, annual revenue etc. If the companies aren’t safe investments, neither is the gold which they mine.
• Economic and political instability
To safely buy gold during times of economic and/or political instability, physical purchase and possession of gold may be safer than through a national institution. Gold bullion is authentic refined gold either in coin or bar form. This type of gold is sold by ‘bullioners’ and in some cases is minted by the Government. Gold bullion is 99.5% or a higher percentage.(3) 24 karat gold is the highest percentage of gold available.
Purchasing gold bullion coins with a numerical face value adds value and cost to the price of the coin. Physical gold bullion may also be a little higher in cost than the commodity form. Buying gold bullion through ‘bullioners’ and accredited dealers is safe as long as the gold being shipped is insured and cost reimbursed should the gold be lost. When purchasing gold bullion, an issuing stamp certifying the gold’s authenticity ensures one is safely buying gold.
• Buying gold through commodities exchange
Another safe way to buy gold is through a secure, regulated and stable commodities exchange such as the Chicago Board of Trade (CBOT) when the spot price of gold is at long term low value. Commodities are traded by producers, and for commercial reasons. This method avoids transportation and delivery of gold if the gold commodities futures are not delivered. These financial instruments are used more to hedge prices in the short term and are not always held for long periods of time.
Sources:
1) http://www.investortrip.com/images/dollarindex
2) http://www.measuringworth.org/datasets/gold/result.php
3) http://www.monex.com/