A WOLF STREET reader shares his experience and emotional tension of buying and taking possession of physical gold.
By Andrew Kelly, a WOLF STREET reader:
It’s interesting how we Wolf Street intellectuals want to practice non-attachment, and then wind up buying gold. It cost me 3 days of fussing around, driving in city traffic, privately freaking out about legal commitments, and asking friends for advice. I took notes about everything. Here is what I learned about Buying Gold, and maybe this experience will be useful to you too.
Buy small units of gold, not big bars. A Jewish lady once told a friend (who told me) that she escaped from 1940’s war-torn Europe by slipping little gold wafers to border guards and officials to escape the country. No one wants to redeem a big pile of metal, it seems.
There is no “discovery price,” or true value, of gold. The “spot gold” price that you see posted on the internet is a theoretical value. A gold dealer has many considerations to determine a sale price.
There is no true “premium” or “commission” that a dealer charges for you to buy gold. A gold dealer has to think long term. They pay a charge to convert currencies (for Canadian buyers), and they pay money to ship, store, and secure real gold for their customers, so they have to add service costs. I calculated what the commission was after I chose to buy from a local Vancouver coin and jewelry dealer. They charged me roughly 3%. This compared very favorably with a Canadian bank, which was prepared to charge me over 6%.
Don’t trust banks. None of them. Banks obviously don’t want to deal in gold currency when they have more profitable “market funds” for their own arrangements. Banks will not give useful information about their costs or margins to their own employees, let alone Joe Public, so it’s better to find a brick-and-mortar store for purchases.
A business adviser once wrote that investors should not invest in a company with quick profits, but rather, one should invest in a business with stable, long term managers. The coin and jewellery store I used has been in business for 40 years, and the clerk has worked there over five years. They may not look flashy, these old guys, but you can trust them.
Jewelers are real people, and it helps to ask questions to get a conversation going. Jewelers also have a cool X-ray machine which measures the metal content of coins or bars. I insisted on testing three sample gold-wafers from the goods I bought. Gold has to be removed from the tight, plastic wrappers with no knife marks or scratches, because the jewelers will mark down the value if you redeem the gold and it’s damaged. My samples all read 100% au (gold) without the wrap. By the end of three visits, with the bank draft cleared, and the gold inspected, the clerk graciously accompanied me to the parking lot for safety. Now I can watch the internet spot price and practice non-attachment if the price goes down!
My gold buying experience was almost entirely trial-and-error, and cost a great deal of emotional upheaval, but I hope Wolf Street readers will be a little wiser after reading this. By Andrew Kelly, a WOLF STREET reader.
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