I’ve been receiving a steady barrage of questions from readers wanting to know about buying gold and silver. While I’ve been answering many of these questions in a piecemeal fashion throughout issues of the Resource Prospector, I thought I’d once and for all cobble the information together in one place.

Like anything, if you’re just getting started in buying gold and silver it can be a somewhat daunting process.

That’s because there are about as many different precious metal vendors as there are types of coins, and it can be a bit of a minefield if you don’t know EXACTLY what you’re looking for, how much you should be paying, and perhaps most importantly, why you’re buying precious metals in the first place.

I recently received a question from reader David W. which seems to encapsulate just about every possible angle of this topic:

“I have not bought gold yet because I haven’t decided exactly how to go about buying it, what type of gold to buy, should I buy U.S. mint gold coins (or Canadian mint) or foreign gold coins, how do you buy just gold bullion and how do you get a small quantity of gold bullion, and what about old gold coins that were minted by the U.S. government and lastly I have seen these independent minting companies have gold coins also?

So what I discovered that to say I am going to buy some gold and going about getting it without being ripped off (getting quality gold at a fair market price) are two different things. I am examining different options but have not decided which way would be the best for say buying some quantity of gold (say $1000-$2000) that I could hold in my hand and lock up in a safe or safety deposit box.”

First and foremost, you need to understand exactly what you want from your precious metal purchase. If you’re a short-term trader, then taking physical delivery of bullion makes little sense. I can only tell you why I buy physical gold: I buy it as an insurance policy protecting my wealth in the event of a currency crisis.

If you have the goal of getting rich from physical gold or silver, then you’re probably not going to achieve that goal. Sure, assets can skyrocket in price, but that’s a speculation, not an investment.

If you want to speculate, then I’d recommend trading options on an ETF like the SPDR Gold Trust (NYSE:GLD).

You can buy out-of-the-money calls if you’re bullish, or out-of-the-money puts if you’re bearish. That’s the simplest trade, and if you’ve traded options at all you know that you can do some pretty fancy stuff into the homestretch of expiration. But trading options on gold or silver ETFs is pretty much the opposite of loading your home safe with physical metal.

I want to remind everyone that gold and silver are not an investment by any classic definition of the word. They produce no cash, or rent like a business, and they don’t grow in size or value like a plot of timberland. It certainly experiences price fluctuations, but so does every other asset.

Precious metal is a store of value as well as a medium of exchange, to a lesser degree. In the event of a currency crisis, it will revert to its use as a medium of exchange.

So that’s why I buy physical gold and silver. Your reasons might be different, and you need to think about your specific situation, as well as how you might store the metal once it arrives.

In any event, if you do decide to take physical delivery and storing it in your home, I’d recommend only telling one other person.

To get back to David’s other questions, about specific coins, it’s vital to research any purchase ahead of time. You don’t want to get on the phone with a bullion dealer and not know what you want.

I recommend buying coins from reputable dealers like Kitco.com and blanchardonline.com – and while I’ve bought bullion from both vendors, and I consider the representatives from these companies to be knowledgeable, fair and generous, they also happen to be salesmen. If you call to buy gold and silver bullion from these salesmen and you don’t know what you want, you probably won’t get the coins that are right for you.

And again, I don’t know what’s right for your situation, I can only tell you the kinds of coins that I buy, and why.

As I said, I buy coins as insurance against currency calamity. In such an environment, it would be advisable to own a variety of coins in a variety of denominations. Silver one ounce coins sell for about $20 today – which is the kind of walking-around denomination that will be in high demand. $20 will get you a sack of flour, a few gallons of gasoline, eggs, milk, bread, etc.

I purchase American Eagle one ounce silver coins, because these coins are among the most recognizable. Any US minted, pure silver coin will suffice, but again, I recommend doing your research, and knowing everything you can about any coins you buy. In general, I don’t buy many foreign minted coins, for the simple reason that I don’t know much about them, and they’re much rarer than US minted coins.

If you’re buying coins with the understanding that you might have to use them as money, then you shouldn’t be looking for rare or collector coins. Regular gold and silver coins are known as bullion, and barring major damage or abuse, these coins will hold their value, which is what you want from your money. Rare coins are valued primarily by their rarity and condition, and their metal content as a secondary consideration.

Most people know nothing about rare or collector coins, so the value of these coins is, by definition, understood and appreciated only by rare coin collectors.

You want to buy coins that everyone knows and are familiar with. That goes for every denomination, in every type of metal.

I also own some mid-value denomination gold coins. The most common denomination of gold coin is the one ounce coin – which currently sells for a little over $1,200. That’s not walking around money, but these coins certainly have their use.

So besides buying US minted gold one ounce Eagles, I also like to have smaller denominated gold coins on hand.

These smaller coins are among the most expensive in terms of cost over spot price, so you really have to do your research. Shop around. Know the metal content, know the spot price, do the math on delivery costs as well as spot price premiums, and just make sure you get the best deal you can.

My personal favorite small-denomination gold coin is the British Sovereign. It’s arguably the most recognized gold coin in world history, having been first minted in the 15^th Century, and it’s still minted today – though you’ll pay a premium for newly minted “proof” coins from the Royal Mint.

Each Sovereign contains a little under ¼ ounce of gold, so if you’re just getting started and you don’t have a lot of money set aside for bullion purchases, you can probably afford to buy a few of these without breaking the bank.

As with any purchase, I wouldn’t advise timing the market. Just try to buy in dips, and average into any position over a period of months and years.

One final caveat: I would steer clear of any gold vendors that have significant radio and TV ads. I have yet to see a good price from any of these companies – most of them have spot premiums of 20-100%. You shouldn’t be paying more than 10% over spot, unless you’re buying extremely small gold coins – and even then, you’re probably paying too much.

If you have any questions, please send them to me at editorial@resourceprospector.com.

Written By Kevin McElroy From Wyatt Research

Kevin McElroy is a top rated commodity researcher and analyst specialist at Wyatt Investment Research, with a targeted focus on short and long term investment opportunities.  He has worked in the investment publishing field for over three years alongside some of the world’s leading commodity traders and analysts.  He takes the complex futures and options trading strategies from the floors of the Nymex and the CBOT, uniquely combines them with economic trends and positions his recommendations in a way that any investor, from a straight long-term buy and hold investor to a sophisticated day trader can easily understand, implement, and profit.   

Kevin constantly finds unique ways to profit from the “real stuff” like oil, gold, iron, corn – the energy, money, goods and food that the world constantly needs more of.  Kevin is the daily editor to Resource Prospector and a contributor to Energy World Profits and Global Commodity Investing.

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