So which is the cheapest way of buying gold?
Published on June 13, 2011
Cheap gold, that's what that you're looking at. But don't confuse the cheap stuff with real McCoy. Real Gold comes with a price...
Either way, it's a good question and the answer, as you've probably already gathered, is not a short one.
If you take the price of gold as 'fixed', then the 'variable' cost is in its manufacture and lets get one thing straight, 'cheap' gold does not exist. Gold is gold and if someone is offering it to you 'cheap' then caveat emptor applies - buyer beware!
So, cast ingots of gold are the cheapest way of buying gold – they are cheaper to make because there are fewer processes in their manufacture. Basically, the gold is refined, melted and poured into moulds. Then they are checked, packed and sold. That’s putting it simply but as an investor, it’s all you need to know. After that comes plates.
Plates are made by pressing the gold out into a sheet and then cutting out the shapes, a bit like making biscuits. Each plate is individually made and it has to be exact to 3 decimal places in size, weight and purity. That's why it's 99.999% pure, it is a very accurate measure and the process is called 'assaying'.
Obviously the plates take more to make (remember the variable costs?) so the cost of making them is higher than that of an ingot. This processing cost is the same whether it's a 50g or a 500g plate. So even though the value of the gold remains the same and the processing cost is the same, the processing cost as a percentage of the gold value increases as the plate gets smaller. Does that make sense? A 1kg ingot will typically be cheaper than a 1kg plate, but not by much.
Coins are a world unto themselves. They are valued by their scrap value, where they came from and their collectable value. Most countries issue coins that weigh 1 troy ounce so the pricing is easy to compare. Canada makes 'Maples', England has 'Britannias', South Africa makes 'Krugerrands' etc. All of these are trusted as a 'known good' but would you have the same amount of trust in a Mexican Pesos as you would in a Britannia? Would you want to hold a Russion Chervonetz, an American Eagle or would you rather have a Swiss Helvetia? The choice is yours! Personally, if I was moving into coins, then they would have to be readably accepted by a dealer and desirable. Coins are always more expensive to buy too but typically, you will recover this premium when you sell them on, depending upon who you sell them to. Some coins are also exempt from Capital Gains Tax (any coin issued in the UK which is treated as coin of the realm should be exempt from CGT) and are Income Tax and Inheritance Tax efficient – they can even be treated as Chattels, but you should consult your accountant on this matter. We don't give tax advice because we’re bullion dealers.
Next comes jewellery and fancy goods. This is the most expensive way to buy gold because the processing – how they are made – is even greater. Unless the piece of jewellery you are looking at is truly exceptional and has a collectable value you can hardly consider it to be an investment. Sentimental value has no cash equivalent. Just because a piece of jewellery has a picture of your great grandmother stamped on it doesn't make it any more valuable. Scrap is scrap, cash is cash.
So which one should you buy? Please bear in mind that I am a bullion dealer and not a financial advisor so take this as education and not advice. If you just want to buy gold then 1kg ingots are probably your best bet. They offer the easiest and cheapest way to buy gold. The processing/manufacturing costs are the lowest – you get more gold for your money. They are readily available for purchase and can be easily sold on – liquidated.
We should be discussing entry and exit strategies here, but that’s detail for another post. If your entry strategy is to buy as much as possible for as little as possible then 1kg ingots still make sense. However, if your exit strategy is to have a steady stream of £1,000 'chunks' then maybe ingots aren't for you. Maybe you should be looking at the smaller sized plates or coins instead.
Ingots typically come in 1kg. Plates start at 1kg and go down to as little as 2.5g. Price wise, there is about 2% variance between small plates and 1kg ingots but again, you have to consider your exit strategy.
You may also be interested in Platinum and Palladium. Both start at 1 troy ounce, go to 1kg and are only available as plates. The PGM’s are subject to VAT but there is an industrial demand so long term it should be OK. Worth a look. Either way, no bank fees to worry about, no financial advisor you have to pay for, no surety to concern you and no usury. My kind of business.
If you want to know more about gold, silver or any other precious metal then either trawl this site or call the office on 01769 573832.
Efficient investing to you all
David Peers
Partner
Point to note – I am a bullion dealer. I do this for a living. What is written here is for your education and should not be taken as ‘advice’. If you act then take some responsibility for your actions.
