cancel
Showing results for 
Search instead for 
Did you mean: 

How does gold investing work then?

Community Veteran
Posts: 13,920
Thanks: 514
Fixes: 7
Registered: 01-08-2007

How does gold investing work then?

Ok, I'm curious. People keep mentioning investing in gold and the value of gold going up etc..
Normally you buy something, you sell it you get less for it. Take a car.. you might buy a car for £10k.. sell it and you'll get less for it.
So how on earth does this gold investing work then? - Where on earth do you buy it on the cheap and where do you then sell it? Is it a case of just buying it and waiting for the value to go up before selling it?
I need a new signature... i'm bored of the old one!
14 REPLIES
Steve
Pro
Posts: 6,679
Thanks: 247
Registered: 13-07-2009

Re: How does gold investing work then?

Community Veteran
Posts: 7,906
Thanks: 588
Fixes: 8
Registered: 02-08-2007

Re: How does gold investing work then?

I think you may have answered your own question there, people buy it in the hope it will go up and then sell it at a higher price.
Gold has a high value as there is a limited amount of it but there are other metals with higher values than Gold which people also invest in.
Paper money is just that and it's value is what others think it is worth that's why everything is costing more, sounds silly but you could reach the point where the money is not worth the paper it is printed on.
Community Veteran
Posts: 5,314
Thanks: 462
Fixes: 1
Registered: 21-03-2011

Re: How does gold investing work then?

You can buy/sell physical (real) gold through people like Baird & Co. Ring them up (they also have web site), prove your identity, place an order and send them the money. They'll arrange delivery. It is that simple. There's no VAT on gold bullion.
Start with small items like gold sovereigns or South African Kruggerands. Only trade in pure gold, forget 9 or 16 carat, that is for jewellery. Until you know what you are doing buy from reputable gold dealers, high street jewellers tend to charge too much. I used to buy sovereigns on ebay, but you need to know how to check them.
However be aware the trading companies will typically will take a 5% turn (built into price) on any trade. Most gold traders use that rate. They charge a bit more for smaller items. So as an example if you sell £1000 worth of gold they'll pay you £950
Gold doesn't pay interest or dividends. You only make a "profit" if you buy cheap and sell when the price is high. However it is secure, if you buy shares in a company and it goes bust you lose your money; gold doesn't rust although its price can change. If you save cash instead you can lose value when the government or banks do something stupid.
You need somewhere secure to store your gold - a bank safety deposit box is best. If you keep your gold in your house and you get robbed you will lose your investment.
For alternative investment you can also buy gold certificates - a piece of paper which represents a share of a real gold bar; or you can buy shares in a gold mining company.
Now Zen, but a +Net residue.
Community Veteran
Posts: 13,920
Thanks: 514
Fixes: 7
Registered: 01-08-2007

Re: How does gold investing work then?

So where would you sell the gold back to then? - Presumably the place you bought it from aren't going to then give you more to buy it back are they? - That wouldn't make business sense.
So.. how can you sell it?
I need a new signature... i'm bored of the old one!
Community Veteran
Posts: 5,314
Thanks: 462
Fixes: 1
Registered: 21-03-2011

Re: How does gold investing work then?

Yes they and other traders will buy it. They make their profit from the approx 5% margin on trades. Or you can sell to another member of the public, which is why I suggested to buy the smaller quantities. I've sold on ebay and to friends, but at the moment I'm not selling any. This nice thing about gold is that it is like cash - effectively untraceable and doesn't appear in banking/official records, though businesses have to report any gold trade over £7000 to customs and excise - under money laundering rules.
Now Zen, but a +Net residue.
Community Veteran
Posts: 2,282
Thanks: 218
Fixes: 1
Registered: 04-08-2009

Re: How does gold investing work then?

Easiest way to buy a precious metal, or even any commodity, is to buy shares one of the exchange traded funds through a stockbroker. http://www.etfsecurities.com/ and http://uk.ishares.com/en/rc/ provide them. If you buy shares backed by the physical metal you are actually buying a certified amount of the physical metal held in a secure place, literally a strongroom. There's tons of gold in safe storage now. Selling them is just a matter of selling the stock.
Community Veteran
Posts: 5,314
Thanks: 462
Fixes: 1
Registered: 21-03-2011

Re: How does gold investing work then?

ETFs work provided you trust the people who issue the "pieces of paper."  The idea is that your piece of paper represents a fractional share of a gold bar stored in a a vault. However it is difficult to police that assertion. There are two corrosive market rumours.
The first is the physical gold is in fact sold several times over and also may be used as security for other loans. 
The second rumour is that some gold bullion bars a cored with metallic tungsten which has almost exactly the same density as gold but is worth 80 times less.  The story goes that several years ago the major banks of both India and China bought a load of this tungsten salted gold, but didn't realise until some time after. They now carefully check each bar with sensitive electronic tests. Tungsten conducts electricity differently from gold.
Now Zen, but a +Net residue.
Community Veteran
Posts: 2,282
Thanks: 218
Fixes: 1
Registered: 04-08-2009

Re: How does gold investing work then?

There are a few big investment institutions that might be interested in your comments!
VileReynard
Seasoned Pro
Posts: 10,580
Thanks: 190
Fixes: 9
Registered: 01-09-2007

Re: How does gold investing work then?

You exchange your paper currency for a piece of metal.
Depending on how your paper performs, yo then exchange the metal for paper (either the same kind or a foreign currency).

itsme
Grafter
Posts: 5,924
Thanks: 1
Registered: 07-04-2007

Re: How does gold investing work then?

Why is a lump of metal or any other material that is stored in a strongroom that have no practical use be worth any money?
VileReynard
Seasoned Pro
Posts: 10,580
Thanks: 190
Fixes: 9
Registered: 01-09-2007

Re: How does gold investing work then?

Because there is only a small amount available.
It's also extremely dense so a small volume weighs a lot.
It retains it's purity since gold reacts with very few chemicals.
You could use Plutonium instead if you wanted to.  Grin

itsme
Grafter
Posts: 5,924
Thanks: 1
Registered: 07-04-2007

Re: How does gold investing work then?

But it just sit in a strongroom doing nothing.
Community Veteran
Posts: 5,314
Thanks: 462
Fixes: 1
Registered: 21-03-2011

Re: How does gold investing work then?

Quote from: itsme
... be worth any money?

I don't know. The puzzle is the generations of intelligent people who've stuck with that concept for hundreds of years.  They must have got it wrong.
Now Zen, but a +Net residue.
Community Veteran
Posts: 2,282
Thanks: 218
Fixes: 1
Registered: 04-08-2009

Re: How does gold investing work then?

I think the answer lies in the fact that there is not much that anyone can do to change its worth, as opposed to what Governments can do to severely interfere with the value of paper money, as we shall find out in a decade or so when real inflation kicks off. It won't get lost in a banking collapse, or evaporate, or suffer in a market collapse or a war. In fact, because it is seen as being invariable it usually benefits under these circumstances.
http://www.ft.com/cms/s/0/4b148650-c9a1-11df-b3d6-00144feab49a.html#axzz1UpI95Ysi