Aug 2020


Aug 2020

New to investing in gold? Check out the most common mistakes made by novice investors!

By StoneX Bullion

Investing in gold coins and bars can be intimidating to the beginner, but don’t worry! We at https://stonexbullion.com are here to help. Check out our list of the most common mistakes and misconceptions facing new gold investors. 

First things first, there are a couple of important points to remember when you are looking to invest in gold.

Global Liquidity

What does this mean? Simply put, not all gold coins are known to the same degree around the world. Think about the Gold Vienna Philharmonic and the 100 Gold Crown. Both are coins from Austria. Both are gold. However, the Golden Vienna Philharmonic is recognised all over the world and is considered to be globally liquid. The 100 Gold Crown? Not so much. This doesn’t mean investing in this coin is a bad idea, as long as you pay less than you would pay for the Philharmonic.

Correctly Diversifying your Investments

Do you want to have easy access to your investments? Let’s say you have 5.000 Euros to invest and you decide to buy a 100g gold bar. Then you find yourself needing 1.500 Euros cash. What do you do? You’ll have to sell the whole bar. It makes more sense to diversify and divide your investments so that if any unexpected situations arise, you are able to keep at least a portion of your gold.

Seems simple, right? Let’s move on to some of the more common mistakes and misconceptions that can affect the novice investor.

Product Marketing

We see it everywhere, companies around the world love to ‘create’ products. It’s the same in the gold industry so here are a couple of points to keep in mind:

  • Make sure that the product is approved by LBMA (London Bullion Market Association). Some traders make products that look similar to investment coins and bars, but are not approved. This means that they are not considered as investment gold and will be accepted worldwide at a much lower price. You might also incur additional costs such as lab analysis, as dealers will be weary to buy the product from you without further information.
  • Some products are branded with the logo of local dealers. You checked and the coins are LBMA approved, produced by a known refinery and at a decent price point. What more could you possibly want? Well, global liquidity would be nice. The dealer logo on the product decreases the value. You won’t find a trader who will advertise a ‘foreign’ product, so the only option remaining is to sell it back to the dealer. ‘OK’ you might say, ‘That sounds reasonable’. However, there are many things that can go wrong here. The dealer could go bankrupt. They could change their branding meaning that the value of anything with the old logo drastically decreases. The dealer might close its office in your country, meaning that you would need to travel to wherever the nearest office is to sell the coin. These are just a few of the things that could happen if you buy locally branded products. 

What should you do? Only buy products that are produced by a refinery or government owned mint. They will be globally recognised near the stock exchange price, and are recognised investment products. You won’t go far wrong.

Pure Gold vs Non Pure Gold

Simply put, it doesn’t matter. The prices of investment gold products are formed on the basis of pure gold. Impurities are not included in the price of the product.

Should I go for a bar or a coin?

Again, it doesn’t really matter. Let’s say that this is your first foray into gold investment and you want to invest 250 Euros. Two products have caught your eye, a gold bar of 5g pure PAMP gold and the 20 French Franc Marianne Rooster coin total 6.45g, 5.81 g of pure gold. Both products are globally liquid. Which one do you choose? Take a pen and paper, refresh the webpage and write down the prices of both products at the same time. Divide the pure gold into grams. You will see that the Marianne coin is far cheaper per gram of pure gold than the bar...decision made! 

The same goes for a 10g bar of gold. It is almost twice the size of the 20 French Franc Marianne but it is still more expensive per gram of pure gold. We would always recommend coins over small bars of gold.

Which historical coin should I buy? There are so many choices!

The Franc Standard of 20 Francs is the most popular category in historical coins. They represent around 80% of the market and tend to be the cheapest against the stock market. Let’s take a look at the top 2 most popular coins in this category:

1st: French Napoleon and Marianne
2nd: Swiss Vreneli

British sovereigns come in second in the category of historical coins. Their share is significantly smaller than the Franc Standard but is still considered to be globally liquid. All other historical coins can face some issues, including high prices per gram of pure gold and low global liquidity.

I want to regularly invest in bars from a Swiss or another world refinery of 1, 2, 2.5, 5g

These are small bars and traded at prices from 15% to 50% above the gold exchange (with some exceptions). This means that you have to wait for the stock market to rise enough to be at 0 when investing. So why not look at gold coins instead? A 5g bar of pure gold is sold at about 15% above gold price whereas the 20 Francs Marianne with 5.82 g of pure gold is traded at about 7-8% above the spot price. Not convinced yet? A bar of 2.5g pure gold is traded at over 20% above the gold market yet 1 Austrian Ducat of 3.44g is traded at about 11-12% above the gold price. The weights are similar and global liquidity is the same. We know which option we would go for!

I want to buy a bar of 250g, 500g, 1kg

If you want to invest huge sums like 500.000 Euros or up then go for it. The prices of these larger bars are a little better per gram of pure gold when buying than those per 100g of bars, but lower when repurchased than the same 100g bars as even the biggest dealers do not like to keep them. They are rarely sold and often have to be melted. However, they do retain a high value. If you are investing smaller amounts, then we would recommend diversifying instead.

Look! These Turkish bars are cheaper than Swiss ones. I’ll take one!

This is a common mistake. There is nothing wrong with Turkish bars. They are LBMA approved. However, they are less global liquid. They are bought back cheaper simply because they can’t be resold easily. 

I will buy investment gold from my jeweller or a pawnbroker, it will be cheaper!

Goldsmiths and pawnships are specialists in the field of jewelry, but rarely in the field of mints and refineries. Therefore, you shouldn’t consider their products for investments. It’s cheaper for a reason. Buy investment gold only from trusted investment gold dealers.

I will only invest in old or modern numismatic gold coins

This is another common mistake. These coins often tend to have high emotional value and are suitable to add to a collection or as a gift but not for investment due to their high mark-up. They cost a lot more than the stock market precisely because of their emotional value. Investments shouldn’t be based on emotion, but on financial data. As ever, always consider the price of per gram of pure gold. 

What should I look at? The best price or the narrowest margin between buy and sell price?

This is your choice to make. Both strategies make sense. Some investors prefer the best price per gram of pure gold at the time of purchase and others look at the narrowest margin, even if the price per gram at time of purchase is slightly higher. 

If you want to re-sell within 1-2 years, then we would suggest looking at the margin. This is  more relevant with modern investment coins, where the margins remain much more constant than those of historical coins. If you plan to hold on to your investment for longer, then it would be more logical to look at the best price at the moment. 

I want to invest in physical gold, but I follow the movements of the stock market all day and love technical analysis. 

Look, physically owned gold isn’t for everyone. If you want a quick profit from riskier financial instruments, then this isn’t the way to go. Gold is a simple but special investment and does not bring the dividend yield that other, riskier assets might bring. 

It is risky to keep gold at home. That alone stops me from investing in it.

No one expects you to have investment gold at home. What’s more, we’re talking about small pieces that are extremely easy to hide. Think about your expensive TVs, laptops, phones...these are much more visible around the home. As long as you do not shout from the rooftops about your gold, then the chances of thieves finding it are minimal.

I’m afraid to invest because I feel like I don’t know enough

After reading this article, you are much more knowledgeable than you were 10 minutes ago! Take the plunge and go for it! Remember, we are always here to help. You can reach us at customercare@stonexbullion.com.