How to buy gold & how to sell it too

By Joshua Saul – Arabian Pure Gold

More and more people are investing in gold to protect their assets, but how do you buy it and when it comes time to sell, how can you maximise the value of your investment.

Many smart investors already include gold in a balanced asset portfolio, but that demand really ramps up in times of political and economic volatility. Today, against a tumultuous backdrop of political and economic uncertainty, central banks are increasing their gold purchases and finance professionals are selling off stocks to buy physical gold. For anyone looking to protect their assets against the unknown, it’s becoming increasingly important to understand how to buy gold bullion, AND how to sell it when the time comes.

Different gold markets

There are many ways to delve into the gold market, and all have different attributes.

Gold-backed Exchange Traded Funds (ETFs) are funds in which you can trade shares like a stock. As the name implies the shares are backed by underlying physical gold stores and the price of the ETF tracks the gold price. In most cases, it’s unlikely that a holder of a gold-backed ETF would be in a position to cash in their shares for physical gold, because the threshold for physical delivery is usually too high (over a million dollars for the most popular ETF). There is also some scepticism about whether the funds actually hold the full gold equivalent to back up the shares in their fund.

Gold mining shares are another way to get exposure to gold, and these stocks tend to be very liquid and easily traded. But there are a great many other factors that affect the price of mining stocks which means they don’t always reflect changes in the gold bullion price accurately.

The share price is dependent on the proficiency of management, the efficiency of operations, and the profitability of the company. In addition, investors take on counterparty risk, country risk depending on where their mines are located, safety risk, debt risk and other organisational risks that affect the share price irrespective of how the gold price performs.

Well-informed investors could choose spread betting to gain gold exposure (betting whether the price of gold will rise or fall), but the risk profile is high and it is possible to lose more than you staked in the first place. Like mining stocks, the highs can be high but the lows can be very low too.

All these investment avenues come with counterparty risk, be it the bank, the mining company or the spread betting firm. As happened in the 2008, even institutions that appear stable can come under extreme pressure during a financial crisis.

Physical gold

Gold has no counterparty risk. You can either store it yourself to entirely bypass any external institutions, or choose to have it stored securely, in a facility that is fully allocated and segregated. This means that 100% of what you have purchased has been assigned to you and it has been separated from other client’s gold and is being held within your own account or vault.

There are many types of physical gold available and the most common investment options are gold bars or coins. If you are a UK citizen then certain gold coins including the Sovereign and Britannia gold coins which are exempt from capital gains tax because they are legal tender in the UK. This will make a difference when you come to sell your gold so should be taken into account when choosing which gold to buy.

There are also options on where to buy gold for investment. Some shops sell physical coins and bars directly to retail customers, although it is more likely you will need to arrange the sale online and then complete the purchase in-store.

Online gold retailers are the most prolific, but it is important to use a reputable one if you choose to buy online. They are a good option if you already know what you want to buy and just need to complete a purchase. They can offer no guidance on what investment would suit your circumstances, the process of buying and selling, the storage options and how to maximise your profit when comes to selling your investment. For that, you should look for an investment company that can guide your gold purchase and tailor it to your requirements whether your purchase is a stop-gap investment in between house sales, or being added to a personal pension plan, or just for somewhere safe to park your money while the geopolitical landscape worsens.

Selling your gold investment

When it comes to physical gold, selling is just as important as buying, because its liquidity is one of its strongest advantages, and investors shouldn’t be penalised for cashing in their assets. There are a few key things to look out for when you buy gold bullion to ensure that selling is just as smooth. Firstly, it needs to be fully certified to investment grade so there is proof of authenticity when it comes to being sold. It is also important to buy gold that is in demand. Numismatics, or coin collecting, has created a market for some coins, but an obscure Venezuelan ingot will be far less liquid than a Gold Britannia.

If you have certified, investment grade and popular gold coins or bars, there are many places to sell, but some give you better best value than others.

Many of the online gold dealers will pay 4% under the fair market value, which is the spot gold price on the day. Meanwhile, pawnbrokers will pay out around 15% under fair market value. If you have a buy back guarantee from the outlet you purchased the gold from originally, this adds certainty and value to the purchase. It implies that the gold is good enough to be bought back. Also, you don’t have to shop around when you want to liquidate, and if you have purchased from a reputable gold investment company then they should pay the fair market value.

Buy and sell gold case study

Lily* (names have been changed to protect identity), sold her property in 2015 in anticipation of a downturn. A former maths teacher and mother of three, she wanted to buy another property but was concerned the market would turn and anything she bought would depreciate in value. She was advised to wait, rent and put her funds in gold as a means of protecting her wealth. If the property market fell as she expected, gold would likely rise, and in her case, it did. She put £300,000 into gold in 2016 and sold it in June 2019 to buy her dream property for £425,000. In addition to the extra £125,000 she made on the rising gold price, property prices were also 15% lower than three years ago so she ended up with a bigger house.

We are seeing more clients doing the same thing now, anticipating a rise in gold value and a drop in property values over the next five years. It was important to Lily that she could sell her gold quickly and at a fair price to ensure she didn’t lose the opportunity to buy her dream home.