Have you ever thought about investing in gold? Bullion can be a powerful asset for riding out the storms of recessions and market uncertainty.
When investors turn to bullion products like gold and silver, they are usually looking for an asset that is risk-averse. Long-term, stocks generally provide more growth than other assets, but they come with higher risks as the stock market is known for quick crashes based on poor economic performance.
Gold is considered a safe haven, thanks to strong returns in the periods immediately before and after recessions. According to one analysis, looking at periods starting six months before the beginning of a recession and ending six months after a recession, gold returns averaged around 28%, strongly outperforming the S&P 500.
Buying Gold: What Are Bullion Premiums?
Before you start investing in gold, you should understand what goes into the price of buying physical gold coins and bars. Most of the price you pay will be based on the current value of gold, the same way you would buy stocks.
However, part of the price is the premium that you pay above the value of the metal. These premiums cover costs like the design and manufacture of bullion products, as well as shipping, storage, insurance, and overhead.
Proportionally, silver bullion premiums are a larger percent of the price that you pay for the product than gold premiums because of silver’s lower prices. The cost to design and manufacture silver coins or bars does not reflect the value of the metal, and it can make up a larger part of the total cost.
While silver can be a more affordable investment option for new investors, keep in mind that a higher percentage of your funds are going to premiums.
Selling Gold: Liquidity And Value
The great thing about investing in bullion is that you usually don’t need to worry about liquidity. Liquidity is a measure of how quickly you can sell an asset without accepting a discount. Overpricing an asset will always mean you have to wait longer for a buyer, such as when someone’s asking price for their home is out of step with the rest of the market.
You may get different prices from bullion dealers, but there is always a market ready to buy physical bullion. The question is, how do you determine the value of your gold to make sure you are not selling for too little?
The best way to find the value of your gold is to get quotes from several bullion dealers if you can and compare their rates if they post them publicly.
Before you get quotes, you can look up the spot price of gold, but keep in mind that this is more of a theoretical price than anything. The largest volumes of gold traded between banks and other institutional investors move for the spot price.
Transactions are typically based on a benchmark price that is fixed twice a day by the London Bullion Market Association, based on spot price trading and speculation on the futures market.
Bullion dealers and refiners have additional costs, such as storage, insurance, shipping, and melting down bullion. Keep this in mind when you’re considering the returns you expect from gold bullion.
