# Purchasing Gold - A few Questions



## Happy Girl (2 Feb 2009)

Would a 10% charge on total purchase price seem exorbitant to purchase gold and hold it myself? Have nothing else to gauge it against. 
How does one go about selling gold? 
If I am looking at holding the gold for the long term 5+ yrs would Kruggerand be any more favourable than any other gold product or what would others recommend and for what reason?
Many thanks. Just trying to get a handle on what is involved in purchasing good at this stage and basically what I need to know beforehand. Any information would be very much appreciate.


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## george.shaw (3 Feb 2009)

Price of gold coins has surged internationally due to increasing shortages of investment grade 0.9999 gold coins and bars. So that price is standard and likely good value. Think Perth Mint Certificates are much cheaper at some 3% to buy.
If you are investing rather than wanting to own finsncial insurance then best to buy Perth Mint as is government AAA rated and you do not have to take delivery.


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## Eblanoid (3 Feb 2009)

george.shaw said:


> If you are investing rather than wanting to own finsncial insurance then best to buy Perth Mint as is government AAA rated and you do not have to take delivery.


Withdrawing from the Perth Mint could be quite difficult when global economic meldown occurs and law and order breaks down in Ireland.  I don't fancy a transcontinental trek to Mad Max land using my backpack survival kit and barter skills


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## george.shaw (3 Feb 2009)

can take delivery of gold coins and bars from Perth Mint - are one of the largest bullion refiners in world and ship internationally.
Eblanoid - i presume you are being tongue in cheek and do not think we are going to have a Mad Max type scenario!? That is nigh impossible (barring a global Nuclear War !!) as even in Germany in 1920's, US in 1930's, Argentina and other Latin American countries and Zimbabwe today - civil society remained intact and civilisation as we know it did not end rather there was just severe economic pain for a number of years.


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## colm5 (3 Feb 2009)

Forgive me ignorance here, but whats the big deal with gold? Ok its a precious metal, but pretty useless, bar jewelry and ..teeth maybe. Jewelry is fashionable so does not demand a constant supply, and I doubt gold teeth are a big % of the market. Its not used for any worthwhile pourpose that I can think of.

I do understand that it is traded by governments etc, and they hold it in reserve. Thats all fine until countries don't want to trade in gold becasue its a useless metal. In extreme (global) circumstances, could I get x barrels of oil for 1 kg of gold, possibly not, as oil has an inherent tradable quality i.e. energy content. Come to think of it in extreme golbal circumstances i woud not trade water for gold.
Would you not be better buying oil for long term as at least it has an inherent use?

Plus on top of this, there are other metals that are more rare than gold, but worth less. It seems crazy to me that people go and buy Gold and then leave it sit to hope that the price goes up, when its a useless commodity, that at some point people (countries) may not hold at all, so who will buy it from you.

Can someone enlighten me please! whats the deal with Gold.


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## Damian85 (3 Feb 2009)

This is why I think gold has its uses;

Gold can back a currency. This means that governments can only issue money as long as it is backed by gold, which prevents the use of printing fiat money. A gold standard, or a proportional gold standard can install discipline and thrift in a government. It means they can't spend or print their way out of downturns to suit their short term political agenda, thereby preventing inflation.

Gold for the individual has uses also. It allows for diversification. More importantly, it allows the individual to protect themselves against inflation. When a fiat currency is exposed to rampant inflation, gold protects real purchasing power. 

I am not a goldbug, but I think that gold provides for these main uses. I have problems with gold, but in the current environment, the advantages outweigh the disadvantages for owning gold.

To question gold for having a use in a practical sense is irrelevant. The same could be said with paper money. What practical use can we get for it? None, bar burning it for heat. It is the *perception* from users of money which gives it a use; to be an efficient medium of exchange. The same can be said for gold.


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## colm5 (3 Feb 2009)

Hi,

thanks for the reply but I tend to respectfully disagree.

I have never heard of gold protecting a currency or country. Did it protect ireland or GB in the erly 90's? Nope, we devalued our currency. Japan, no, went in to recession/depression for nearly 2 decades. 
The US is printing money like never before for the promise of repayment, in the form of bonds. Not gold backed i believe, plus its currency has tanked due to this printing of money. Hard to believe that their large gold reserves have held up their currency. If fact I read that they cannot sell their bonds anymore.

If you look at this list it clearly shows that economic power etc.. has nothing to do with gold reserves of each country.
http://en.wikipedia.org/wiki/Official_gold_reserves

I disagree the analogy with money, as one has to earn money by working or trading services etc..The practical use is that you can buy stuff with it, as everyone accepts it. You need an internal tradeable entity unless you return to barter systems. (this could be gold or anything, but its value would not go up due to speculation!). Tradeable goods protect people from rampant inflation surely, not gold. As seen in Zimbabwe , a barter system returned to the street due to hyper inflation. I don't believe they have gone to gold exchange, although I could be wrong.

Someone digs gold from the ground, its a naturally occuring free element. Its base cost is related to its extraction/refining cost. To question golds practical use should be the most relevent question to ask, not questioning it gives it an assumed inflated value.
It would be similar to question why oil increases in value, but ignoring the uses of it.  It is their practical uses that are their primary uses. If something has no practical use, then i question its value, particularly if it increases with time. (excluding things like exceptional pieces of art etc..which may have a value to some one but certainly not globally, to everyone )

Thanks for your response, but I guess its just a global thing, makes no sense to me but that just seems like the way it is...


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## Chris (3 Feb 2009)

Damian85 said:


> To question gold for having a use in a practical sense is irrelevant. The same could be said with paper money. What practical use can we get for it? None, bar burning it for heat. It is the *perception* from users of money which gives it a use; to be an efficient medium of exchange. The same can be said for gold.



I think this comment really sums it up well. Anything that is traded between people or institutions has a perceived value/price. The value/price is dictated by the forces of supply and demand, irespective of whether the item is gold, oil, government bonds, peper money or anything else for that matter.
While gold may not have as many applications as oil or other commodities, it has high perceived value due to its limited supply and high demand. If this is reversed then the price of gold would go down. As with anything that is traded, the supply and demand balance fluctuate, and endless arguments can be made about what direction it is going.


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## Damian85 (3 Feb 2009)

Hi Colm5,

I would beg to differ.

The US has been off a formal gold standard since the Bretton Woods conference in the 1930s. The early 1970s say the complete abolition of the gold standard. The US Dollar has been the reserve currency worldwide since the 1930s, so it couldn't protect Japan, GB or Ireland in the early 1990s as all global currencies were using fiat money.

Part of the reason why US can't sell their bonds anymore is because they have printed the heck out of their currency. China, Japan, and the Middle East want no more of these increasingly worthless IOU's that are backed by just perpetually printing dollars. 

You are right about gold reserves not being the clear cut factor for economic power. Productivity is.

You are also right about money having a use - to buy goods and services. But we need to question if this use is as efficient as it could be? We need an efficient medium of exchange. Fiat money may become completely inefficient if we keep printing it and experience inflation. It should be noted that our fiat money system that we have today has only been in existence since the 1970s so we should not put complete blind faith in it. Gold has proven to be an efficient medium of exchange over thousands of years. Combining money with a gold backed system can stamp out the inefficiencies of fiat money. Bartering is not efficient.


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## george.shaw (3 Feb 2009)

Colm is a classic case of the man in the street's perception of what gold is - jewellery and little else and of much of academia and the financial media who think that gold is simply a "useless commodity" and that equities are the Holy Grail.

If it was such a useless commodity why haven't major central banks sold their gold reserves - the Federal Reserve has not sold any gold ever and still has some 8,500 tonnes of gold. They keep the gold to protect against systemic, macroecnomic, geopolitcal and monetary crises. 

Something that we appear to be experiencing right now oddly enough.

Gold is often referred to as an arcane artefact from our distant past with no monetary role in today's oh so sophisticated modern digital society. 

Several facts contradict this view as seem in the excellent article below:
"The world's central banks still hold 29,000 tonnes of gold in their reserves. Gold, silver and platinum trade on the currency desks – not the commodity desks – of the banks and brokerage houses. The turnover rate of physical gold bullion, between the nine members of the London Bullion Marketing Association, currently averages $24 billion per day. Trading volume is estimated at seven to ten times that amount. Clearly, gold is still trading in its trauditional role as an alternative currency."
http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=8391 

Simple question Colm - If gold is just a "useless commodity" why do banks still trade gold on their currency desks? why are central banks still the largest owners of gold and why did the ECB member banks increase their gold reserves just this week as just reported by Dow Jones:


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## ringledman (3 Feb 2009)

George Shaw, enjoy reading your posts.

MarketOracle is a truly worldclass financial website and should be daily reading for all on here.

The shear scale of gold's purchasing power against any other asset class in a major downturn/depression like the one we are in now is a huge reason to own it (see red below).

Article from the BullionVault. Somewhat biased of course but nothing that isn't true-


*The Case for Investing in Gold Today*

IF YOU’RE LOOKING to store wealth in something both rare and secure today, you will find nothing to match gold. 
Gold always tends to reward cautious savers in times of financial stress, because it is both hard to destroy and tightly supplied. 
In short, it is the very opposite of debt.
Gold doesn’t corrode or tarnish, and it’s relatively useless to industry. That’s why almost all of the entire stock of gold mined over the last 4,000 years remains unused today. It exists as either jewelry or bullion, both of which act to store wealth and value. 
The world’s total store of gold now stands near 160,000 tonnes. But the metal is so dense that, if formed into a single a cube, it would have an edge barely 22 yards in length. 
That wouldn’t even cover a tennis court! 


*Gold vs. Paper-Money Inflation*
New gold is being found and mined today at the rate of some 2,600 tonnes per annum. 
That’s a modest increase of 1.6% per year to the above-ground supply. And critically for the value of gold, this annual growth-rate lies beyond the power of politicians or investment banks to increase. 
The supply of Euros, in contrast — the most hawkishly-managed major world currency right now — is currently expanding by 11.5% per year. 
Thanks to this tight supply, gold grew its purchasing power more than nine times over during the 1970s — the last worldwide surge in inflation. In terms of business assets, it rose 23 times over by the start of 1980 as measured against the Dow Jones Industrial Average. 
During the financial collapse of the 1930s — but this time amid a deflation caused by half of all banks in the United States failing — gold bought 17 times as many financial assets as it did before the Great Crash of 1929. 
Now debt defaults and inflation are working together today, forcing a fresh crisis in the value of money. Gold has already risen three-fold against the New York stock market since early 2000. It’s recently turned higher in terms of residential and commercial real estate, too.

*Time to Buy Gold?* 
Gold doesn’t care whether a financial collapse destroys the value of money (inflation) or the value of debt (deflation). Its unique characteristics — indestructibility and tight supply — mean its owners can thrive amid either. 
But that doesn’t make gold a “forever” investment. Gold will always lose value during stable periods of strong economic growth. 
Over the twenty years to 2000, for example, gold lost 95% of its value in terms of US real estate. So it’s no surprise that, as a proportion of world investment portfolios, gold fell from around 2% to effectively zero. 
The trend in gold prices finally turned higher at the start of this decade, just as Gordon Brown — now the British prime minister — sold half the UK’s national gold reserves at less than $300 an ounce.
Since then gold has trebled and more. But this gain remains small in the context of previous gold trends. It’s also been limited by Western governments persuading their citizens that “core” inflation in the cost of living is running at just 2% per year or below. 
These official CPI figures, of course, exclude the cost of housing, mortgages, taxes, fuel and saving for retirement. But this trick cannot go un-noticed forever. 

*New Investment in Gold* 
New gold investment will continue to grow if the world’s major currencies — gold’s main competition as a store of value — plunge into the inflationary spiral that many economists fear.
Until there’s a dramatic change in monetary policy, the over-supply of Dollars, Euros and Yen look set to keep pushing gold prices higher. And it took a dramatic change in central-bank policy to finally kill gold’s last inflation-led surge. 
At the start of the 1980s, the Federal Reserve pushed US interest rates up to 18% and above, restoring the world’s confidence in its currency and kick-starting the “long boom” of the next 20 years. 
Could America survive such strong medicine now? Would Ben Bernanke even dare risk it? 
If you think the world’s central bankers are about to set interest rates far above the real rate of inflation, you should steer well clear of gold. But if you fear for your savings — and you want to start investing in gold — you can start today, for free, at BullionVault.


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## cancan (3 Feb 2009)

This whole "should I buy gold" thread looks remarkably like a "should i buy a house" thread from circa 2005 in this place.

Just replace "gold" with "house" and watch the crowd run in buying something they know nothing about, and don't understand............

If people on AAM are teaching you finance, perhaps you'd be better putting it under the mattress.

The price has remained remarkably stable in the past year, despite the size of the crisis, and the predictions of armageddon that people are coming out with.

Everyone knows snake oil is where it's at now anyway..........


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## george.shaw (3 Feb 2009)

You are very uninformed cancan -you are dead right you do not understand gold along with 99% of the population. the notion that gold is now a bubble akin to property circa 2005 is ludicrous.

many huge differences - banks don't throw money at people to buy gold - there are no 110% mortgages and you cannot get 10 times your salary to buy gold!

u have to have a net worth to buy gold (important distinction that).

the man in the street does not even know what the price of gold is, let alone what investment grade bullion is, its tax treatment, why you should buy and how you should buy.

the notion that gold is like the Irish property bubble is beyond ridiculous.

few questions for you cancan:
- how many articles on "how to invest in gold" have you read in the Irish press in recent weeks?
- what stockbrokers, banks, life assurance companies, wealth managers, financial intermediaries/advisers, independent advisers have you heard recommend even diversifying into gold (let alone pilling in as you "cannot go wrong with gold" as they said with property, equities and Irish banks)?
- how many Irish economists or personal finance experts have you heard recommending a diversification into gold?
- how many taxi drivers (aka the man on the street ) have told you about their gold Krugerrand investments? I can tell you I have had dozens of conversations with taxi drivers telling me about their property in Benidorm and Bulgaria (that they cannot sell - gold can always be sold internationally and is highly liquid) but not one about gold.

And I have asked because when they do tell me they are buying gold I will be selling).

Ironic thing is the only person who has recently started telling people to invest in gold is Eddie Hobbs. Eddie, love him or loathe him, is a respected independent financial adviser and not called the "wiliest man in Ireland" for nothing.

The gold bubble will be ready to burst when RTE and Newstalk news bulletins quote the gold price in the same way as they quote the unimportant ISEQ today on a daily basis; Irish banks, life assurance companies etc. start offering gold products and the faux contrarians do not feel the need to bash gold every single time some person posts a thread attempting to have a discussion about how to buy gold ("*Purchasing Gold - A few Questions").

*


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## Damian85 (3 Feb 2009)

The following may explain why the price of gold has not increased in 2008;

Inter trading amongst banks has helped keep the price of gold down. It is in their interest to stock up on gold at the moment. 

Also, we saw heavy losses in asset classes in 2008. Equities down 20%-90%, property down 20%-30%, yet gold was the same as the closing price in 2007. In a time when purchasing power needed to be protected, gold did just that. Add in a real inflation rate of approx 5%, and we see that gold performed quite well. In a period of disguised deflation, gold remained stable. When the inflationary effects of the excessive printing of money are realised, gold will rise.

As george.shaw point out, the increased attention on gold is not like the Irish property bubble. To maybe add to his points, unlike a property boom, it is not in the interest of banks to finance the purchase of gold. As well as that, the demand power for gold lies with governments and banks. Individual speculators are therefore less likely to influence a bubble. Finally, capital appreciation is only one of many motives for owning gold, unlike the property boom which was heavily dependent on flipping properties. Demand is increasing due to investors looking to protect their wealth.


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## cancan (4 Feb 2009)

............


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## colm5 (4 Feb 2009)

Damian85 said:


> Hi Colm5,
> 
> I would beg to differ.
> 
> ...


 
thanks for that informative comment Damian..
colm...


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## snowdrop (4 Feb 2009)

An example of the worth of buying gold:
I bought gold in two tranches in 2006 and 2007 - the first at E 500.00 per oz, the second at E 550.00 per oz.  It's currently trading at around E 700 give or take.  In that time frame, my small share portfolio has dropped 50%, my modest pension fund around 45% and my home around 30%.

Does that answer the question?


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## cancan (4 Feb 2009)

This graph does have a little look of your either missed the boat or should be profit taking look about it...............

Still, it's your money...........


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## snowdrop (4 Feb 2009)

If the graph in the above post from can can is geared to me - snowdrop - you should note that it is in dollars and my investment details were in euros.

Gold has in fact in the past week reached a euro all time high, though not a new dollar high (that was March 08 when the euro was stronger).

Though I could take profits now, I believe the global financial situation will continue to deteriorate and am happy to maintain some diversification as a precaution.

I have no other axe to grind and am not affiliated with any financial company etc.


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## george.shaw (4 Feb 2009)

[broken link removed]

Gold is only back just above it's average price in 1979-1981 and that is the nominal price. As ever it is essentially important to adjust for inflation and the average annual price in 1980 adjusted for inflation was some $2,000/oz. 

So gold is less than half of it's inflation adjusted average annual high of 28 years ago. That is not a bubble.

Gold rose 35 times in the 1970's from $35/oz to $850/oz. That was a bubble. 
Today gold has risen a wall of worry and more gradually with many corrections - 3 times in 10 years or some 15% per annum. 

Today the conditions are arguably even more favourable than in the 1970's.

When gold likely rises 10 or 25 times from it's 2000 low in the coming years then it will be a bubble and it will be time to go underweight gold and overweight property and equities.

I have an axe to grind - a golden axe - and I am not affiliated with any financial company etc.


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## george.shaw (4 Feb 2009)

ps
the long term chart above is crucially important as it shows how nominal gold became massively undervalued in the late 1990's and is just becoming fairly valued nominally as we speak (essential to adjust for inflation and inflation has been a lot more than governments have been reporting).


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## cancan (4 Feb 2009)

> When gold likely rises 10 or 25 times from it's 2000 low in the coming years then it will be a bubble and it will be time to go underweight gold and overweight property and equities.


 
10-25 times eh?
My god - where do I sign up?


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## george.shaw (4 Feb 2009)

Not saying it will go up 10-25 times (but bubbles generally do go up multiple times especially in equity markets - Nasdaq bubble went up 16 times).

No one has a crystall ball just that it might as conditons today are stronger than they were in the 1970's - no possibility of global Depression in the 1970's, US was a large creditor nation in 1980 - today it is the largest debtor nation the world has ever seen and in 1980 US interest rsates went over 15% which rewarded savers who reverted to cash and bonds.

It is the opposite today with today's interest rates are at 0% and the printing presses are printing at rates never seen before - quantitative easing and debasement.

Just might be an idea just to diversify a little cancan . Even if gold does not go up you will have own one asset that is inversely correlated to property , equities and the most importantly the economic cycle.


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## cancan (4 Feb 2009)

I'm not against diversification.
I just want people to realise that it is possible that gold could be a massively overpriced dull metal at the minute, or a vastly under priced depression buster.

There is no risk free investment. It could be either of the above.


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## george.shaw (4 Feb 2009)

absolutely agree and important to have civilised and enlightened debate so that we can ascertain the facts. 
agree there is no risk free investment. 
there are less risky investments and gold is certainly that as seen in it's rising in all major currencies in 2007 and 2008. 
no one is advocating piling in and cornering Fort Knox just having an allocation to gold just in case.


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