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At 2013-03-24 - 11:30am, the value of gold in the UK per oz was 1056.7GBP. I can buy a 24 carat 1oz gold coin (999.9) for 1132GBP. I can sell that gold coin for 1010GBP.

I am clearly doing something wrong, in this scenario, I would be losing 122GBP instantly...

Based on rough calculations (just wanted to point out that this question is not about my extremely rough primitive calculations which are most likely very inaccurate) and looking at the average of gold value increase from 1970 to 2013, it seems that I would have to keep hold of that single gold coin for about 6 years just to break even...

So my question is, is it possible to buy gold at market value, so I don't have to wait years before the gold price goes high enough just to break even for the extra I would have to pay above the market value to buy the gold in the first place?

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    @oshirowanen does GLD ETF not fit your goal? – JTP - Apologise to Monica Mar 24 '13 at 20:45
  • @JoeTaxpayer, not had a chance to look at that. Just saw all the downvotes and complaints that the question is not clear, so I've started off with a re-write, and will check out your suggestion asap. Thanks! – oshirowanen Mar 24 '13 at 20:47
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    @oshirowanen - better - so your core question is actually about the bid-ask spread of an investment, and how you can narrow that spread (right to zero if possible) – sdg Mar 24 '13 at 21:13
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if you bought gold in late '79, it would have taken 30 years to break even. Of all this time it was two brief periods the returns were great, but long term, not so much.

Look at the ETF GLD if you wish to buy gold, and avoid most of the buy/sell spread issues.

Edit - I suggest looking at Compound Annual Growth Rate and decide whether long term gold actually makes sense for you as an investor. It's sold with the same enthusiasm as snake oil was in the 1800's, and the suggestion that it's a storehouse of value seems nonsensical to me.

  • I suggest looking at hyperinflation and decide whether long term paper money actually makes sense for you as an investor. It's sold with the same enthusiasm as snake oil was in the 1800's, and the suggestion that it's a storehouse of value seems nonsensical to me. Especially after examining paper money's notorious history: en.wikipedia.org/wiki/Hyperinflation – Muro Mar 24 '13 at 18:39
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    Stocks are shares of companies, not paper money. If/ when a $1000 bill replaces the current dollar, do you think the S&P will be 1500 or closer to 1500000? My answer didn't suggest keeping cash under the mattress. – JTP - Apologise to Monica Mar 24 '13 at 19:12
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    @muro - no different than when answering a question on Forex or Day Trading, where I caution, but suggested book titles. I answered here with GLD, the ETF ticker. That actually answer the OP's question in full. But it takes so many characters to submit a question, so I cautioned him against throwing his money away. By the way, 1971-2012, $1 in S&P grew to $57, gold, $17. The $57 yields $1.25 or so in dividends, gold $0. We can agree to disagree on this topic. It boarders on religion. – JTP - Apologise to Monica Mar 24 '13 at 20:45
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    @muro - going back to your hyperinflation wikipedia link - I'm curious how a basket (i.e. a diversified index) of stocks in that country (any or all on the list) would have fared pre and post hyperinflation timeframe. This is swaying off topic, but a paper discussing that topic would be a worthwhile read. – JTP - Apologise to Monica Mar 25 '13 at 0:36
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    @muro Well, sure. Few would advise keeping cash as a long term "investment", it pretty consistently falls in value with inflation. But the serious question is not gold versus cash, but gold versus stocks or bonds or oil futures or etc. A is better than B hardly proves that A is the best possible thing in the world. Maybe B is the worst and A is second worst. – Jay Nov 25 '15 at 19:27
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And you have hit the nail on the head of holding gold as an alternative to liquid currency. There is simply no way to reliably buy and sell physical gold at the spot price unless you have millions of dollars.

Exhibit A) The stock symbol GLD is an ETF backed by gold. Its shares are redeemable for gold if you have more than 100,000 shares then you can be assisted by an "Authorized Participant". Read the fund's details. Less than 100,000 shares? no physical gold for you. With GLD's share price being $155.55 this would mean you need to have over 15 million dollars, and be financially solvent enough to be willing to exchange the liquidity of shares and dollars for illiquid gold, that you wouldn't be able to sell at a fair price in smaller denominations. The ETF trades at a different price than the gold spot market, so you technically are dealing with a spread here too.

Exhibit B) The futures market. Accepting delivery of a gold futures contract also requires that you get 1000 units of the underlying asset. This means 1000 gold bars which are currently $1,610.70 each. This means you would need $1,610,700 that you would be comfortable with exchanging for gold bars, which:

  • bear no interest
  • are impractical to sub divide into smaller units for transactions
  • are difficult to borrow against (although at these amounts, banks can work with you)
  • are uninsured, unlike cash in a brokerage account or deposits in a bank

In contrast, securitized gold (gold in an ETF, for instance) can be hedged very easily, and one can sell covered calls to negate transaction fees, hedge, and collect dividends from the fund. quickly recuperating any "spread tax" that you encounter from opening the position. Also, leverage: no bank would grant you a loan to buy 4 to 20 times more gold than you can actually afford, but in the stock market 4 - 20 times your account value on margin is possible and in the futures market 20 times is pretty normal ("initial margin and maintenance margin"), effectively bringing your access to the spot market for physical gold more so within reach. caveat emptor.

  • my personal feelings regarding gold aside, GLD has a bid/ask spread of 1 or 2 cents. What you see is the effect of the expense ratio, .40%. Where an S&P ETF can easily take its .1% from the 2% worth of dividends each year, gold has no dividend, so the expense must chip away at the amount of gold one share represents, .4% less each year. – JTP - Apologise to Monica Mar 25 '13 at 19:03
  • yes @JoeTaxpayer GLD shares have a tight bid ask spread, very liquid. GLD's NAVs trade at a lower price than gold spot, this is the spread I was referring to. GLD share price $155.20 (x10) vs spot of $1604.00 , this is a 3% difference meaning taking a 3% loss immediately upon redeeming 100,000 shares for tangible gold from the fund – CQM Mar 25 '13 at 19:18
  • Now I'm really confused. The 'shrinkage is .4%/yr. After 25years, 10 GLD will represent .9oz of gold not 1.00. You're doing the math backwards, redeeming 100,000 shares GLD means you bought physical gold at 3% discount, not premium. – JTP - Apologise to Monica Mar 25 '13 at 19:36
  • If you are selling covered calls to "negate" transaction costs, you are still putting the underlying asset at risk so it is not "free". Either in ETFs or physical coins/bars, there is always a bid/ask spread on any transaction, just like on any other asset, that covers transportation, storage and administrative costs. This is the case even at volume, but then the costs are a lower percentage of the transaction. Generally speaking, people are willing to pay the expense ratio to avoid the costs of transporting and securing physical gold on their own. – JAGAnalyst Mar 25 '13 at 21:02
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    With the recent events in Cyprus it takes some real chutzpah to say gold is less attractive than deposits in a bank. – Muro Mar 26 '13 at 23:30
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ETF's are great products for investing in GOLD. Depending on where you are there are also leveraged products such as CFD's (Contracts For Difference) which may be more suitable for your budget. I would stick with the big CFD providers as they offer very liquid products with tight spreads. Some CFD providers are MarketMakers whilst others provide DMA products.

Futures contracts are great leveraged products but can be very volatile and like any leveraged product (such as some ETF's and most CFD's), you must be aware of the risks involved in controlling such a large position for such a small outlay.

There also ETN's (Exchange Traded Notes) which are debt products issued by banks (or an underwriter), but these are subject to fees when the note matures.

You will also find pooled (unallocated to physical bullion) certificates sold through many gold institutions although you will often pay a small premium for their services (some are very attractive, others have a markup worse than the example of your gold coin).

(Note from JoeT - CFDs are not authorized for trading in the US)

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I agree that there is no reliable way to buy gold for less than spot, no more than there is for any other commodity.

However, you can buy many things below market from motivated sellers. That is why you see so many stores buying gold now. It will be hard to find such sellers now with the saturation of buyers, but if you keep an eye on private sales and auctions you may be able to pick up something others miss.

  • Please note that buying gold in this form carries a number of costs as well. The raw value of the gold in personal jewelry, for example, will not sell for full value as to be brought to market it must be melted down, purified, and cast into ingots, all of which carry costs. Buying gold in this way is really more of a side business. – JAGAnalyst Mar 25 '13 at 20:51
  • @JAGAnalyst I'm not talking about jewelry, I'm talking about coinage. I haven't been able to (or even looked at doing this with) gold but I have done it with silver. – C. Ross Mar 25 '13 at 20:56
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    Agreed. The coin business is much more structured. I had interpreted "stores" in your answer as being "Cash for Gold" type stores :) – JAGAnalyst Mar 26 '13 at 17:29
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This is an excellent question; kudos for asking it.

How much a person pays over spot with gold can be negotiated in person at a coin shop or in an individual transaction, though many shops will refuse to negotiate. You have to be a clever and tough negotiator to make this work and you won't have any success online.

However, in researching your question, I dug for some information on one gold ETF OUNZ - which is physically backed by gold that you can redeem. It appears that you only pay the spot price if you redeem your shares for physical gold:

But aren't those fees exorbitant? After all, redeeming for 50 ounces of Gold Eagles would result in a $3,000 fee on a $65,000 transaction. That's 4.6 percent!

Actually, the fee simply reflects the convenience premium that gold coins command in the market. Here are the exchange fees compared with the premiums over spot charged by two major online gold retailers:

Investors do pay an annual expense ratio, but the trade-off is that as an investor, you don't have to worry about a thief breaking in and stealing your gold.

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