What Is the Cheapest Way To Buy Gold (Without Getting Bamboozled)?
The short answer here is gold bars are the cheapest way to buy gold. However, there's something about buying gold at the best price that other articles won't tell you.
The secret is to pay the lowest premium per unit of weight—which is not always clear from the price tag of a finished gold product. It's a fairly simple concept yet is easily overlooked. I'll show you how to do this before you buy gold.
Additionally this article will cover the cheapest type of gold to buy as well as the cheapest method of buying gold.
The Cheapest Type of Gold to Buy
As mentioned before, gold bars generally have the lowest premiums over spot. The premium is the cost above a gold item's melt value. You might think of the premium like a "mark-up."
PAMP Suisse gold bars are among the most trusted brands of bullion.
You will virtually never be able to buy gold at its spot price. Higher premiums represent the cost of refining, fabricating, and transporting the gold, as well as the dealer's profit margin. This is partly why gold jewelry and gold artwork are so much more expensive than bullion.
It's helpful to use the premium as a gauge for how cheap or expensive a gold product is. In the industry, we often call this the premium over spot, where "spot" refers to the spot price of gold at any given time.
Calculating the premium over spot eliminates the confusion about the overall price of an item. You'll most commonly see the premium calculated relative to a troy ounce, the standard weight measurement for precious metals. You can actually do this for any unit of weight, such as grams, which we will demonstrate later in the article.
Gold bars tend to have the lowest premiums over spot due to their generic appearance, so they can be efficiently mass-produced. Yet the supply and demand of specific products matters, as well. Sometimes old gold coins (those minted before 1933, under the gold standard) will offer the best "bang for your buck" depending on market availability.
Just make sure you stick to coins from common dates that are not in mint condition. Rare or well-preserved gold coins will always cost more. The same applies to modern bullion coins like Canadian Gold Maple Leafs or South African Gold Krugerrands.
The Cheapest Method of Buying Gold: In Bulk
Another simple principle is buying in bulk is virtually always cheaper. Most dealers offer a lower premium per ounce (or any unit of weight you measure) when you purchase a certain amount of bullion at once.
This concept generally applies no matter which kind of gold you buy. Let's use a quick example.
We'll compare a 1/2 oz American Gold Eagle and a British Gold Sovereign. The Gold Eagle has about twice as much gold per coin as the Sovereign. As a result, you get more gold for each dollar you spend when choosing the larger coin. Notice that this is true even though the Gold Sovereign has a lower overall price ($500 vs. $1,000 in our example).
A pair of British Gold Sovereigns.
We will revisit this comparison in the last section with more specific math.
The Best Places to Buy Gold
You may wonder if it is cheaper to buy gold in certain countries. At times, gold prices may be higher or lower depending on your location. This fluctuates depending on availability and demand locally.
Between travel or shipping costs and import duties, you will find that buying gold in a different country doesn't end up saving you any money in the end.
In terms of the best places to buy gold, you should go through a legitimate dealer. Trust me, I've tried to find better deals on auction sites or in peer-to-peer trades. The truth is that you'll rarely save more than a few dollars, if at all.
Safety and security are also important concerns when you buy physical gold. In this regard, buying through a professional dealer is far safer than the alternatives. It is the safest way to purchase gold, in fact. Overall gold has proven to be a stable, safe investment over many decades.
Buying Gold ETFs vs. Physical Gold
One last consideration is buying a gold ETF. ETF shares trade on stock exchanges very similarly to other financial products. This makes ETFs a convenient way to get exposure to gold.
Unfortunately, ETFs come with fees that will increase your effective cost-per-ounce. Moreover, you aren't entitled to any real gold when you sell your shares. Instead, the transaction will be settled in cash, much like gold futures.
Gold ETFs are geared more toward short-term speculation. If you plan on holding your gold as a long-term investment, stick with physical gold rather than derivatives.
How to Calculate If You're Overpaying for Gold
The surest way to buy the least expensive gold is simply to avoid overpaying. The trick here is to determine the cost per unit of weight (per gram, per ounce, etc.)—not the overall dollar price.
This is best illustrated by referring back to our original example.
Let's say you see the 1/2 ounce American Gold Eagle coin for sale for $1,000. That would mean the per-ounce cost of the coin is $2,000. In other words you're paying $2,000 for each troy ounce of gold with this particular product.
An American Gold Eagle coin.
This calculation is easiest when the gold item is a round number like 1 troy oz. Yet you could also break it down on a per-gram basis for more difficult numbers. (Each troy ounce is equal to 31.1 grams.) We'll again use a British Gold Sovereign to illustrate this.
The Gold Sovereign contains 0.2354 troy ounce of pure gold—slightly less than 1/4 oz. We multiply 0.2354 x 31.1 to arrive at 7.32 grams of gold. The price of the coin is $500, so we divide the cost by the gold weight: $500 / 7.32 = $68.30 per gram.
Now we can compare the prices of the two items on an apples-to-apples basis. There are two methods:
Convert both prices to ounces. We already have $2,000 per ounce for the Gold Eagle. We take the Gold Sovereign's cost per gram and multiply it by 31.1, which gives us $2,124.04. The 1/2 oz Gold Eagle is about $120 cheaper per ounce.
Convert both prices to grams. We already have $68.30 per gram for the Gold Sovereign. We take the Gold Eagle's cost per ounce and divide it by 31.1, which gives us $61.34. The 1/2 oz Gold Eagle is about $7 cheaper per gram.
You can use these calculations to compare the true cost of different gold products. This type of comparison shopping will always show you which gold product is cheaper per each unit of weight.
Always use the method outlined above, and you'll never go wrong in your search for the cheapest gold products.
Including physical gold bullion in your investment portfolio is a good way to hedge against volatility in the stock market. In the worst case scenario, gold offers an insurance policy for your investments.
More gold & silver buying guides from Gainesville Coins:
Why You Can't Buy Gold or Silver at Spot Price.)
Investing In Silver: Guide for 2021
The Basics of Gold Bullion: Everything You Need to Know
Buying Gold With Bitcoin: A Simple Guide
Everett Millman
Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.
In addition to blogging, Everett's work has been featured in Reuters, CNN Business, Bloomberg Radio, TD Ameritrade Network, CoinWeek, and has been referenced by the Washington Post.