6 Gold Buying Mistakes to Avoid
We all make money mistakes sometimes, don’t we? Unfortunately, many of us flub on what to know when buying gold, too.
Let’s look at six of the most common gold buying mistakes people make and learn how to avoid them.
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If you make the following mistakes when buying gold, you may have buyer's remorse.
1. Buying Gold from a Subscription Service
It’s safe to say we’ve all seen ads on television, online, in magazines, and yes—even the newspaper (for those of us who still like getting our hands a little dirty on Sunday morning). The ads can look pretty convincing, too. Gold coins at historic prices—get yours now before the reserve is depleted!
So, you break out your credit card and place an order for an American Gold Eagle, maybe a Saint-Gaudens Double Eagle. Good thing you put your order in now before the yellow metal was gone. You sign up for a subscription plan while you’re at it, just to guarantee your supply of gold never runs out.
After the introductory order, the company starts charging you a little more cash—or maybe a lot more. But it doesn’t really faze you because you’re buying gold, and gold is “supposed to be” expensive, right? And now you’re locked into a subscription plan for an extended period, where they’re sending you more gold coins every month. Consequently you just keep racking up more and more credit card charges.
2. Experiencing Fear as a Selling Point
Chances are, if you’re buying your gold from a glitzy full-page advertisement blaring phrases like “last chance,” “historic prices,” “final opportunity,” or the like, you’ve probably just been had. This is how some gold companies make a grab at your wallet by playing your emotions like a piano. Maybe they want to instill the fear of missing out (“FOMO,” as some acronymize it). Or perhaps they want you to feel like you’ve got to stock up now so you can put away something in a safety deposit box for the kids or grandkids—or before the monetary system collapses, or gold goes to $5,000 an ounce, or, or, or…
These companies will use every fear tactic in the book to make you subscribe to a plan in which you’re paying for overpriced gold on a regular basis. Please don’t do it!
Gold isn’t going anywhere. There is no wrong time for owning gold. And those “last chance” hoards? NO SUCH THING. There are millions upon millions of gold bullion coins out there circulating among experienced investors, numismatists, and hedge funds. Gold isn’t running out. Maybe it’s expensive. Perhaps there are times when people get a little excited about price movement, and it becomes a little tougher to find gold for a short bit. But the dramatic claims made in so many of these ads are bogus.
Buy your gold coins, rounds, and bars from a reputable coin and bullion dealer. Their business mission is to buy and sell gold at fair prices. They won’t try pushing you into some subscription scheme investment strategy with unfounded doomsday claims. They can also help you with storing your metals in a secure place such as a vault (precious metals depository).
Offers to buy gold from subscription services are overhyped and frequently overpriced.
3. Not Checking the Current Gold Price Before Buying
One of the most common mistakes people make when buying gold is paying too much for it. Now, we’re not talking a five, 10, or even 20 percentage points over spot here. In fact, if you’re a retail customer, you will simply not be able to buy gold at spot prices. The same is true for silver coins.
Chart of gold prices over the last half-century.
There’s always a spread between the actual price of gold and the amount you’re going to pay for it from a dealer. Depending on the exact product, you might be paying anywhere from 5% to 15% over spot—even more if you're buying rare coins, collectible coins, and other vintage products. But some people pay double, triple, even more over what they should have paid. Over the long haul, this will cause you to lose money when you sell. And these are the scenarios we’re covering here.
Overpaying for gold coins, rounds, and bars is far more common than you might think. Chances are, we’ve all done it at one point or another. Those gold subscription plans mentioned in the previous section are one major way people overpay for gold. But there are others, too. And a lot of times, it happens in retail venues you might think are totally innocuous.
4. Choosing Sellers Who Are Not Professional Gold Dealers
A lot of jewelers, pawnshops and even department stores sell gold coins. You know who else does, too? Television shopping networks. Now, don’t get us wrong. There’s an important place for all of these retailers. Jewelers are the go-to for wedding bands and necklaces, and you might score a good deal on a used lawnmower or vintage hi-fi stereo set at the pawn shop. Gotta buy those shirts and slacks at the department store. And the only place you’ll find the knife that slices, dices, and places phone calls is on the shopping channel.
But when it comes to buying gold coins, rounds, and bars, you have other—and far less expensive—options. You may consider gold futures, gold ETFs, gold stocks, or gold funds (gold mutual funds) to meet your financial goals.
If you are taking physical possession of your metals, buy your gold from a reputable coin dealer, bullion dealer, or precious metals broker. A local dealer is preferable to pawn shops. Choose one with a vast selection of the items you’re looking for and many years of experience. Look for affiliations with professional organizations such as the American Numismatic Association, National Coin & Bullion Association, or National Inflation Association, and many positive unpaid customer reviews. You should also check their Better Business Bureau profile. Your investment goals and financial future depend on a trusted source.
When you're placing retirement savings into the gold market for investment purposes, the last thing you want is to deal with a company that may disappear in the next financial crisis.
And be sure you know what the current gold price is. Again, if you’re a retail investor, you’re not going to buy gold at that price (melt value). But it will give you a good idea of a baseline market value when deciding who is offering you the best spreads and premiums over spot for the gold products you want.
Avoid buying physical gold products with a premium higher than 15% above the spot price.
5. Buying Gold Coins in the “Wrong” Holder
What does this even mean? Coins come in protective holders when they have been professional graded (also called "certified"). Not all holders are created the same, however. One of the key differences is trust and reputation. You want to avoid graded coins from knock-off grading services when buying gold bullion. This is especially true if you purchase online.
Example of a coin in the "right" holder! Double Eagle gold coin graded AU58 by NGC.
Since the mid-1980s, the coin market has seen the advent of third-party coin grading and authentication services. These companies will independently evaluate coins, ensure their authenticity, assign them a numismatic grade on a scale from 1 to 70, and then encapsulate them in tamper-evident holders. These better protect your coins from environmental damage.
These services are popular for authenticating and grading rare coins, including vintage and modern gold pieces. Third-party certification has become a preferred method for gold investors who want to buy premium-quality bullion coins and rare gold coins. This even includes modern Canadian Maple Leaf and American Eagle coins.
And, as in any industry, you’ve got not-so-hot brands, good brands, and great brands. Among third-party coin graders, Professional Coin Grading Service (PCGS) came along in 1986. It was the first company of its kind to offer coin grading and encapsulation at scale. In 1987, Numismatic Guaranty Corporation (NGC) was established.
Both companies serve to this day as the two primary grading firms in the world. Their parent corporations are traded on the U.S. stock market. You can feel 100% confident buying gold coins encapsulated by either company.
6. Buying Coins From Obscure Grading Services
There are a handful of other third-party coin graders that are also trusted, such as ANACS. And then there are dozens of knock-off companies with official-sounding names and acronyms but whose grading and authenticating abilities are far less vetted.
For that reason, numismatic coins in these lower-tier holders tend to sell for significantly less than their labeled numerical grade might ordinarily portend. For various reasons, these coins are tough to sell for full value. Most likely, the pieces in these “other” holders aren’t properly graded and, frankly, may not even be authentic.
When buying certified gold coins, buy them from an authorized dealer who is affiliated with these firms. Not only does this improve your odds of finding a larger selection of certified coins, but you’ll also be able to submit your “raw” (uncertified) gold coins through this dealer to get them encapsulated by one of these third-party grading companies.
Stick with PCGS and NGC for graded coins that are already in holders.
More Advice on Buying Precious Metals
Okay, so now you know which mistakes and common pitfalls to avoid—and how to steer clear of them—when you purchase gold. But what about the things you should do when buying physical metal?
Check out the list of links below to our various buying guides for more tips and guidance on how to buy precious metals.
Joshua McMorrow-Hernandez is a journalist, editor, and blogger who has won multiple awards from the Numismatic Literary Guild. He has also authored numerous books, including works profiling the history of the United States Mint and United States coinage.