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Pros and Cons of Owning Assets Like Gold

Investors Like Gold As An Inflation Hedge


Gold Bars on the floor of a vault
Adrianna Williams/Stone/Getty Images

Gold bullion and coins provide a sense of security for many investors. Purchasing gold requires a few basic discussion points. Even if your firm doesn't sell gold to investors, some of your clients may be exploring the possibility with gold dealers. Discussion points include:

  • Buying gold for investment purposes differs from collecting gold coins. By purchasing gold from large, reputable dealers, investors receive the best opportunity to liquidate gold if they wish. Knowing about the physical delivery aspects of owning gold coins and bullion requires insurance and a secure vault in which to store it.

  • Individual investors see many televised opportunities to purchase gold coins from a mint. Suggest that they evaluate the premium asked over the current spot price of gold. When the amount differs by more than 10 percent, the mint coins may not be the best choice.

  • Ask that your client explore the costs to liquidate gold through their dealer. Again, if the commission premium is 10 percent or higher, clients need to know more about the liquidity of their investment purchase. Krugerrand gold coins from South Africa remain popular with clients. They are plentiful, and more dealers create a market in the coins. The purchase and sales spreads may be narrower because of the sheer numbers of these coins.

Some reasons investors may want to own gold coins or bullion includes:

  • Relative ease of purchasing and then selling coins, such as the Kruggerand

  • Ability to test gold content of the coins

  • Satisfaction of owning and possessing gold

  • Potential price appreciation from new high levels of more than $1,300 per ounce

Some reasons why investors should not own gold coins or bullion includes:

  • Premium prices and charges assessed by some dealers

  • Larger liquidation spreads

  • Challenge to verify old or rare gold coins

  • Costs and hassles of storing and insuring gold coins and bullion

  • Uncertainty of price appreciation potential

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