- Money Morning Australia

How to Buy Gold and Silver

Written on 10 December 2011 by Dr. Alex Cowie

[Please note: There is an updated version of this article. For the most recent version of How to Buy Gold and Silver go here.]

When it comes to buying physical gold and silver, there are a range of options you can take.

Precious metals Exchange Traded Funds (ETFs) are the cheapest and most convenient way to buy and sell gold and silver.

But if you take that route, you also expose yourself to counterparty risk. In short, when you buy an ETF, the metal you buy is not held by the ETF provider. It’s held by a large global bank, like HSBC or Morgan Stanley.

If the bank goes bust, your gold and silver could be gone too. Besides, you can never really be sure they’re holding the gold they claim.

Why do you need to worry about this?

Because the US Commodity Futures Trading Commission, with the Gold Anti Trust Action Committee, reports there is now one hundred times more ‘paper gold’ in the world than physically exists above ground.

For this reason we believe it’s much safer to have the bullion in your hand (details on how to store it in a moment).

Owning the shiny stuff…

But, buying physical gold or silver is more expensive than investing in an ETF. Dealers charge a premium. Then you’ve got the cost of delivery, storage and insurance. And when you sell, your dealer will take a cut.

On top of that, buying bullion isn’t ‘risk free’.

The risk, of course, is that gold and silver prices fall through the floor and you take a loss on an asset you can’t always buy and sell easily. Please note: I don’t expect this to happen, but it’s a risk to be aware of.

So what sort of gold do you buy? You have a choice of coins, nuggets or bars…

Coins are elaborate, and more expensive to make than bars or nuggets – so they cost more to buy per ounce. Some may be rare collectables, but this ‘added value’ can be in the eye of the beholder. The same can be said with antique gold and silver coins. This is a specialised market and is best avoided unless you really know your stuff.

Nuggets are beautiful. But the price can vary a great deal depending on purity and other factors. They aren’t as straightforward to buy and sell as bullion bars or coins.

If you’re after a long-term investment, in my opinion it’s best to go with bars.

With silver, one kilo bars are a convenient size and are worth about A$1000 today.

An ounce of gold is surprisingly small – nearly A$1700 of value squeezed into just one centimetre squared. You can get two-ounce, five-ounce and 10-ounce bars. And a kilo bar of gold will set you back about A$53,900. Each bar is iPhone sized – truly portable wealth.

Just remember that with precious metals, the ounces are ‘troy ounces’, which are equal to 31.1 g.

Australia has quite a few bullion dealers, and I’ve listed the main ones in this table below. Click on the name to link to the website.

Australian bullion dealers

Bullion dealer City
Perth Mint Perth
ABC Bullion Sydney
Ainslie Bullion Brisbane
Guardian Gold Melbourne
Australian Bullion Company Melbourne
Gold Bullion Australia Melbourne, Sydney, Brisbane Gold Coast

Take the time to shop around for the lowest premiums and commissions. It’s quite surprising what the difference can be. And make sure you’re comparing prices to the Australian gold or silver price.

You can head to the bullion office directly to buy gold. But if you don’t have one located near you, you can place an order over the phone or even online. Delivery is easy to arrange, but ask questions about the method used and whether it is insured.

And then you’ve got eBay.

Bizarrely, eBay has quite an active silver market. I’ve bought and sold successfully this way quite a few times before. Selling is particularly good, as you’re the one charging the commission for once!

Using eBay is riskier than going through a registered dealer. So it’s essential to get the metal tested. This is as easy as going to a business that buys scrap gold and silver, and asking them nicely to scan it for you. When you find a good seller, stick with them. It’s also a smart move to get the seller to send it recorded delivery and insure it. Make sure you’re familiar with eBay if you want to go down this route.

The other interesting way to cut out the cost of the middle-man is through SilverStackers, a precious metals forum. This puts you directly in touch with other buyers and sellers, as well as providing plenty of market commentary.

Where do you keep your precious metals?

Now, you’re faced with the problem of storing it. A shoebox under the bed? Your home safe? A bank deposit box? Store it with the dealer you bought it from?

A home safe can be installed for about $500 from a local security company. But you should only store small amounts this way. If you do keep it at home, you need to increase your home and contents insurance to cover the metal. And you’ll need to avoid telling everyone down the pub about your stash…

Most bullion dealers have storage facilities. When you buy bullion from a dealer you can ask about the storage options available.

Depending on how much you buy, it quickly becomes cheaper – and safer – to store it at the dealer, or rent a safety deposit box for a few hundred bucks each year… This is what I do.

Safety deposit boxes are a great option. They provide security and easy access.

Banks offer safety deposit boxes, but then we are back to square one with the risk of having a bank as the counterparty.

If you want to remove counterparty risk, you can store it with a company that has nothing to do with the banking system. These are in short supply. I found just one company called Guardian Vaults that does this. They’re only in Melbourne for now, but they have clients nationwide.

I hope this all helps put some new options forward.

Enjoy that bullion!

Dr Alex Cowie
Editor, Diggers & Drillers

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12 Comments For This Post

  1. KP Says:

    Anyone watching the Police go through the bank vaults in the UK and seize things they don’t think you should own? You then have to prove that how you got it was legal to get it back.

    Bury it in your vege garden! A knife around your throat (or you family’s) soon opens a safe.

  2. Bron Suchecki Says:

    When storing with a dealer please check the storage contract and confirm under what terms the metal is stored. If there is no clear statement the bars are held in segregated storage off the balance sheet of the dealer then your metal is most likely on the balance sheet of the dealer and thus you have counterparty exposure and could lose your metal if the dealer goes bankrupt.

  3. Kris Says:

    One question, What about purchasing PMGOLD on the asx?
    The cost of ownership is 0.15% p/a which is pretty cheap.

    The product is an ‘option’ and does not confer actual ownership of the metal, however each option entitles the owner to buy 1/100 ounce at $0 meaning the product tracks the gold price closely.

    Each option is backed by actual metal. According to the PDS ‘Gold Corporation will to store the majority of the PMG gold purchased after Holders buy PMGs in its vaults in Perth, Western Australia’.

    Also according to the PDS the product is guaranteed by the WA government.

  4. Peter Fraser Says:

    This has become the home of the one trick pony.

  5. Jeremy Says:

    Does anyone know about how tax fits in with buying and selling silver and gold?
    Say i bought a whole lot now and sold it in 10 years time for a profit will I be up for a lot of tax? And are there any known ways around this i.e. sell the metal in anohter country and bring back cash?
    Thanks for your help.

  6. Peter Says:

    for mum and dad investors, what size coins/bullion would you recommend? small enough to cash in when needed, but large enough to get a fair price when buying/selling? thanks, peter

  7. Jeremy Says:

    Thanks DM. Sounds like ebay/gumtree is the way to go for now ;)

  8. Maredith Rees Says:

    I have several pieces of hall marked silver – e.g teapot, jug, tray etc. As silver goes up does the value of these items go up.
    The teapot I bought years ago on a visit home to the U.K for 250 pounds sterling. On a subsequent visit I was told it was worth 500 pounds sterling. Maybe it is worth more now.

  9. Gary Says:

    I have some silver and gold and I’m about to get a loan of $70,000 to purchase more gold and silver. Have I done the right thing? Or am I paranoid about a financial collapse? I have just turned 68 and I do have some investment properties. I also have some Zimbabwe bank notes and this is why I think hard assets is the answer.

  10. Greg Ellis Says:

    I do hope you didn’t actually do this before the fall in the price but assuming the loan is still coming through your general strategy makes sense. Putting money into precious metals while the Australian dollar is high is logical good sense. As soon as there is a decline, the investment you’ve made in precious metal has preserved your value. As for which metal however that is slightly more vexed question.

    On balance – and this is not an original thought – I expect gold will do pretty well but I think silver is a more low risk bet.

    Notwithstanding what all the Goldbugs at Port Philip Publishing are saying I don’t trust the market sentiment about the intrinsic value of gold. As long as there are Nobel Prize economists like Krugman out there telling the mug punters that gold is no different to paper money there will be volatility in the gold price. Silver on the other hand does have a productive value – increasingly so in high tech – and it is in short supply.

    Yes gold is good for jewellery and with all those Indians buying it for that purpose it is not going to lie down very far but with silver, instead of volatility, notwithstanding the recent decline, I would predict more solid LONG TERM growth as it slowLy recovers its historical 1:16 ratio to the gold price.

  11. Warren Says:

    If we have a economic crash the value of the dollar will also crash.
    So the thinking is to buy gold to protect your wealth. But the gov. will revalue the currency and the value of the gold!
    So you will have a deflated dollar in your hand if you did not buy gold or selling your gold for this deflated dollar. Both ways you do not come out ahead.

    The trick would be to sell your gold at a time before the gov. sets a new value. Selling the gold for the inflated old dollar. And I think to know this time would be only for the insiders.
    If anyone could add some insight please do.

  12. Terry Says:

    whilst ever they print money to excess gold will always be more valuable, you can’t print gold!


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