What Is the Cheapest Way To Buy Gold?

Investors often turn their attention to gold when inflation is up and the markets are down. That’s because of gold’s reputation as a hedge — an investment relatively unaffected by the stock and bond markets and one likely to increase in value when the dollar’s purchasing power declines.

See: 3 Things You Must Do When Your Savings Reach $50,000

While you have several options for investing in gold — mining and refining company stocks and gold mutual funds and exchange-traded funds, for example — paper gold literally and figuratively lacks the luster of the real thing. But buying physical gold can be tricky. If you’re not careful, you can wind up paying too much, or even worse, fall prey to a gold scam.

What Is the Cheapest Way To Buy Gold?

Use the following tips to learn more about the forms of gold available to you and where to get the best deals.

Understand How Gold Is Priced

The gold price you see quoted alongside market quotes is called a spot price. The spot price is the price of an unrefined troy ounce of gold, and it rises and falls with market forces like supply and demand.

As JM Bullion explains on its website, the spot price serves as a base price used by the parties involved in gold transactions. Miners excavate the ore and sell it to refiners for slightly less than spot price. Refiners turn the ore into bullion and sell it to mints at a slight premium over the spot price. And mints produce bars, coins and rounds and then add their own premium before selling the items to dealers. Dealers mark up the price again when they sell the bars, coins and rounds to consumers.

This means you’ll likely never pay spot price for physical gold. However, you can use the spot price to compare premiums from different dealers in order to find the best price on the type of gold you’re looking to purchase.

Select the Right Form of Gold

Gold comes in three forms: bars, coins and rounds. Each type has unique characteristics that appeal to different types of investors.

Bars

Gold bars, also called ingots, can be cast or minted. Cast bars are the most affordable way to buy gold, but they’re less collectible than minted bars.

Refiners cast bars by melting gold, pouring it into molds and allowing it to harden. Cast bars are often stamped with the miner’s logo and the bar’s weight, purity and metal content, according to JM Bullion. They usually have a serial number as well.

Minted bars are cast bars that have been run through a stamping press that cuts ingots into the correct size and shape. Rather than simply stamp them before shipping them off to a dealer, refiners go through a more elaborate process that might include engraving and adding other design features as well as polishing the surface.

Gold bars come in a variety of weights ranging from half a gram to 500 grams, JM Bullion noted. One kilogram equals 32 troy ounces. Most bars are .9999 pure gold.

Coins

Gold coins serve double duty — in addition to storing value as physical gold, they can be used as currency because they come from government mints. The value of the gold content and a coin’s appeal as a collectible make it unlikely that you would ever spend a gold coin the way you spend the coins in your wallet. However, their value as legal tender generally results in gold coins selling for a higher price than you’d pay for bars or rounds.

In the U.S., the U.S. Mint sells investment-grade bullion coins by weight to authorized dealers. Other qualities of coins are sold to collectors as gifts or keepsakes, according to the U.S. Mint. These collectible coins come in three forms:

• Proofs, which are meticulously struck and highly polished

• Uncirculated coins, which resemble circulating coins but have a high-polish surface and come with a certificate of authenticity

• Circulating coins, sold in rolls, bags or boxes with no certificate of authenticity

Rounds

Other than the fact that they have a circular shape instead of a rectangular one, gold rounds are similar to minted bars, right down to the stamped logo, weight and gold content. Although rounds can’t be used as currency, they can have appealing designs, which adds to their collectibility.

Find the Best Dealer

Gold dealers come in all shapes and sizes. You can purchase from any of the following:

Online Dealers

Perhaps the cheapest and easiest place to buy gold is from an online dealer. According to the Oxford Gold Group, some online dealers offer “exceptionally low prices” to stay competitive. Another benefit of using online dealers is that they make it easy to compare prices and customer reviews.

Banks

A small number of banks sell gold directly to customers. The Massashusetts-based Leader Bank, for example, offers 1-ounce and 1/10-ounce gold bullion coins and 10-gram 99.99%-pure 24-karat gold bars.

Some banks offer gold deposit accounts to private banking customers who purchase large quantities — typically over 1,000 ounces. With a gold deposit account, the bank buys the gold on your behalf and credits the transaction to your account.

With an allocated gold account, the gold you buy is the gold that’s allocated to you, and the bank can’t lend it out, according to the Securities and Exchange Commission. Bank fees for this type of account are usually higher than for an unallocated account.

Coin Shops

Coin shops often sell gold. While you won’t get the kinds of discounts online dealers offer, buying cash-and-carry avoids the risk of a gold order being misdelivered or lost in transit.

Auctions

Auctions are another way to buy online, but the Oxford Gold Group advises that you research them before you bid to make sure they’re reputable.

Pawnshops

Pawnshops often sell gold. However, it’s a good idea to only buy from one with experience in authenticating and trading precious metals.

Look For Discounts

Depending on how you buy and where you buy, you might score discounts on your gold purchase.

Buy in Bulk

Dealers sometimes discount bulk orders. JM Bullion, for example, offers the best discounts on orders of $100,000 or more, but it also discounts orders as small as 10 or 20 pieces.

Certain coins are sold in bulk packages called monster boxes. American Gold Eagle coins, issued by the U.S. Mint as uncirculated coins and proofs, are a good example. Their monster boxes come with 500 1-ounce coins packed in 25 tubes of 20 coins each.

Buy Used

Dealers sometimes sell pre-owned gold at a lower premium than the gold they buy directly from mints.

Whether you buy bars, rounds or coins, they might show wear if they’ve been handled — something to consider if you buy collectible gold like minted bars or coins. But if you’re looking to buy physical gold and stash it away, pre-owned pieces could save you money.

Beware of Scams

Gold scams are not uncommon, so it’s important to do due diligence before you buy.

The Commodity Futures Trading Commission advises consumers to be suspicious of a dealer who promises profits on your gold investment or tries to rush you into buying. The offer of a loan to finance the purchase is another red flag.

Also be wary of a dealer or broker who encourages you to purchase a large quantity of gold by suggesting that it’s the key to avoiding financial ruin. Joe Rotunda, director of the enforcement division at the Texas State Securities Board, told AARP that investors should look at where gold fits into their portfolio. Gold should not comprise more than 5% to 10% of it.

AARP also recommends setting a limit on how much you’ll pay above spot price. A good way to do this is to look at premiums reputable gold dealers like JM Bullion and the American Precious Metals Exchange are charging and use their markups as a guide. Be especially wary of private mints offering special deals.

Unscrupulous dealers might try to sell you rare coins. If you collect coins and want to purchase them for that purpose, it’s not necessarily a bad thing. But if you’re buying gold primarily as an investment, stick with minted bullion coins — you’ll have an easier time selling them when you want or need to.

Protecting Your Investment in Physical Gold

Before you buy, think about how you’ll protect your investment.

Storage

Careful storage is the best way to protect your gold. You have several options, each of which has its own benefits and risks.

The first is to store it at home. The Royal Mint recommends keeping it in a waterproof and fireproof safe bolted to a floor in a safe and discreet area of your home. Don’t tell friends or family that you have gold stored in your home, but do give instructions for emergency access to someone you trust.

For more security, consider keeping your gold in a safe deposit box at your bank. You’ll pay a fee to rent the box, and you might have to let the bank know in advance when you want to access it.

A third-party storage facility could be even more secure than a bank. Just make sure the facility is fully insured and allocates your gold. As with a gold deposit account at a bank, the gold you get back from an unallocated account might not be the actual gold you purchased.

Thoroughly vet any company you consider allowing to hold gold for you. AARP recommends contacting your state’s North American Securities Administrators Association to find out if the company has had any regulatory issues. You’ll find a directory of state offices at the NASAA’s website.

Insurance

Whether you store your gold at home or in a professional facility like a bank or third-party vault, you might need to make changes to your homeowners insurance to ensure adequate protection in the event your gold is lost, stolen, damaged or destroyed by a covered event.

Your standard homeowners insurance policy probably offers only limited coverage for valuables like physical gold — typically about $1,500, according to the Insurance Information Institute. You can increase the limit for an additional fee, or if you’re holding a significant amount of gold, purchase a floater policy to cover its full appraised value.

Note that homeowners insurance should cover your gold even if it’s stored somewhere other than your home, but off-site coverage might be limited to a small percentage of your personal-property coverage.

Cheaper Ways To Invest In Gold

If physical gold falls outside of your budget, you have other options that provide some of the benefits but at a potentially lower cost. In addition to buying stock in mining or refining companies, or investing in funds that hold those stocks, you can invest in a fund that tracks the price of gold bullion. Such funds have management fees you don’t have to pay when you buy physical gold, but they can be a low-cost alternative to owning the real thing.

FAQ

Gold is a popular investment in times of inflation and when the stock market is volatile. These frequently asked questions could help you save money on your purchase.

• What is the cheapest form of gold to buy?

  • Cast gold bars are the cheapest form because they're among the least refined. Economies of scale give you more gold for your dollar.

• What is the cheapest way to buy gold?

  • Online dealers usually have the best gold prices. Buying used from an online dealer can maximize your savings.

• How do you get the best price on gold?

  • You can get the best price on gold by looking at the spot price and then comparing dealer prices on the form, weight, size and purity you want to buy.

This article originally appeared on GOBankingRates.com: What Is the Cheapest Way To Buy Gold?