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I am quite knowledgeable on this subject.
Gold (and all precious metals) are measured in troy ounces in North America. 1 troy oz = 31.103 grams. In Europe kilograms is a common measure/size for precious metals.
Spot price is the current price of the metal. Spot is a guideline. Generally coin/bullion dealers will sell gold coins at a small premium (5-20% depending on size of the coin, amount purchased, etc) and buy gold back anywhere from spot -10% to spot +10%.
Bullion means that the item's worth is based on it's metal content/intrinsic worth. This is in contrast to any other value a coin/bar/etc may have, such as collectible value. An example would be a special edition/colorized/hologramed/etc 1oz gold coin from the Royal Canadian Mint. Typically these will sell (retail) for 50-100% above the bullion value- that is, the value of the metal content in and of itself.
Investing in gold: there's a few options-
1) Buying Physical metal. Look for recognized coins/bars that are .999 fines (such as Canadian maples) or 22k (91.7%, such as American gold eagles, sovereigns and South African Krugerands). I'd generally stick with 1oz bars/coins if you can afford it, as the premiums get quite high the smaller you go if you are buying fractionals (1/2oz, 1/4oz, 1/10th oz, even 1/20th oz).
Liquidity is key, don't get some 5oz or larger bar (unless you are a rich mofo and are planning on owning say 100oz+ of gold) because when it comes time to sell it will be difficult to unload.
There's also various government minted commemorative gold coins, that are lesser known (this less liquid) but can be had for lower or no premium above the spot price of gold. For example, the Royal Canadian Mint issued a number of 22k gold "collector" coins in the 1980's and 90's. They are 16.965g of 22k (91.7% gold), which works out to exactly 1/2oz of pure gold.
2) Gold mining stocks. I don't know much about these, but they are often highly speculative penny stocks. Their prices fluctuate largely as a function of the current price of gold and how much the company estimates it will at some point in the future, pull out of the ground.
3) ETF (Exchange Traded Fund). I don't know much about these either. But it is basically like buying a stock, where the companies performance tracks the price of gold (POG) in some way. I believe there are ways to leverage, such as ETFs where each $1 move in the POG results in a multiple ($2, $3 or more) move in the price up or down of the ETF.
4) Unallocated pool account. This is basically like a bank account where your money is held in ounces of gold (or other commodity, usually precious metals) and is like an IOU for that amount of ounces. If the bank/company/etc holding your money in the pool account goes broke, so do you. These generally trade at very small margins. Something like +0.5% on the buy side, -0.5% on the sell side.
5) Allocated pool account. This is similar to the last, except the company you've given your money to allocates you certain bars of gold (serial # and all) and stores it for you in their vault (for a monthly/yearly fee). You can opt to have your gold shipped to you for a fee as well.
Miscellany/opinion:
The commodities market (especially gold) is generally shat upon by traditional investment "gurus" because a) they aren't knowledgeable outside their fields and b) they don't make money when people buy gold or even commodities ETF accounts.
Some people argue that gold/silver/commodities aren't really gaining value, but rather paper (fiat, unbacked) dollars are losing value. This is at least partially true.
Historically gold does well in periods of inflation, war, economic uncertainty. It has also been a store of wealth for thousands of years.
In my opinion, in the long run (40+ years), gold doesn't have as high of an ROI as stocks/index funds. However, there are periods (as mentioned above) where gold way out preforms the stock market. We are in one of those times right now.
We aren't currently in a gold bubble, but I think there's a good chance that within 3-5 years we will see a real gold bubble. See link #3. We are just starting to see the first real (and positive) media attention for gold. We've been in the awareness phase for a while, probably just crossing into the mania phase around now.
A huge sign of when the bubble has taken off will be mass tv commercials selling gold to consumers. Currently the trend is still most people selling "junk/unwanted" gold, often to those cash for gold places. It's when these people/consumers get back into buying gold as an investment that I will be looking for the exit, because the bubble will be going in full swing.
Some reading material regarding the stock market/gold relationship:
Gold Versus Paper: The Dow to Gold ratio - the aha! moment
100 Year Dow Chart - John Lounsbury -- Seeking Alpha
House Prices Will Fall Further: Graphs / Money Watch <- is about the housing market, but the prototypical bubble chart is very interesting
Current Melt Value Of Coins - How Much Is Your Coin Worth? - site shows the value of old coins based on their precious metals content at the current spot prices
Important- Finally, some pitfalls to avoid:
- Never, ever, ever sell any gold to cash for gold tv commericals/gold kiosks in malls or anything of the sort. They will literally pay you 20-40 cents on the dollar.
- Ebay (or other) auctions/sales touting "1 troy lb" of precious metal (usually silver). There's 28g per oz and 16oz in a lb. In the troy system there's 31g per troy oz, and 12 troy oz per lb. They will price auctions that look like a great deal for 16oz, because they will only be sending you 12oz.
- Numismatic coins. I am a coin guy at heart, but the numismatic (coin collector) market is much more like baseball cards that it is like bullion. If you don't know how to properly evaluate a coin's grade/value, just stick with bullion. An example would be pre-1933 USA gold coins. A common date 1920's $20 gold coin contains 0.9765 oz of pure gold. But the price of the coin depends on condition. A damaged/bad condition coin might retail for spot +10%. One in immaculate condition might cost spot +1000%. There have been many news reports on people being burned by buying these types of coins because they didn't know what they were getting into.
- Fakes on ebay/elsewhere. Stick to reputable dealers. High feedback ebay sellers are fine. Stay away from any Chinese/Asian based sellers. There has been a literal flood of fake coins/bars coming from there. Some are very high quality fakes. Buying a digital scale/using a ruler or caliper is highly recommended, as fake coins/bars will be underweight and/or oversized when they are made from the wrong metal.
Long post but hopefully it will be informative. I'll be happy to answer any questions.
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Investing in gold anyone familiar?
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Originally Posted by mbiz
Silver generally takes the same path as gold, but it's also effected more by the economy as it's a big industrial metal as well.
I'm all about hobbies that can make money, so poker/coins/bullion is kinda my thing.
