In today's economy, many people are looking to add gold to their portfolios. But the question arises: Which is wiser, physical or paper?
In years past, the only way to buy gold was by physically taking possession of it, but now consumers have a new option. With the advent of the Internet, stock trading companies have not only made it easier for a person to buy or sell stock, but now they even offer gold in electronically traded funds (ETFs). These ETFs are backed by physical gold stored in depositories. This is paper gold to the consumer. A person can own the gold, but never touches it.
An advantage to ETFs is that they can be traded instantly just like a stock, especially since the price of gold can be volatile. The disadvantage is that a person can never really possess their gold. If you read the fine print in these funds, taking delivery of gold seems to be more difficult than childbirth (and more costly too), with some funds even having provisions that physical delivery is never to take place. So if you plan to buy gold on paper, plan not to touch it.
Physical gold is when you actually buy coins or bars and take possession of them. Physical gold usually sells for a premium over spot price due to the cost of manufacturing, transporting, inventorying, and storing the product before it reaches you.
The American Gold Eagle is the most popular gold bullion coin in the United States, and when you decide to sell them many reputable dealers will actually pay over spot price for them.
Most merchants sell gold that is recognized worldwide for its purity and weight. Unless you are well-versed in gold, it is wise to avoid items that are not easily recognizable as they can be harder to sell.
The disadvantage to buying physical gold is that now you have to secure and store it. Many people often store gold in safety deposit boxes or safes, but where you store it is up to you. With banking institutions struggling and names like Bernie Madoff or Stanford Financial in the news, physical gold has become a very popular option.
Beware, there are a few companies out there that claim they will purchase and store your gold for you, but before using them, make sure they are a legitimate and reputable company, and not a Ponzi scheme.
Also know that some companies use loss leaders, offering you a special introductory price, in order to gain your personal information. Once they have your information they call and offer you other items, which are rarely a bargain, or they sell it to other telemarketers.
If you are adding gold to your portfolio ask yourself, physical or paper? But remember the golden rule, he who holds the gold makes the rules.
• Allen Rowe is the owner of Northern Nevada Coin in Carson City.