There are quite a few ways to invest in gold, which include paper gold and the physical metal itself.  What you should acquire will vary depending on what your goals, objectives and time horizons are.  Thus, this is where you should start.  If you need help with this consult a precious metals firm.  The only trick here is this: paper metals dealers don’t typically sell the physical metal and vice versa.

If you are looking for short-term price speculation than a gold ETF like GLD is good for you.  Anything put into physical gold should be considered a longer-term hold.  Therefore never put money into physical gold that cannot be held for at least 3-5 years.  For physical gold there are two different types you can acquire: Bullion and Numismatic.

Bullion is coins and bars who’s value is based upon the gold content only.  There is no value added for collectability, quality or rarity.  The price is determined by taking the spot price and adding a premium to it for it being mined, minted and distributed.  The premium can vary coin to coin and dealer to dealer, and can range on average anywhere from $50 to $100 above spot gold.

The other type of gold you can acquire is numismatic gold.  The most popular type of numismatic gold coins are the pre-1933 US mint gold coins.  These coins contain the exact same gold that is in gold bullion coins, but value is added due to its collectability, quality and rarity.  These factors give it some benefits beyond what the intrinsic value provides.  These coins are private upon buying and selling.  They have been excluded from gold bullion confiscations in the past, and with the weakness in the dollar many experts believe that we could experience another confiscation in the not to distant future.  My favorite benefit of owning numismatic/rare gold coins is the growth they have achieved in the past.  According to PCGS data, mint state rare gold coins have outperformed the DJIA close to 11-1 and outperformed gold bullion 4-1 over the last 40 years.  All of these factors combined are the reason why so many people believe it is the best way to own gold.

Whether you are investing in paper or physical gold, do your research, understand the market and speak to a reputable precious metals firm.  This will make for an educated and pleasant experience.

First read the getting started blog posted on July 2, 2010, and if you follow the steps your account rep should be able to help you decide what are going to be the best coins to acquire for your portfolio.  The reason you want help with this process is because every coin will perform differently in your portfolio.  So you want to make sure that you are applying the right tool for the right job.

For example, if your investment horizon is short-term that should rule out any form of numismatic coins.  In that case you will want gold bullion, which is a pure asset inflation hedge.  Gold bullion provides the most amount of liquidity, because it is real money and it is accepted anywhere in the world.  Gold bullion is used more as a safety net than it is as a growth mechanism in any portfolio.  It is first and foremost a hedge against fiat currencies.

If you are interested in a long-term play then you can begin to focus on numismatics.  In my opinion the $20 Liberties and $20 Saint Gaudens are the best option in this arena.  They are the most affordable, liquid, popular and readily available option at this point in the trend cycle.  Some issues have tens of thousands known to exist in a particular grade and some have only a few known to exist.  The rarer the issue the more expensive the coin, but it will also have the most opportunity for growth.  This is where strategy comes into play.  If you are looking for asset protection you will want to focus more on common issue coins and lower grades, if you are looking for more growth you will want to focus more on rarer issues in higher grades (generally speaking).

A general disclaimer, I typically will only acquire coins in the mint state range, and always graded by PCGS or NGC.  Grading by these two companies will add a layer of confidence knowing that you have coins that are guaranteed for their authenticity and level of preservation.  As far as acquiring mint state range coins is concerned, if you look at performance charts on PCGS.com you will find that the mint state range has performed the best over time.  If you have never purchased rare gold coins before I would not try to do it on your own, you need someone you can trust to lead you down the right path.  Good luck!

Choose a Broker Dealer:

Once you know that you want to own gold getting started is a very simple process.  The first step is to pick a broker/dealer that you feel comfortable with.  Typically this is done via radio and television talk show hosts that endorse various gold companies, or through an internet search.  Check out how long they have been in business and how strong their track record is.  Once you feel comfortable, call them and get assigned to an account representative.

Education:

The next step is to get educated.  Have your account rep explain to you the different gold and silver options and how they can be applied to a portfolio.  There are different tools for every job, understanding how to match them up is important.  There are two primary types of gold and silver, which are bullion and numismatic/rare gold coins.  To learn more click on the two types.

Goal and Objectives:

Once you are educated and you are starting to feel comfortable about your options, the next step is covering your goals and objectives with your account rep.  This entails going over your holding periods, your concerns with the economy, whether asset protection or growth is more important to you, etc.  Once the account rep has a good understanding of what your goals are then a strategy can be laid out.  This will help you to determine what mix of precious metals is right for your portfolio.

Taking Possession:

The next step in the process is taking possession of your gold and silver.  Most companies will ship through USPS, UPS or Fed Ex so that your package will have a tracking number, it will be insured and you will need to sign for it.  This provides another layer of protection.  Once you have taken delivery you will need to decide where to store your gold, whether that is in a safe deposit box, home safe or hidden somewhere.  That decision will be based on what you feel most comfortable with.

Portfolio Reviews:

After you have owned your gold for a while you will want to get updates on its performance and educate yourself with market intelligence.  This will help you determine when the best time to buy, sell and trade is.  Physical precious metals are a long-term hold and therefore you should not concern yourself with the day-to-day action, but you should be concerned with the trends.

In an article dated June 18, 2010 on CNNMoney.com, central banks around the world have been buying into the gold rush as fears of Europe’s debt crisis mount in conjunction with a slow worldwide economic recovery.  All of this fresh buying has pushed gold to new record highs.  Gold closed at a new record high yesterday at $1,248.70 and so far today has reached a new intraday high of $1,263.50.

For the first time since 1997 foreign central banks are net buyers of gold.  Prior to last year they were all pretty much net sellers with the exception of China who has increased its gold reserves 76% since 2003.  Most central banks like to diversify their holdings in order to decrease risk, but with the US dollar and the euro under extreme pressure due to money printing, central banks are turning to gold as a hedge against paper currencies.  Because unlike fiat paper currencies, gold has an intrinsic value that cannot be manipulated by any governments’ economic policies.

The countries that are buying the most gold are Russia (26.6 tonnes 2010), Kazakhstan (3.1 tonnes 2010), Philippines (9.6 tonnes 2010), India (200 tonnes last year) and China (454 tonnes last 7 years).

Look for the trend to continue as sovereign debt crisis continue to mount.  As the gold prices continue to rise rare gold coins will benefit as they tend to lag behind spot gold in their price action (this is not always the case but has been lately).  As spot gold rises in value it signals the general public to buy, and most buyers of rare gold coins are private individuals not large institutions.  The supply of rare coins in the market is limited by the fact that there are only so many of them in existence.  Therefore relatively small changes in demand can have big effect on value.  The more new private buyers that enter into the market for rare coins the faster the prices rise.  This simple set of circumstances explains why rare gold coins tend to out perform gold bullion in the long-term.

There is a lot of concern worldwide that the U.S. Dollar is weak and facing tumultuous times ahead.  This concern is justified, as we have printed 2.5 times the money supply in just 18 months, and anytime in history when a government has turned on the printing presses to pump liquidity into the markets, eventually that currency inflates dramatically.  There have been times in history where printing lead to hyperinflation and eventual collapse.  The most famous example is Germany from 1919 to 1923 when gold went from 170 Deutsche Marks to 87 trillion Deutsche Marks.  The most recent example would be Zimbabwe whose currency was inflating over 1 million percent a year until the currency died in April of 2009.

What is most interesting about the case of Zimbabwe is that we actually got to see what happened when the currency collapsed.  Citizens of Zimbabwe began panning and digging for gold in rivers and mountains in the hopes of obtaining mere grains.  They would then take this into the city and buy products with it.  Gold as an alternative currency to the dollar is very viable option, and some would say the only viable option to fiat paper currencies.  Gold and silver are both considered to be monetary metals and are a good option for bartering.

On this site we frequently talk about rare gold coins.  But in the instance of bartering rare gold coins are not the way to go.  Rare gold coins are typically used for growth in a portfolio which can later be converted to quantity if so desired.  But under the circumstances of a currency collapse gold and silver bullion in small denominations is what will be most desired.  The smaller the denomination the easier it will be to barter with.  For example, if you have a 1 ounce American Eagle gold coin and gold has shot up to $50,000 per ounce because the dollar is worthless, it will be harder to barter with than 1/10 of an ounce worth $5,000.  Now prices will have inflated along with gold going up, but I wanted to draw a picture in your mind.

Silver will be even easier to use as an alternative currency due to its low value.  Bartering with 1 ounce of silver today with a spot price at $17.41 makes buying anything with that easy.  It is prudent to have some barterable gold and silver in your portfolio.

The basic fundamentals that move the price of gold are supply and demand and dollar fluctuations.  The price action on a daily basis can be measured in terms of predominant buying and selling of gold, and strengthening or weakening of the dollar.

Even though we are off of our most recent record gold price of $1,218 in December of 2009, the fundamentals for gold remain strong.  Gold is one of the scarcest resources in the world.  Mining output has increased as the bull market has raged on but demand has still outpaced the new supply increases.  This has come from new investors and NGO’s (non-governmental organizations).  In addition, foreign central banks have become net buyers of gold as of late, whereas before they had been net sellers for many years. 

The World Gold Council said that “investor flows, specifically from western markets, have provided a key means of support during the course of the credit crisis as investors sought to diversify their exposures to other assets and protect their wealth against market shocks.”  It is simple, demand is outpacing supply, and therefore the price of gold is rising, and has been for the past 9 years.  The fundamental demand for gold continues to grow.

On the dollar side of the equation we continue to see the central banks around the world print money at will.  This helps gold in two ways.  The first way it affects gold is the more money that is printed the more fear it produces in citizens of that respective country.  People become fearful of inflation or a collapse and want to divulge themselves of their currency.  The more fear that exists the more demand there will be for gold.  The second way that money printing affects gold is the more money that is printed the less that currency will be worth over the long-term.  This is simple inflation, which can lead to hyperinflation which can lead to a currency collapse.  As the value of a currency falls, the value of gold will rise in that currency.

Investment demand for gold worldwide is strong and the central banks are helping to fuel that fire.  In my opinion they will continue to do so as it is the path of least resistance in addition to making debt easier to afford, and the world is deep in debt.  So look for the fundamentals on gold to continue to show strength for years to come.

Gold bullion is a great investment.  It has averaged a rate of return of 17.1% over the last 9 years.  It has fulfilled its role as a financial insurance for those that have owned it during the 9/11 crisis, banking failures and stock market correction during that same time frame.  So not only did gold bullion appreciate dramatically (over 340%) but it also kept people safer.  But where is gold headed?

Ask yourself the following questions:  Is the U.S. economy is on its way to recovery?  Is the dollar going to continue to be the world’s reserve currency for the next 20 years?  Is our national debt here in the U.S. repayable?  Is the government going to continue to print money?  If you answered yes to any of these questions then gold is a good fit for your portfolio.  Gold is first and foremost a financial insurance.  It should be used to protect the paper assets you have accumulated throughout the years.  If you don’t have any, you are vulnerable.

But where is gold headed.  Many experts would say it is going much higher from here.  Spot price predictions are all over the board.  From $1,300 to $47,000 per ounce before this bull market is all over.  No one has a crystal ball, so take predictions with a grain of salt.  Look at underlying trends and understand how bull markets work.  We are currently experiencing a full fledged second phase.  Very few people in the U.S. actually own gold and this will change. We will eventually reach the third and final phase where gold will reach higher and higher highs.  This run up will typically be dramatic because everyone will want to own gold at any price.  In my opinion gold bullion is a great investment.

What are better than gold bullion are numismatic/rare gold coins.  They have consistently proven over the years to offer better protection and performance for their owners.  The most common $20 Liberties and $20 Saint Gaudens have achieved an average rate of return over the past 9 years of 27.01%.  Nearly double gold bullion.  These coins are private and confidential and offer protection from gold confiscation.  They have a higher cost of doing business so you need to be able to hold them long enough to allow them to do what they need to do.  Most companies will recommend 3 to 7 years, but this will depend on the trend cycle.  If gold takes off watch for rare gold coins to do the same.

Gold is rising on strong technical momentum and a lower U.S. dollar index.  Gold is trading up for the 9th day in a row as of this writing.  After hovering around $1,100 per ounce for months gold is finally making its move towards the $1,200 mark that we saw in December of last year.  There is a lot of fresh speculative buying interest ahead of quarter two earnings season which starts on Monday.

After the breaking news about the manipulation of the gold and silver markets at the CFTC hearings many traders are pushing their positions from paper to physical.  This is largely due to the 100 to 1 leveraging in the paper metals market, meaning that there is only 1 ounce of physical metal for every 100 ounces of existing contracts.  These naked positions have traders concerned that when they call for their gold instead of dollars, that these requests will be defaulted on; if this happens watch for gold and silver prices to rise dramatically on the short squeeze.

David Morgan founder of Silver-Investor, said that if he sees gold trade above $1,150 per ounce for 3 consecutive trading sessions he feels the trend will continue and will likely breach the $1,200 mark soon.  There is a major psychological barrier for investors at $1,200 per ounce.  Achieving new highs is always tough.

Look for the bull market trend in gold and silver to continue for a few years.  The markets have not yet seen the third and final phase of this bull market.  This occurs when everyone wants in and money is pouring into the gold and silver markets like it did into the real estate market in 2004 and 2005.  This will create a massive run up in prices with no support levels being built underneath.

When people talk about types of gold coins, the word “type” can have a wide range of meanings. It may mean a U.S. coin or a foreign gold coin, or a rare gold coin versus a bullion coin. Or they may be talking about the specific design of a coin.

 
The broadest meaning of “types of gold coins” may be coins minted by the United States government or coins minted by foreign governments. Thanks to the size and depth of the U.S. market, the gold coins minted by the U.S. government are by far the most popular “types” of collector and investor coins in the world. Our nation’s pre-1933 gold coins, which were recalled and melted in the mid-1930s, are in great demand from domestic and international collectors and investors. Likewise, our government’s high-mintage post-1985 American Eagle gold bullion coins are the most popular gold bullion coins in the world.

 
More On Each Individual Gold Coin
1. Liberty $20 Gold Coin
2. St. Gaudens $20 Gold Coin
3. Eight Piece Gold Set
4. American Eagle Gold Bullion

 
Collecting by Type
Collectors may organize their coins by Type, which in this case means “design.” That means they seek to build a collection with one representative example (or more) of each design in their series. For example, if they collect U.S. $20 gold coins, they may have a basic collection of two coins: one representing the Liberty Head series minted from 1849 to 1907 and one coin from the Saint Gaudens Type minted from 1907 to 1933.
An advanced collection of $20 gold coins might also own all five Type coins representing the design changes within the series. This Type Set of U.S. $20 gold coins would include examples of the following five designs:

Liberty Head Type I Without “In God We Trust” 1849-1866
Liberty Head Type II “In God We Trust” on reverse 1866-1876
Liberty Head Type III Value expressed as “Twenty Dollars” 1877-1907
St. Gaudens Type I Without “In God We Trust,” 1907-1908
St. Gaudens Type II “In God We Trust” on reverse 1908-1933

 
Another kind of “Type” collection is composed of multiple denominations. A Type collector who is focused on U.S. gold coins might start with one representative coin of each of the following basic denominations: $1, $2.50, $5, $10, and $20. He might then expand the number of designs (Types) to include two examples of each denomination. The Liberty Head design was used on all of our gold coins in the second half of the 19th century and into the first decade of the 20th century. That’s when newly elected President Theodore “Teddy” Roosevelt ordered the designs of our nation’s gold coins to be updated. That’s why Type collectors now seek the Indian Head $2.50 and $5 and $10 gold coins, as well as the Striding Liberty $20 coins struck from 1907 or 1908 into the late-1920s or early 1930s.
A more advanced collector of U.S. Type gold would also add examples of the $1 (which had three distinct Types) and $3 gold coins. Unlike most other denominations in the U.S. gold coins series, the design of our nation’s $3 coins was unchanged throughout the 1854-1889 series.

 
There are many types of gold coins: U.S, foreign, rare, and bullion. There are even Types of gold coins within each denomination. Because they’re made of gold, all types of gold coins are highly desirable!

First let’s define numismatic in two ways, the academic definition and the government’s definition.  The academic definition is how Webster’s Dictionary defines it, and that is, of or relating to currency.  Wikipedia defines it as the study or collection of currency, including coins, tokens, paper money, and related objects.  So numismatic is the study of coins and paper money.  It can also be applied to anything that is related to currency, like the study of bartering systems of the old days when people used items of value for trade, like cowry shells.  Numismatists are experts in the area of coinage and paper currencies.  This is typically important if you are a collector of coins.  Numismatists can be very helpful in assembling large collections of gold coins.

What is important to the gold coin industry and gold investors alike is the government’s definition.  The government’s definition is what has kept certain coins from being confiscated throughout history.  This excerpt was taken from executive order 6102 which dealt with the confiscation of gold bullion in 1933: All persons are hereby required to deliver on or before May 1, 1933, to a Federal reserve bank or branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following: Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person, and gold coins having a recognized special value to collectors of rare or unusual coins.  So to the government any coins that have rare or special value to collectors that are rare or unusual were exempt from confiscation.  Therefore any gold coin that a person owned that had value that exceeded the actual value of the gold content, could be considered numismatic.  This premium above the physical gold content is called the numismatic value.

This is the importance for investors in the gold market today.  In order to be considered numismatic, the coins must be more valuable than the gold it contains.  This can become a fine line though.  No one really knows how much more valuable they have to be.  So could gold Swiss Francs be considered numismatic because the come at a slightly higher premium than bullion?  No one knows for sure.  But it is widely accepted that Liberties, Saint Gaudens and Indian heads are considered numismatic coins and would be exempt from future confiscations.  This is one reason why so many people like these types of coins, they are considered to be non-confiscateable.

If you are a collector then the academic definition is probably more important to you because you are a student of rare coins.  If you are an investor the government definition is probably more important to you because you want your money to be as safe as possible.