10 Gold Investing Mistakes and How to Avoid Them

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"Following these steps to protect yourself against hidden and not-so-hidden risks associated with owning gold."

  1. Having Unrealistic Short-Term Expectations — Use gold as a value stabilizer, not a vehicle for turning a small lump of cash into a fortune overnight. Keep your expectations realistic. Patience is key.

  2. Overpaying on Premiums — Depending on the minter, gold prices may vary quite a bit. Gold purity plays a major role; look to buy only purity, not the brand name.

  3. Buying from Multiple Dealers — If you buy gold from several different dealers, you'll pay several different markups. Research your vendors carefully; find one that suits your needs and stick with them.

  4. Owning ETFs over Physical Gold — Buy the physical metal and store it yourself.

  5. Owning Gold Stock over Physical Gold — If owning an ETF adds risk, then owning gold stock can be downright speculative. Subject to market fluctuations, gold producers' share prices will experience gains and losses out of proportion to the price of gold and will be further affected by management decisions.

  6. Knowing How Much to Invest — A common mistake is either putting too much or too little into precious metal. For gold, shoot to invest no less than 10% and no more than 25% of your available assets.

  7. Buying Numismatic Coins Instead of Bullion Coins — Numismatic coins derive their value not just from their precious metal content, but also from their rarity and collectability. Demand for such things is hard to predict over time. To avoid buying coins at dealer-inflated prices, or coins containing significant percentages of non-precious metals, stick with standard bullion coins.

  8. Buying American Gold Eagles —Avoid American Gold Eagle coins! They are minted from 91.67% gold and, thus, vastly inferior to those minted from 9999 fine gold. Find a better bullion coin like the Canadian Gold Maple Leaf or South African Kruggerrand.

  9. Buying Natural Gold Nuggets — Gold nuggets create more problems than they solve because of an inherent lack of uniformity in the gold purity.

  10. Buying Gold Jewelry —Not only is the purity of the metal a concern, but there is also the added artisan's premium. The cost applied by the craftsman who made the piece will always inflate the price well past the value of the metal alone.

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