CNBC: The Many Ways to Invest in Gold

Published: Monday, 29 Aug 2011 | 3:34 PM ET
By: Bob Pisani
Reporter

How can an investor get into gold? Let’s start with the obvious.

Gold bars and coins.

Gold bars can be bought and sold fairly easily. While the most well-known of all gold bars is the London Good Delivery Bar, which weighs approximately 400 ounces (nearly $700,000 at current prices), many companies produce smaller bars that can also be bought and sold.

Gold coins can be minted as legal tender in the country in which they are minted — that is, they have a face value independent of the amount of gold in them — or the market value can be determined solely by the value of the gold (minus any dealer markup).

The South African Krugerrand, first minted in 1967, is far and away the most widely minted gold coin. It contains one ounce of pure gold, though it’s actual weight is slightly greater — 1.09 ounces, the balance being copper. There have also been half-ounce, quarter-ounce, and one-tenth ounce denominations.

Several other countries have issued gold coins, including the Canadian Gold Maple Leaf (produced by the Royal Canadian Mint in 24-carat, pure, gold), the Australian Nugget (minted by the Perth Mint, also 24 carat), the British Britannia (22 carat gold, the remainder being silver, but still containing an ounce of pure gold), and the American Gold Eagle (22 carats, the remainder a mixture of copper and silver, but also containing an ounce of pure gold).

The World Gold Council maintains a list of U.S.-based dealers in gold bars and coins, and one of the widest sources of information on physical ownership of gold bars and coins is www.goldbarsworldwide.com.

What about storing it?

You can keep your gold bars and coins in your house, or in a safe deposit box. An alternative is to create an account with a gold-bullion bank and let them store the gold for you.

For most investors, gold accounts are not a practical form of investment, since most bullion banks required large minimum amounts of gold to be held on deposit, and typically only provide vaulting services for large customers that also hold other assets with the bank.

Gold is held by bullion banks in two different types of accounts — allocated and unallocated accounts.
In an allocated account, specific gold bars or coins are identified and assigned to your account. You have full ownership of the gold, but you also pay storage and insurance charges.

In an unallocated account, you do not have specific ownership of gold bars, you only have a claim on the gold stock held by the dealer.

Clients are technically unsecured creditors. Bullion banks will typically lease gold in unallocated accounts. In both cases you can take physical ownership of the bars, usually within two working days.

A number of private companies provide purchasing and gold vaulting facilities. They include Bullion Vault and Gold Bullion International.
Buying a bit at a time

Some banks and brokerage firms have established gold accumulation plans that allow investors to buy small amounts of gold every month. These are typically in pooled accounts. The World Gold Council also recently announced a similar gold accumulation plan in China.

CONTINUED: Futures, Options, and ETFs

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