Shopping for Gold Bars
This article is a follow-up to A Road Map for Investing in Gold 
, specifically the section dealing with gold bars. If you haven't read that article as yet, please do so before proceeding.
A BRIEF SUMMARY
If you want to invest in gold bullion, we suggest legal-tender gold coins, such as U.S. Gold Eagles, Canadian Maple Leafs, or South African Krugerrands. But there is another option: gold bars.
Bars tend to be a bit harder and more costly to re-sell than coins, but they have an upfront advantage: because production costs are lower, they usually sell at a smaller premium (i.e., markup) than coins do. The amount of the markup varies from dealer to dealer.
Gold bars can be purchased in many sizes, from the 1-gram wafers (takes about 31 of them to equal one troy ounce) to the hefty brick-like bars — the type held by governments and central banks — that weigh 400 troy ounces each (more than 27 pounds) and come with a hefty price tag to match (about $400,000 apiece at today's prices). These tend to have a bit of romanticism attached to them, perhaps because they have been prominently featured in popular films such as Goldfinger, Three Kings, and The Italian Job.
Fortunately for average investors, the standard unit for gold bars is a much-more-approachable 10 troy ounces. And for those for whom that's still out of reach, 1-ounce bars are quite popular. Buying in sizes smaller than one ounce raises the premium significantly.
MANUFACTURERS AND TYPES
As of July 2009, the website GoldBarsWorldwide.com listed [PDF] about 100 internationally accredited makers of gold bars worldwide. Some of the most well-known makers are Credit Suisse, Engelhard, Johnson Matthey, Metalor Technologies, Produits Artistiques Métaux Précieux (PAMP), and the Perth Mint.
According to the World Gold Council, most gold bars are classified into two types. "Cast" bars are made by pouring molten gold into a mold of specified dimensions. Markings are then applied manually or by a press. These are often referred to as "ingots." Bars made from gold blanks and stamped out to various dimensions are called "minted" bars or "biscuits." This gives them a more lustrous finish, similar to gold coins. Markings are then applied by minting presses.
Minted Bars
Most gold bars made today have a fineness (purity) of 99.99% pure gold, but that varies somewhat by manufacturer. Some bars have a fineness of 99.50%. When you buy a gold bar, you should receive an "assay certificate" that lists the bar's purity, refiner, and serial number.
DEALERS
As noted above, bars usually sell at a smaller premium than coins. In today's market, expect to pay about 2.5% to 4% above the "spot" price (current market price) of gold. Prices for gold bars fluctuate in relation to the spot price, which can change minute-by-minute when gold markets are open. Although some dealers post prices on the Web, many require you to call to get their current prices so they can check the latest spot price before making a firm quote.
The table below has a summary of price information gathered from the web sites of several gold-bar dealers after the markets closed on Friday, Aug. 14, 2009. Using the premiums shown in the table, here's how the bar prices can be calculated. If gold were selling at $1,000/ounce (which we'll assume just to make the math easy), the lowest price for a 1-ounce bar would be $1,025 ($1,000 + 2.5%). For a 10-ounce bar, the lowest price would be $10,170 ($10,000 + 1.7%).
The information in the table is intended only to demonstrate how prices can vary among dealers. The fact that a particular dealer is included in the table does not mean that SMI is vouching for that dealer's integrity, service, or prices.
Information in the table is ranked by lowest premiums for a 1-ounce gold bar at 99.99% fineness. Be aware that some dealers may require a volume purchase to get their "lowest-premium" price.
Also, keep in mind that add-on costs such as shipping and taxes may mean that the best deal isn't necessarily from the dealer with the lowest posted price.
SHOPPING TIPS
Start by deciding which size bars you'll be buying. The advantages of the 1-ounce size are that they are more affordable and cheaper to ship. The drawback is they carry higher premiums. The 10-ounce bars, if you can afford them, have lower premiums, giving you more gold for your money.
As you surf the various dealer sites on the Internet, make note of the types of bars sold (size, purity, source). Dealers listed in the table above are a good place to start. Also check those listed on the site of the World Gold Council. Again, these are just listings, not recommendations. Do your own research by making sure there's a return address, phone numbers, and an "About Us" page where you can learn more about the company's history.
When you think you're ready to buy, call a few dealers and double check the information you found on the Web: Where was the gold refined? What is the purity level? You may want to add a few more questions: How will the gold bar(s) be delivered? Do you guarantee quality? How long has your company been in business? What options do I have if I'm not satisfied with my purchase?
WHEN YOU GET YOUR BARS
Stamped upon your bar should be the manufacturer name, the exact weight, the precise purity of the gold, and a registration number. For your protection, each bar should be sealed in its own container, and accompanied by an assay certificate that describes the bar in detail. These details should match the information stamped on the bar.
STORAGE AND SECURITY
In addition to your purchase price, buying gold means you will incur costs for storage, whether that involves buying a home safe or paying a dealer or independent depository to hold the gold for you. If you store bars at home, you'll need to add a rider to homeowner's policy (most homeowner's policies will cover only up to $200 for gold bullion — that's not much!). Check with your agent to see how much additional coverage is available.
You can find out about dealer-storage options from dealer websites (or by calling). Some dealers have arrangements with third-party depositories to hold their customers' gold purchases in specially-secured vaults. Nevertheless, there is always a degree of counterparty risk when you rely on dealers to store your bars — many scams have arisen from such arrangements.
Because gold is valuable and not easily traceable, there is great incentive for theft and fraud. You must be on your guard. Remember, sellers of gold bullion aren't licensed or regulated. It's up to you to perform due diligence to make sure you're dealing with a reputable firm. Never buy bars from a dealer who doesn't have a strong — and long — reputation.
As an additional precaution, buy gold bars only from trustworthy refiners, such as those listed in the section on manufacturers above. Also, before you purchase, be sure to ask the dealer if your purchase includes assay certificates that will document the bars' attributes.
Gold counterfeiting does occur, but counterfeiters don't seem to find much attraction in making bars that are less than 1-kilogram, according to a report from Casey Research. (In 2008, the National Bank of Ethiopia discovered it was the victim of counterfeiters after several large counterfeit bars were found in its vaults!) Investors who are buying bars weighing 10 ounces or less are not likely to run into counterfeits. 
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Joseph Slife is a contributing author and editor for SMI. He spent 15 years with Crown Financial Ministries, co-writing articles with Larry Burkett and serving as executive producer for broadcasting. In addition to his work with SMI, Joseph is an adjunct instructor in the Dept. of Communication at Emmanuel College in Georgia. |
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