Lesson 3:

How to Trade Gold at the Best Prices

Lesson 3:

How to Trade Gold at the Best Prices

If you're ready to buy gold, you might be wondering the best way to do it and where you can get the best prices.

If you’re ready to buy gold, you might be wondering the best way to do it and where you can get the best prices. This page will show you how professionals have created a digital market that lets you buy and trade gold cheaply and safely. Additionally, you’ll discover some of the other ways you can buy gold, such as gold bars and coins, certificates, mining stocks, and gold futures.

Gold Bars, Good Delivery, and the Professional Gold Market

Participants in the professional bullion market — such as government agencies, gold dealers, financial institutions, refiners, and bullion banks — are the ones who enjoy the competitive Gold prices you see online and published in papers. The professional bullion market deals only with so-called “Good Delivery” bars, which meet the standards set forth by the London Bullion Market Association (LBMA). These bars must fulfil certain rules and regulations in weight, dimensions, fineness, and marks to be considered Good Delivery bars. These rules are designed to assure quality control in the production of precious metal bars.

Fine Gold Is Nearly 100 Percent Pure Gold

Another aspect that sets Good Delivery bars apart from other gold bars is that they’re cast by a small group of precious metal refiners that have received accreditation from the professional bullion trading community. These bars are accurately assessed so you know they’re always 99.5 percent pure Gold or better. As a result, everyone who trades on the professional bullion market is certain of the high purity of the Gold.

Retain High Bullion Integrity in a Professional Vault

Good Delivery bars enjoy this high integrity because they’re never in private possession. From the day they’re manufactured, they’re stored in bullion vaults that the local Gold trading community recognises and monitors. If these bars are ever moved, only accredited bullion couriers can transport them.

Additionally, the gold community keeps a careful record of where the bars go to prove they’re always in continuous and trusted storage. This process guarantees the integrity of the gold bars and gold market in a way that storing them at home or in a safety deposit box can’t provide.

If you’ve never seen a Good Delivery bar before, you might be surprised at its size. These bars are large, usually weighing 400 troy ounces, which equals 12.4 kilograms or 27.4 pounds. At the average gold price for 2020 of about $1,900 an ounce, each bar costs $760,000. However, having enough money to purchase a bar is only half the problem.

Once you own a bar, you still need to store it, so you’ll need a relationship with a bullion vault that’s formally recognized by the gold community. If you don’t have this, your Gold will lose its Good Delivery status, which means you won’t be able to sell it at the full price easily.

Unfortunately, because of their very nature, these vaults are extra-cautious, and the general public usually has a hard time doing business with them. Even if you take the significant amount of time, effort, and money that’s required to set up an account with one of these vaults, you’ll discover that meeting the minimum monthly storage fees would require you to purchase about 15 bars of gold!

It’s because of these barriers that private users have such a hard time entering the professional bullion market.

Gold Bars and Coins

There are plenty of operators were physical gold coins and bars can be purchased. However, it is important to pay attention to:

· The price that is being paid, which will usually be more than the actual price per troy ounce in the gold market.

· The purity of the gold on offer, which can vary considerably

· The authenticity of the gold on offer, which also varies considerably

· The fees for storage or where you will safely store the gold yourself in your home

· What the insurance costs are for your gold

· How easily the Gold can be sold and at what price versus the current market

· The commissions for transactions

As a rule of thumb, buying physical gold in this way is usually a lot more cumbersome and expensive. The upside is that you own physical Gold, the downside is that it can be expensive to buy and sell, to store, insure and the purity and authenticity needs to be thoroughly checked beforehand.

Gold Futures and ETFs

Gold futures and ETFs are means of having exposure to gold more cheaply than owning a bar or coins. However, the key difference here is that the investor does not own the gold. Both futures (an obligation to buy or sell at a set price and date in the future) and ETFs (a fund that invests in gold) only give the investor exposure to the price fluctuations.

While the futures contract is an obligation to trade in physical gold at the contract date it is exceptionally difficult for retail investors to have the margin and regulatory requirements and infrastructure to take delivery of the gold. That is why most futures contracts are closed without an exchange of gold being done. The buying and selling party just transfer the difference in most cases. Thus, only a small minority of gold futures actually end up with physical delivery. Therefore, using futures to own physical gold can be a cumbersome process.

Additionally, there are significant margin and deposit requirements and the risk that regulators can quickly change exchange rules if the market is not behaving properly. This can lead to forced liquidations if there is not sufficient margin in traders accounts.

ETFs try to circumvent this problem by holding physical gold. But once again the investor owns the fund and not the Gold itself. If there is ever a problem with the ETF issuer or a related counterparty, like there was in 2008, then it may be difficult for investors to get their money out. Additionally, redemptions are usually only in cash, and not the gold itself.

Gold Stocks

Gold mining companies are also a means of getting exposure to gold. However, the investment is in the company equity itself, rather than gold. And so this comes with all the complications of how a company is run, the quality of its management and operations, its growth prospects, the health of its balance sheet and so on.

There is also a risk as to the calibre of the gold deposits, and the political risk of mining in countries that may not be politically stable. Plenty of smaller mining companies listed on the stock markets have over promised and underdelivered about potential deposits and profits and can be highly speculative. The larger gold mining companies are predominantly very well run, multinational businesses and would not look out of place in an equity portfolio.

However, there is always an idiosyncratic risk to single stock selection and the correlation of the gold price to gold mining stocks is not always close to 1. Yes, it easy to buy gold mining companies but the risk profile is very different to Gold itself.


Goldex brings the advantages of the above methods all together:

· Affordable, transparent pricing for trading and storage

· Liquidity of the gold market at your fingertips when you need to buy and sell, round the clock

· Insurance

· No counterparty risk

· Actual ownership of physical gold (LBMA Good Delivery Bars)

· No use of margin or leverage


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How to Trade Gold at the Best Prices
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