How NOT to buy gold

Stay away from those rare coins sold at a premium that some website is offering.

By Kim Peterson Jun 11, 2010 2:35PM
© Stockbyte/SuperStockThe unease in the markets over the last few years has caused the price of gold to soar.

If you don't think gold is in a bubble, and want to diversify your portfolio to include the precious metal, there are plenty of ways to do it. Check out the SPDR Gold Trust (GLD), for example.

And, as CBSMoneyWatch.com shows, there are terrible ways to buy gold. Kathy Kristof lists the five worst ways to buy, and it's a good read before venturing into the gold business:

1. Don't buy rare coins. You'd have to be a serious expert -- or hire one -- to figure out which coins are rare, and even which ones are real. People fall victim to rare coin scams across the country.

Just buy common coins instead of rare ones, precious metals experts tell Kristof. Try the one-ounce Canadian Maple Leaf, the American Gold Eagle and the American Gold Buffalo.

2. Don't pay a premium. Gold has a spot price, and you shouldn't pay much more above it. Reputable dealers charge about 5% over the spot price, Kristof reports.

3. Don't buy bars. OK, bars of gold look cool. They just scream big money, right? But they're harder to sell because you have to find another investor that wants that much gold, Kristof writes. Better to go with one-ounce coins.

4. Don't buy online. Websites that trade gold can be shadier than a sugar maple in July. In fact, you should be cautious when looking for any gold dealer. It's best to look for someone belonging to the Professional Numismatists Guild, Kristof reports.

5. Don't get "unallocated storage." That's where gold can go when a bank sells it and offers to hold it for you. If the bank fails, you wouldn't be saved by FDIC insurance like a regular depositor would, Kristof writes. Instead, you'd become a creditor -- and good luck getting your full investment back. It's better to store your gold in a safe deposit box, a home safe or with a custodian.

Tags: gold
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