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Wednesday, May 4, 2011

Ten Common Failures When Buying GOLD

Buying gold has long been touted as a terrific way to diversify your investment portfolio and protect yourself against downturns in global currency values and financial markets.

At first glance, the process seems simple enough. You just find a couple of coins that look good, fork over your cash, and store your loot in a safe, right? Wrong. There's much more involved in gold investing than browsing through a coin catalog and picking out your favorites. Unfortunately a lot of people actually take that approach-and end up losing quite a bit of money while doing so.

But you shouldn't let the fear of making mistakes prevent you from taking steps to solidify your financial standing. All you have to do is be aware of potential pitfalls so you can avoid them when the time comes to buy. Here are 10 of the most common mistakes to look out for prior to purchasing this precious metal.

  1. Lack of knowledge. There is no excuse for being uninformed. As long as you have access to the Internet, you should be able to find out all you need to know about the basic ins and outs of gold investing. You should start by reading a glossary of terms related to this activity before moving on to articles and other resources so you know exactly what the experts are talking about.

  2. Misunderstanding the value of gold. This mistake goes hand in hand with lack of knowledge. In order to invest wisely, you must understand how the metal-especially in coin form-derives its value based on things like history, scarcity, rarity, indestructibility, and global recognition as a desired commodity.

  3. Indecision about your investment amount. People who are new to buying gold frequently make the mistake of either ordering too much or too little of the metal. If you buy too much, it defeats the purpose of diversifying your portfolio. If you buy too little, you're not doing enough to protect your other assets. Most experts agree that your coin holdings should equal from 5 to 30 percent of the combined value of the stocks, bonds, and mutual funds in your portfolio.

  4. Expecting big short-term gains. Gold investing is not going to make you rich overnight, so if you're interested in short-term gains, you should check out other options. The point of putting your money into investment grade coins is to hold onto them for a long time while they appreciate in value.

  5. Linking gold markets to the stock market. Some would-be investors are under the mistaken impression that gold prices are somehow linked to the stock market, and that fluctuations in one will lead to corresponding reactions in the other. But it's important to understand that the two markets are largely independent of one another, so your purchasing decisions shouldn't be based on illusory cause-effect relationships.

  6. Substituting gold stock or ETFs for the physical metal. Buying gold to protect your assets against unstable market conditions, inflation, and other economic problems is a smart move-but only if you get the metal itself instead of stocks, exchange traded funds, or other unworthy substitutes.

  7. Skipping Rare Certified Gold in favor of bullion. Not all gold investments are created equal. Bullion, for example, will not appreciate in value based on age, rarity, or other variables. It will only be worth what the commodities market dictates. By contrast, Rare Certified Gold coins that are held for many years can end up being worth far more than what their weight would command on the commodities market, since their value is driven by supply and demand.

  8. Looking for cheap prices. Although getting a bargain is usually considered a good thing, that's not necessarily the case when it comes to buying gold. Abnormally cheap prices are typically an indication of inferior quality, and are therefore a clear sign to stay away-unless you don't mind getting stuck with something that you won't be able to resell when you need cash.

  9. Working with multiple dealers. Because of the large sums involved in gold investing, it would be worth the time and effort to seek out a reputable dealer and stick with that person for each transaction you make. You will get to know and trust each other a bit more after every deal, which will in turn pave the way for discounts on bulk purchases and similar goodwill gestures.

  10. Failure to understand premiums over spot. Buying gold coins always involves a dealer markup or premium. This is what you're expected to pay over the spot price, and varies from dealer to dealer. It's critical to have some knowledge of fair premiums over spot in order to be able to identify any good or bad deals that might come your way.

In order to make sound decisions when buying gold, it is imperative that you first learn all you can about gold investing. There are lots of factors that impact each transaction, so the more you know, the better your chances of being successful.

Source: Ezine Articles

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