When investing in gold, making the decision to buy gold is only the first step. You then have to decide how you will buy it. There is no perfect solution to this question individuals will have their own preferences. But it is well worth being aware of the pros and cons of each storage method.
Storing your gold yourself
One option is to take physical possession of gold in the form of bars or coins. However, that means you have to store the gold yourself, leaving you on the hook for any loss or theft.
For free and impartial information on where and how to buy gold bullion coins and bars, see our comparison of leading gold brokers .
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And even if you live in a fortress or have access to a safety deposit box holding gold can be tricky. That's because when it comes to selling the gold you can't guarantee its quality. Investable gold the price of which is quoted in the financial pages has to be of a certain standard.
The bars professional bullion dealers trade weigh 400 troy ounces. The bars are at least 99.5% pure gold, are refined by an accredited bullion dealer and are verified by a process known as assaying. As long as these 'London good delivery' bars, as they are known, move between the vaults of recognised bullion dealers, they keep their integrity.
However, once they move outside, say to a private investor, their integrity is uncertain, as they may have been tampered with. Such gold immediately loses some of its value because, for it to be bought be a professional gold dealer, it would need to re-assayed or even melted down into a new bar.
Allocated vs unallocated accounts
As a result of these challenges, most investors pay someone else to store their gold for them through allocated or unallocated gold accounts.
Allocated accounts use your investment to buy and store physical gold in secure, insured warehouses. Legally, you are still the owner of the gold and the account provider is the custodian.
Unallocated gold accounts don't physically store your gold. They use the money for other investments, but promise to hand you back your gold, or the equivalent money, when you are ready to sell. Because they don't have to pay for physical storage, unallocated accounts have smaller running charges.
However, many feel that unallocated gold is more risky. If the provider goes bust, all you will have is its promise to give you back your gold which will leave you waiting in line with other angry creditors.
With allocated gold, you are still the legal owner of the gold as you just paid the company to store it for you meaning that it would be returned to you if the provider were to go bankrupt.
Pooling your investment
However, even with allocated gold accounts, the exact value of your investment may not exist in separate gold bars the amount of money invested might not tally to the standard weights of gold bars. As a result, many allocated account providers combine several investors' holdings to buy London Good Delivery Bars the most cost-efficient way to buy gold.
At current prices, a London good delivery bar costs around $700,000, so pooling is the only way that most investors can take advantage of the lower prices associated with the bar. Again, some critics aren't happy with pooled gold: in the event of a bankruptcy it could be difficult to separate out individual holdings. We can see their point, but resolving the issue would most likely not threaten your investment.
Your choice depends on your circumstances. On the whole, we'd opt for allocated gold accounts. If you want to hold on to some gold at home, coins are easier to manage and store.
