How to buy gold

In this video, Ed Bowsher visits a London gold dealer, looks at various gold bars and coins, and makes his first purchase of physical gold.

Ive become increasingly interested in gold over the last year, so I thought it was time to buy some real, hard gold for the first time.

In this video, you can see me make my first purchase at a London gold dealer and find out how the process works.

I look at various gold bars and coins and see how much gold you can get for your money. I also discuss the different ways to store your gold.

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In this video, I'm going to take you along with me and hopefully I'm going to ask the questions that you would ask if you were here right now. If you've never bought gold before, this should be a really interesting video. And if you're an experienced gold bug, you might be interested to hear what one of London's top gold dealers has to say.

Ed: So, Mike, can you just run me through some of the different types of gold you've got here?

Mike: Certainly. One of the most popular with our customers tends to be the one-ounce coins. They tend to be the same weight as the gold price that you see when it comes up on Google, when you're checking the price. The Krugerrand is the most well established. They've been making it for years longer than anyone else they're the Coca-Cola of gold, if you will.

Ed: What's that one there?

Mike: This one is the one-ounce Britannia, which is the one-ounce coin produced by the Royal Mint.

Ed: So if the gold price is, say, $1,300, these coins here would be worth roughly $1,300.

Mike: Exactly.

Ed: What about some of the others then?

Mike: OK. The next step up tends to be the 100-gramme bar there are also other size gold bars they tend to be made by Swiss and Central European refiners, which means they're very well known and trusted. You've got Metalor here and UBS, a well-known company.

Ed: So how much would this one here be worth?

Mike: The 50-gramme bar roughly, depending on the market, would be about £1,100 -£1,200.

Ed: Right. So which one is the smallest and the cheapest?

Mike: The very smallest, is the one-gramme gold bar.

Ed: Right, so how much is that?

Mike: That one is about £30 to buy. It moves up then, so we have the ounce in the bar, rather than the coin, and the ten to 20-gramme bar inbetween, so they're good for between £300 and £1,000.

Ed: OK great. What about this one, this one here?

Mike: That one is an interesting one actually, that's the sovereign, which you might have seen locked away in the Seventies in jewellery.

Ed: Oh right, medallion man sort of thing, down the disco!

Mike: Exactly! They're a bit more investment-style these days.

Ed: So we have a much bigger one here, what's that one?

Mike: The show-stopper really. This is the largest bar you tend to see on the private market. It's one-kilo bar which is actually 32.15 ounces 32 of those coins, basically.

Ed: Wow, that's heavy.

Mike: Surprising isn't it?

Ed: So right now, roughly how much is that worth?

Mike: Around £25,000.

Ed: And do you often get people coming in and buying these?

Mike: I'd say a couple of times a week. But when the market gets busy, demand can change very quickly.

Ed: I guess if you've got the money it's the best way to buy gold.

Mike: It is if you're buying at a very large scale; a lot of our customers tend to prefer to have smaller units for that amount. The whole thing is usually a toss up between the best price versus the amount of units, because when you want to sell, you might not want to sell all at the same time. You might want to sell in little bits and it's nice to have smaller.

Ed: The per-ounce cost is slightly lower with that and with that

Mike: Exactly, It's like anything, the more you buy, the cheaper the price.

Ed: OK. Fair enough. So how do I know these are real gold?

Mike: That's a very good and very fair question. The most obvious thing is to buy from a trusted dealer; you need an expert to verify them, basically. There's a list of bars on the London Bullion Market Association, the LBMA, and to be on that list you have to make the bars the bank size, Italian Job size, the ones that don't leave the vault.

Ed: People say it's a good idea to bite them, does that work? What does that tell you?

Mike: I wouldn't advise it.

Ed: Why, would it hurt your teeth?

Mike: It would hurt your teeth, and probably hurt the bar a little bit as well. Gold is a lot softer in its pure form than people tend to think.

Ed: Oh right, OK. I didn't know that, that's good. So is it better to buy bars or coins?

Mike: It depends on the level of the investment; at around about an ounce the Krugerrand is brilliant the one-ounce coin because everyone knows them; there's a lot of them around and the premium is a little bit lower, so that'll save you. The bigger you get, the bars start becoming the better option.

Ed: What's the best way to store the gold? At home or should you go with a storage company? How much are the storage companies?

Mike: Ultimately people want to buy physical gold from us rather than paper gold ETFs, things like that. The beauty of gold is that you're holding the wealth in your hand. If you're storing it, up to a certain point, you have to trust a third party. That being said, at a certain amount, people get nervous about having it in their home. With our customers I'd say it's about 50/50. They tend to get maybe to around £10,000 and even if they have a safe built into the home, they might not feel as comfortable.

Ed: If the gold is worth £10,000.

Mike: Exactly. It's a large amount; you wouldn't want to hold maybe £20,000 in cash you might feel nervous. So there are people that do it; ultimately you will have to trust a third party; you can do it at a bank, though you sometimes have to arrange your insurance with that. Dealers like ourselves, we offer storage. You tend to pay about half a percent to a percent of the value.

Ed: Every year?

Mike: Every year. Plus VAT. I can't speak for all dealers but...

Ed: That's quite a lot but I guess it gives you peace of mind.

Mike: Certainly, yes. You don't have to necessarily have it all in a vault or all at home; you can split it. But our customers are interested in the physical; they like to hold some if they can.

Ed: How much does it cost to buy with a dealer; what are the costs involved?

Mike: Depending on the size of the transaction, you'll see anything from 2% going up to 20% for the very small stuff; but when you're talking about an ounce, you're generally talking about a 4%-8% over the spot price at the time.

Ed: Right. The bigger the amount of gold the less you charge.

Mike: Exactly.

Ed: OK, fair enough. What about tax and gold? I think British coins differ from overseas gold coins, is that right?

Mike: The Britannia and the sovereign are exempt from capital gains tax in this country at present. If you have foreign coins, Krugerrands, it does count toward your allowance, but not everyone uses their allowance. I believe it's £10,000 per year* that you're allowed to take in profit before capital gains tax kicks in.

Ed: Right, but if I've got a sovereign or a Britannia, it doesn't matter how much I sell, I never have to pay capital gains tax?

Mike: Exactly.

Ed: Are you selling a lot of gold at the moment?

Mike: We are. It's funny because the papers talk about the slide in gold, how it's fallen off, and our investors tend to see it as a buying opportunity. We tend to find that no matter what the price has done, the demand for physical stays very consistent. A lot of our customers are life gold buyers.

Ed: People can sell gold here as well, can't they?

Mike: Certainly, yes. We buy and sell.

Ed: Do people sell more when the prices go down or when they go up how does that work?

Mike: It really does depend. A lot of our customers buy and sell over a lifetime; some of them don't sell unless they have to. But they have the knowledge that if they ever do need to they can sell.

Ed: OK. Gold's had a pretty rough time of it lately. Where do you think the gold price might go from here?

Mike: I wish I knew, short-term. It would make this job a lot easier! I tend to think that we might see a lot of fluctuations at the moment; you hear a lot about conflicts in Iraq and Ukraine and that does make the gold price volatile. In the long term, gold tends to do very well. Provided you don't have to sell it, it will always come back.

Ed: Okay, well that's great. Thank you, Michael. I'd like to buy some gold now.

Mike: Excellent.

Ed: So how much is this one?

Mike: The ten-gramme bar is £270.

Ed: OK, great. There you go.

Mike: Thank you very much. OK. There you are.

Ed: Thank you very much.

Mike: My pleasure.

Ed: So I'm now officially a gold investor. It's not much, but it's a start. Hopefully you found this video useful and it's answered at least some of the questions you might have about buying gold. And if you have any more queries, please feel free to contact us on Twitter @MoneyWeek. We'll do our very best to answer your questions. So that's it, hope you found this video useful and here's hoping the gold price starts to soar.

* For the tax year 2014-15, the capital gains tax allowance is £11,000

Ed has been a private investor since the mid-90s and has worked as a financial journalist since 2000. He's been employed by several investment websites including Citywire, breakingviews and The Motley Fool, where he was UK editor.


Ed mainly invests in technology shares, pharmaceuticals and smaller companies. He's also a big fan of investment trusts.


Away from work, Ed is a keen theatre goer and loves all things Canadian.


Follow Ed on Twitter or Google+.