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Buy Gold and Silver Online

Updated on August 3, 2011

Should You Buy Gold and Silver Online?

Everybody wants to get rich, but no one wants to spend any money. Some element of risk must be assumed. Hoarding your income in a government-guaranteed savings account may engender feelings of security, but don't expect to live off the interest. Gold and silver may represent investment opportunities mixing appropriate amounts of uncertainty and growth. These precious metals are available at local coin stores and also through online vendors.

Anyone can put up a web site. Flashy graphics, sincere fonts, and endearing logos offer no promise whatsoever of reliability. A company going out of business or suffering a court-ordered shutdown may forget to remind their hosting service to pull the plug on the domain. Automated processes will happily process credit card payments even if there's no one to fulfill orders and balance the checkbook at the other end.

What's the catch?

The underlying premise behind every online transaction is simple enough: someone wants to make a profit. Selling gold coins or gold ounces is no different than marketing bananas at the local grocery store. If the seller cannot sell their wares for more than they paid for them, they will soon be out of business.

Expect to pay more for online precious metals than the commonly reported values that fascinate television reporters. Gold prices are boiled down to one simple number, called the 'spot price', and delivered to hungry viewers as if such amounts actually apply to small online orders placed through web sites with credit cards. Reality rears its' ugly head in the form of markups that must be added in order to ensure profitability for the seller.

What's the trick?

Buying gold or buying silver can be accomplished efficiently by searching out sellers who apply the smallest markup to their products What they originally paid for the metals is not relevant. They may be selling a pile of metal they purchased 2 years ago at 1/2 of the current spot price. On the other hand, they may purchase their wares in sufficient volumes to actually have access to the spot price. What they are selling you may not even be in their possession at the time your transaction is posted.

Solving the puzzle of buying online gold and silver
Solving the puzzle of buying online gold and silver | Source

What is the "Spot Price"?

Some precious metals are assigned a spot price, implying that somewhere there's a market that is buying and selling small units of the product somewhere in the vicinity of that price. Truth be told, there's a bid and an ask price that are both referred to as the spot price. The ask price loosely defines the amount that sellers are asking for their wares. The bid price approximates how much they are willing to pay for the same items.

The difference between the bid and the ask prices defines a general level of profit that am entrepreneur who is both buying and selling can expect to make. It provides some level of standardization for the market. Of course, no one is obligated to abide by these prices, but market pressures usually keep most dealers in line.

Here's an example

A company called APMEX (American Precious Metals Exchange) offers gold in many forms. These folks list on their web site a physical office in Oklahoma, referred to as a 'trading office', and they also publish a toll-free telephone number. Their home page boasts BBB approval as well as McAffee and Versign protection.

Coins and bars (ounces, grams, and even kilograms) can be ordered in single units or larger quantities. On the day we checked, a single unit of gold weighing 1/10 ounce could be ordered for $179.55. Extending this to the traditional gold pricing reveals that gold could be purchased for $1795.50 per ounce.

The concurrent spot price for an ounce of gold was $1,544.60. Public school math tells us that APMEX adds a $250.90 markup per ounce. That's a 16% increase. In other words, your investment would have to increase by 16% simply to break even.

There's nothing devious about these markets. Spot prices are easily obtained from a veritable plethora of web sites. Comparing retail prices to spot prices of gold and silver is basic arithmetic. The most important lesson to be learned from our simple scenario might be: gold is a long term investment. Should purchasers plan to hold their gold for sufficiently long periods of time such that a 16% immediate loss can be recouped, then perhaps such an expenditure is a good strategy.

Is there a moral to the story?

Shopping online for precious metals is an exercise in vetting and arithmetic. Always carefully consider the reputation of the company to which you send your investment dollars. Purchasers always have some security when selecting forms of gold or silver that are easily exchangeable through alternate channels. In other words, if you purchase a standardized product from a reseller, you will continue to have options if the reseller vanishes in a puff of logic.

Rely on your pocket calculator or your 6th grade honor student when calculating the different between the retail price and the spot price. You may be surprised, but you will always learn something.

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    • dallas93444 profile image

      Dallas W Thompson 6 years ago from Bakersfield, CA

      Great information. Flag up and useful!

    • profile image

      Old Poolman 6 years ago

      Great hub, and thanks for sharing this information. I have been looking at some websites selling gold, and this hub explained a bunch for me.

    • drbj profile image

      drbj and sherry 6 years ago from south Florida

      A veritable plethora, eh, Nicomp? Who knew?

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