Buying Physical Gold: Mistakes Investors Often Make
Currently, the number of people who are picking an interest in buying physical gold is on the rise. Some do it for investment. Others, especially buyers of gold jewellery, do it as a means to protect their heritage. However, when buying gold, there are many mistakes that these buyers often make. These gold buying mistakes obstruct the fulfillment of the intended goals of the gold purchase. In today’s post, we will talk about the grave mistakes gold buyers make when buying physical gold.
The very first one is that many do not often verify the quality of their gold
Failure to verify the authenticity or the level of purity of the gold is one of the biggest mistakes often made by gold buyers. There are two ways of doing this: either you look out for the gold seal specifying the degree of purity or carry out a physical test. When it comes to purity, there are two scales that gold refineries use to show how pure the gold is. In Europe, gold refineries use a numerical grading system. It runs from 1 – 999, with 999 being the purest gold. In the United States, gold makers use “karats” also sometimes spelled as “Carat”. The Carat scale ranges from 0 – 24 karats, with 24 being the purest and the highest quality gold. So, when buying physical gold, special attention must be paid to this. Here is a breakdown of the different karat qualities and their purity levels:
• 24 Karat gold (24k) – here the gold is 100% pure.
• 21 Karat gold (21k) – the purity of this gold is 91.7 percent.
• 18 Karat gold (18k) – has a purity level of 75 percent.
• 14 Karat gold (14k) – This gold is 58.3 percent pure.
• 12 Karat gold (12k) implies there is only 50% gold in the article being sold.
When buying physical gold, there is also a need to know the different number stamps that are used across the world. In Europe, for example, the following number stamps are used to indicate the level of purity:
Purity Level Number Stamp
22 Karat gold 916
18 Karat gold 750
14 Karat gold 585
9 Karat Gold 375
Sterling Silver 925
Britannia Silver 958
However, you should also be warned that sometimes the mark or seal that is engraved or printed on the gold may not guarantee the purity of the gold. You can use it as a starting point in the process of carrying out your tests.
When buying physical gold, many buyers do not carry out tests to verify the level of purity of the gold they are buying
The only way through which you can determine the degree of purity of any gold you would like to buy is by doing a physical test. As we already saw in our previous posts, the most popular two ways of doing them are the magnet test and the acid tests.
(i) The magnet test: Here, a magnet that is made of neodymium can be used because it is known to have the greatest effectiveness in the test. Since gold is not a magnetic metal, it doesn’t react to magnetic forces. As such, when you bring your magnet closer to the gold and it does not move, it means the metal you are testing is not real gold. However, one thing you should know is that this method is not as effective as the nitric acid test. When buying physical gold, endeavor to carry as many tests as you can.
(ii) The Acid Test: this test involves the use of nitric acid. The person testing the gold will put the gold piece in a stainless steel container. Thereafter, he will add a drop of nitric acid and wait to see the reaction. If the color of the piece becomes green, it means it is not gold. Probably, it could be another metal. On the other hand, if the color of the piece turns white, this could mean that the piece is gold-plated silver. However, if there is no reaction at, it is probable that the piece you have tested is real gold.
(iii) Manually reviewing the gold: When buying physical gold, the buyer can manually review the gold. In this case, special attention must be paid on the existence of the signs of wear and tear on the gold. When gold is plated, it tends to fade and wear over time. Some of the physical gold that often wears out include jewelry, objects, and coins. The points that wear out fast are the edges that come into contact with the cloth or skin surfaces (for jewellery). If a different color is visible in these areas, there are higher chances that the piece you are about to buy is not genuine gold. It could imply that the piece was made with another metal and later plated using gold.
Some buyers do not take security measures when transporting their gold
Security is very important during the time of transporting the gold you have bought. This is more so if the gold is going to cross borders. Do not hide any gold! Declare what you are carrying at the customs checkpoint and show the officials the proof of payment of the gold. If you are buying gold from an unknown country, it is important to be security conscious. Avoid unnecessary conversations with strangers, especially telling that you are buying physical gold from the country, or carrying gold. In addition, a public display of gold jewelry can be disastrous. Women suffer a lot when buying gold jewellery from Kenya. In the excitement of wanting to show everyone that they are buying gold, they usually become victims of attacks. After buying physical gold, use safe vehicles or taxis in the process of carrying out the ground transportation. Do not ever travel using public means, especially if you are carrying bulk physical gold. Therefore, you must first investigate the level of security in the place you intend to make your gold purchase from. In every city across the world, there are “safe” and “danger zones”. As such, you should always use safe roads and streets. If you are residing in a hotel, ask if they can help you store the gold in a safe box. In some cases, there are hotel rooms that have their own safe boxes. In the event that the hotel does not have such facilities, employ someone to guard the gold when you are out or departing from the hotel.
Another mistake when buying physical gold is ignorance of the local laws and regulations
If you intend to start buying physical gold from a particular country, you should endeavor to learn the local laws and regulations in that country. This will help you not to have problems with the local security in the place of your gold purchase. As we all know, ignorance of the law is not a justification for failure to comply to such laws. In different countries, there are different quantities of gold that individuals may be allowed to transport. For example, the European Union permits the carriage of gold worth 10,000 Euros. Anything above that must be declared to the customs authorities in the country. In the United States, you will be mandated to declare any gold whose worth is greater than US$ 10,000. However, the most important thing is that you should bear documents that show ownership of the gold, or the gold objects you are carrying. In Africa, the case is quite different. You can transport as much gold as you like, especially when you buy from the gold-loaded Democratic Republic of Congo. But, then, you should pay special attention to the above if you intend to transport the gold to Europe or the United States of America.
Some gold buyers do not buy gold legally
Some people think that when you engage in buying physical gold illegally, you save yourself from paying additional costs like commissions, and taxes. One thing you should know is that some of the gold that is sold illegally may not be authentic. In addition, you may not be able to show proof of payment when tasked to do so at a customs point. Having authentic documentation makes the transportation of gold easier. Unfortunately, it may prove to be the most difficult thing if the documents are not in place,
Another mistake is that most gold buyers do not ask for proof of ownership
When buying physical gold, you should always ask for the proof of ownership of the gold. This will help you know whether the seller is the true owner of the gold. During the transportation of the gold, it will help the airport authorities or customs officials to ascertain the origin of the gold. In addition, this will also help in the calculation of the value of the gold, in order to ensure it doesn’t exceed the mandatory US$ 10,000 value. Beyond this, the buyer has to make a declaration and pay certain taxes.
Buying gold with the expectation that you will profit in the short term
If you are an investor who has decided to start buying physical gold, you should never have unrealistic expectations. Some people venture into the business with the expectation that they will make profits in weeks or months. Gold trade is not a short-term investment. Gold does not behave the way other commodities do. Sometimes, its price can remain stagnant for a long time, or rise gradually. Because of the above factors, it becomes difficult to sell. As such, you should only invest in gold with a focus on long-term profiteering.
The misconception that buying ETFs is like buying physical gold
Many gold buyers usually think that an ETF is physical gold. What you need to know is that in buying physical gold, you take the gold into your hands. On the over hand, making an investment in the gold ETF is tantamount to owning a piece of paper with many clauses and conditions. Gold ETFs are risky owing to the diction in the certificates. Since many people do not always take the time to read the fine print, they are unable to discover that an ETF seller has all the powers. In case things do not work out, there are many clauses written in the owner’s favor that can’t allow an investor to assume all obligations. In the end, the investor may make losses, or remain without anything of value. The most paramount risk with ETFs is that they do not give you the chance to own physical gold. In this case, buying physical gold should be considered, instead of the former.
Some investors think that buying gold jewellery is better than investing in gold bars, or gold coins
One thing you should know if you subscribe to this line of thought is that there are many disadvantages associated with buying gold jewellery. The very first of them is that it I more difficult to store, than for example, gold bars. The space/quantity ratio required for the storage of gold is high. Gold bars or gold coins will take up less space, and even store more gold. This makes gold bars and gold coins to have a better space/value ratio. Another factor when buying physical gold in the form of jewellery is that it is quite hard to determine the value of gold in the jewellery. Some jewels that are decorated with precious stones may increase the weight, yet the gold in the item is less than the value in weight.
Finally, some buyers do not have clear objectives when buying gold
In buying physical gold, there are many motivations. Some people just buy it because they think it is the latest “fashion”, or simply because they have been lured into buying by pieces of advice from others. As such, you should be very clear about your intentions in making this gold acquisition. Know all your objectives and the reasons why you need to invest in gold. There are investors who buy gold with the intention of offering protection to their assets, while others do it with the intention of making profits in the long term. Most importantly, you should make the decisions based on your research and priorities.
Do you want to start buying physical gold today? Partner with us
We sell high-quality gold bars from the Democratic Republic of Congo. If you are interested in raw physical gold, or gold dust; we can supply that too. Buying physical gold at below the current gold market price is only possible when you buy from Africa. Come to Kampala or Nairobi. You can also contact us for more details on how to start buying physical gold from East Africa.
