The continuing price appreciation of gold as a commodity has drawn increasing attention from the investing public as individuals look to participate in rising prices. While goals range from a desire to achieve profits to the wish to use gold as a hedge against inflation and a store of wealth, as long as prices stay elevated, investors will consider various ways in which to buy gold. Within the listed markets, choices include the purchase of gold stocks, exchange-traded-funds, futures contracts and options.

Physical gold, however, is not to be overlooked as it offers many options and is not subject to the solvency of an institution that backs the various financial instruments mentioned. What follows is a brief introduction to the various ways in which an individual can invest in physical gold. It is important to consider one’s objectives and personal circumstances before making a commitment to any investment.

Buying Gold Nuggets

Buying this form of physical gold tends to be the most emotionally rewarding, but often carries the greatest premium to the price of spot gold. Spot gold is the price per ounce that gold trades for in the open market at any given point. It is the basis for valuing any gold investments, physical or otherwise. Gold nuggets trade at a significant premium to spot gold because their value is not derived solely from the fine gold content they contain. Gold nuggets are valued as unique pieces of art and for their geological interest. It is these latter reasons that gold nuggets are able to evoke such a significant emotional response. It is critical to remember, however, that this premium may be lost as it is not driven by intrinsic value.

Buying Gold Coins

This is the most common vehicle by which individuals invest in physical gold both for investment and wealth storage. Coins can be minted in much smaller sizes, and, therefore, are more appropriate for smaller investors. With the price of gold at current levels, a one-ounce gold coin would have a gold value in excess of $1500. Since most investors are not able to afford entire gold bars, this form is most commonly used.

Gold coins come in two primary forms: collector coins and bullion coins. Collector coins are valued for their rarity, their historical significance and as having a currency value that is stamped on the surface. The distinguishing factor that defines a bullion coin is that its value is entirely based on the purity and mass of gold it contains. In addition to providing investors with manageable denominations, many jurisdictions, including the European Union (EU), offer tax-advantaged status to gold bullion that is purchased for investment purposes.

Buying Gold Bars

Gold bars offer investors the smallest premium to spot gold when buying physical gold available on the market. The most common form of gold bars are referred to as Good Delivery Bars because they comply with the standards that are set forth by the London Bullion Market Association (LBMA). By complying with these standards, an investor, dealer or bank is assured that the quality of the gold bar is in line with set specifications that make valuing these bars very straightforward.

A Good Delivery Bar is 400-troy-ounces, must be no less than ninety-nine and a half percent pure and must contain between 350 and 430 ounces of pure gold. In addition, Good Delivery Bars must be stored in an approved facility to maintain this status and their value.

The result of the large size of these bars is that few individual investors are able to afford entire bars. In order to maintain liquidity, many dealers will allow an investor to purchase a fraction of a bar. While one’s purchase must remain in a vault, the advantage of this approach is that there is very little premium and the gold is easily sold when the time comes.

Buying Virtual Gold

When one buys gold within a vault, there are usually two options for what type of account one prefers: an allocated account and an unallocated account. In an allocated account, the investor is given specific gold that is held in that person’s name. This has the advantage of providing an iron-clad chain of ownership, but it creates the need on the part of the investor to pay a storage fee. With an unallocated, or virtual account, the amount of gold that the investor purchases is recorded, but no specific gold is assigned. In this case, no storage fee is paid, but in the unlikely event of insolvency by the vault, actual ownership is harder to prove.

Overall, each of the above options has advantages and drawbacks. Gold nuggets possess a certain romance, but carry the highest premium. Coins are the most manageable and may offer some tax benefits. Gold bars are the most pure and carry the lowest premium, while virtual gold negates storage cost but may cause ownership issues in extreme cases. Before investing, one should become familiar with the various options and select the one that is most suited to one’s needs.