By Jessie Browning

We hear it all the time. “Hedge against inflation, buy gold,” or “Diversify with gold!” It’s go-to-dinner conversation when talking about investments. There is some truth to gold continuing to increase in value during economic fluctuation, but it’s more complicated than that. The amount of gold to buy, the form of gold, at what price, and from whom, are all questions that should be answered before you invest. The Federal Trade Commission (FTC) recommends you do some digging (or mining) for answers before taking the plunge.

Arguably, the most important question to answer is what form of gold you are buying. The golden rule to remember is that not all gold is created equal.

One way to invest in the gold market is to buy a gold stock or fund. Here, you’re buying stock in a gold mining firm, or you’re buying into a mutual fund that invests in bullion. This is a common way to invest in gold and most brokerage firms buy and sell these investments. Some benefits of buying gold stocks and funds are that the investment offers more liquidity than buying actual bullion and you don’t have to worry about storing or protecting your purchased gold. Something to consider when purchasing a gold mining stock is that the price of the stock will fluctuate regardless of the price of gold.

Something else to consider buying may be gold bullion and bullion coins. Bullion is a bulk quantity of a precious metal, in this case gold, that is cast as ingots or bars and is usually sold by banks or dealers. Bullion coins are minted from a precious metal and bought as investments from brokerage firms, banks, and dealers. The value of both bullion and bullion coins comes from their precious metal content. The price fluctuates with the market price of the metal.

You can also buy collectible or numismatic coins. These coins are collector coins and have an historic or aesthetic value. Most collectible coins have a market value that is higher than the value of their metal content; this is called the numismatic value. These coins are usually graded by professionals, but the grading is subjective. It’s important to note that the value of these coins is based on their collectability, which could fluctuate more than the market price of the precious metal. The American Numismatic Association recommends doing your homework before delving into the world of collector coins.

The FTC has list of things to consider before buying gold stocks and funds, bullion and bullion coins, or collectible coins:

• Ask for the coin’s melt value. This is the basic intrinsic bullion value of a coin if it were melted and sold.
• Consult with a reputable financial advisor you trust who has specialized investment knowledge
• Shop around. Most banks offer gold bullion, often at a lower markup than dealers.

• Get an independent appraisal of the specific asset you’re considering.
• Consider additional costs associated with the investment, like insurance or a safety deposit box.
• Be wary of buying bullion or bars that won’t be delivered to you, but rather to a “secured facility,” by the seller or a third party.
• Walk away from sales pitches that minimize risk. Reputable sales representatives are upfront about the risk of particular investments.
• Refuse to “act now,” regardless of the consequences.
• Check out the company by entering its name in a search engine online.

Avoid the rush when investing in gold. Be mindful of what it is you’re putting your money into. A piece of advice from the movie Ronin, that still rings true today, “Never walk into a room you can’t get out of”. If you don’t know what it is you’re buying or investing in, then you won’t know how to get out of it if things go wrong.