A cautionary tale of sleepless nights and tortured days…
Kudos to Alex from the BullionVault news crew for writing this excellent article about how NOT to buy gold. Take heed dear gold investors.
BUYING GOLD ought to be a pleasure. Swapping your hard earned (yet all too easy to print) paper money for something solid, trustworthy and rare – and hopefully maintaining or even increasing its value – should help you sleep at night.
That’s certainly what BullionVault delivers to its customers. But my experience of buying gold before helping to create this online service was a different matter altogether. Let me share my pain, so you don’t have to…
Discovering the Gold Market
I got out of most of my stock-market investments just before 2000 for a number of reasons, not least the insane market valuations and the Millennium Bug – which wrought more trouble with the abrupt culmination of all those massive bug-fixing projects than any bugs which actually arose.
Whilst I was seeking a worthy place for my cash, flyers for the Fleet Street Letter and Daily Reckoning dropped through the door. They mentioned an arcane investment returning to fashion – Gold – alongside the resurgence of inflation through excessive money supply.
Coincidental with the demise of the Millennium Bug was the European Union’s abolition of VAT on investment gold on 1st January 2000 – perhaps intended to foster demand for the intended sales of central bank gold, that “barbarous relic” from less-enlightened, less sophisticated times.
Learning more about the private Gold Market over the following months, I realized what a confined and confusing place it can be for the private investor.
Where to Buy Gold?
It seemed there were perhaps only a couple of dealers where one might buy a kilo bar of Gold Bullion. Hardly a competitive market, with several per cent premium to pay on even a few kilo bars at a time. Gold Certificates seemed only a little easier or cheaper – and the lowest-cost options came “backed” by a promise of gold, rather than simply delivering physical gold itself.
With those premiums, hassles and concerns to discourage me, I watched the Gold Price slowly rise against the Dollar. And after watching it rise for too many months, I also realized just how much gold really had risen against the Pound Sterling, too!
I finally decided to Buy Gold, and so I talked to the main private gold dealers I could find. Both of them were based a significant distance away from my home, and – to be honest – they didn’t seem to be in the most reputable locations, either.
I couldn’t take time off work to buy my gold in person, so instead I chose to buy gold from the closest dealer by telephone. I was instructed where to wire my funds before I could purchase any bars, with an added premium to cover any intervening moves in the Gold Price.
Yet more alarm bells started ringing when I saw that the dealer’s bank account had no mention at all of the company I thought I was dealing with. But I wanted to Buy Gold, and so – after allowing time for the funds to clear – I telephoned the dealer, ready to buy my bars.
There and then I was offered a price – take it or leave it – which I took. The bars would be delivered to me by post the next day, plus a cheque (sent later) for any unspent funds.
With my gold bought, if not yet delivered, I checked the live spot Gold Price quoted on the internet…and found I’d paid way too much. So I phoned my dealer, complained, and got a little extra discount.
Right, time to relax I thought.
Taking Delivery of Gold
But the next day, the bars didn’t arrive.
I would have liked to have been at home awaiting the delivery – but I’d had to trust my flat’s extremely honest landlady (thanks, Gloria) to receive them while I was at work. I didn’t tell her exactly what was arriving, so it was hard to express my concern when she told me that my mystery parcel hadn’t made it.
Where had it gone? Had I been hoodwinked?
It was too late to do anything that evening; snow was still falling from the freezing night before. So I prepared a plan of action for the next day – including, perhaps, a visit to the dealer in person.
Next morning after a sleepless night, I got up, went to work, and called the dealer. He reassured me that my gold bars should arrive later that day. The delay, it seemed, was because the delivery truck had been abandoned overnight on the motorway due to those icy conditions – with my gold bars inside!
Returning home that evening, I was happy to find Gloria minding some very anonymous, grey, plastic envelopes with a bemused expression on her face…
“What’s in these bags? They’re very heavy for their size!”
They should be, I thought. They’re about twice as heavy as lead, Gloria…
Gold: Return to Sender?
In privacy I unwrapped the bars from their bags. Inside each was a dull gold brick, the size of a Mars bar, stuffed inside another heavy-duty transparent bag to better protect its soft metal.
Each bar looked a little worse for wear, and far from the pristine condition I expected. Gold bars tend to be covered in nicks and scratches, but new to the game, I wondered just how much metal I’d actually bought, let alone whether I’d actually received the 99.5% pure gold I’d paid for.
I weighed the bars, measured them, and calculated their density – which all seemed about right. But I still wondered if anyone, even the dealer I bought them from, would actually take back such bars for anywhere near the current Gold Price when I wanted to sell.
In fact, I was now sorely tempted to call the whole thing off, and sell the bars straight back. One thing that stopped me, however, is that normal couriers are reluctant to handle more than £5,000 in one delivery. Back then in 2002, that £5,000 limit was already less than one small gold bar’s value.
For sending out gold, it seems, the gold dealers apparently have a special arrangement. But to return my gold for re-sale, I would have to arrange something even more special, or go in person.
So I kept the bars – together with the associated hassles of finding somewhere to keep them, and the eventual hassle of selling them, somehow, for a fair price. Now I know much more about gold, and I am happy to have bought those bars in the first place – even though their value initially went down for a year!
I’m also happy they helped me along the path to finding and helping develop the BullionVault service. Building a better way to buy gold – instantly, online, and for the lowest mark-ups you’ll find anywhere – was worth those sleepless nights and high-stress few days.
But having said that, if you know anyone wants to buy a kilo gold bar – and who’s happy to pay more than the 95% valuation of my gold that a dealer would most likely give me – do let me know!
I’d rather have all my gold held in Zurich, Switzerland – and looked after by BullionVault.
Alex Edwards, 01 Feb ’08