Ask the Expert: Novice Investor's Cheat Sheet
With record prices on gold and other bullion products, many investors are anxious to add one of these precious metals to their investment mix. However, if you are new to precious metal investment products, you may find some of the jargon used confusing or even incomprehensible.
Here’s a breakdown by Andrew Schrage, editor of the Money Crashers personal finance blog, of some of the most commonly used terminology:
Ask: The seller’s offer price.
Bid: The buyer’s offer price.
Bid-Ask Spread: The price differential between the ask and the bid.
Melt value: Value of the gold based on its weight at current spot prices.
Obverse and reverse: The heads side (front) of the coin is the obverse; the tails side (back) is the reverse.
Spot price: Price investor is willing to pay for immediate (spot) delivery of gold (typically a two-day window).
Precious metals: Bullion products such as gold, silver, palladium or platinum.
Schrage says that most investors opt for coins rather than bars when investing in precious metals like gold since coins allow investors to make much smaller investment at lower weights. In addition, gold coins are easy to store, transport or sell.
South African Kruggerands or American Eagles are two popular choices with investors. The downside of owning physical gold in bars is when you are ready to sell, you must sell the entire bar as there is no way to liquidate just a portion of a gold bar.
He recommends holding about 5% of one’s total portfolio in gold, which he considers to be an excellent hedge against market fluxes and one of the best ways of diversifying assets.
He adds, "Buying gold is a good investment, especially in light of the US decision to go ahead with raising the national debt ceiling, which has caused increased concern for inflation. But before you rush into investing, you need to understand exactly how to invest in gold, what affects gold prices, and the different options that are available."
For more tips and advice, be sure to check out Bright Hub's Guide to Investing in Precious Metals.