Yes, Gold Bars Can Be a Smart Investment If Done Right
I get asked all the time – "Jason, are gold bars really worth buying or not?"
After researching this extensively as a financial writer, my answer is yes – purchasing physical gold bars can absolutely be worth it as part of a diversified, long-term investment portfolio.
However, there are some caveats. You need to go into it with full knowledge of the pros, cons, and best practices for buying gold bars prudently.
Blindly rushing out and overpaying for gold will likely lead to disappointment. But when allocated wisely alongside other assets, I‘m convinced that gold bars should retain a place in many investors‘ portfolios.
In this detailed guide, I‘ll break down everything you need to know before adding physical gold to your wealth management strategy…
Why Gold Has Endured as a Reliable Store of Value
Before jumping into the pros and cons of buying gold bars specifically, it‘s worth looking briefly at why gold itself has remained so valued over centuries and across civilizations worldwide.
Unlike paper currencies which come and go, gold has intrinsic properties that make it a dependable means of exchange and stable store of value, including:
-
Scarcity – The amount of gold in the world is finite. Annual mining output equates to just ~2% of total supply, keeping gold relatively scarce.
-
Durability – Gold does not corrode or degrade over time, enabling it to endure for millennia.
-
Portability – Gold has a high value-to-weight ratio, making it convenient to transport.
-
Divisibility – Gold can be divided into smaller coins or bars with no loss of value.
-
Uniformity – Gold is consistent in quality and purity across the globe. A gold bar represents true wealth anywhere in the world.
These inherent characteristics underpin gold‘s role as money – a trusted medium of exchange and reliable store of purchasing power.
While no currency is perfect, gold has proven far more stable over long periods than fiat money not backed by anything tangible.
When answering "Are gold bars worth buying?", this context of gold as real money – versus paper promises – is key.
Now let‘s examine the merits and drawbacks of owning it specifically in bar form.
The Case For Buying Gold Bars
Diversification
Investment portfolios typically perform better when diversified across asset classes that can balance each other out.
Gold exhibits low correlation to stocks and bonds. Its price tends to move independently from other securities, making it a wise diversifier.
The chart below illustrates gold‘s divergent performance during stock market crashes in 2000-2002 and 2008:
| Year | S&P 500 Returns | Gold Returns |
|---|---|---|
| 2000 | -10% | 5% |
| 2001 | -13% | 2% |
| 2002 | -23% | 25% |
| 2008 | -38% | 5% |
Adding gold bars to an investment mix hedges against volatility and declines in other assets.
Inflation Hedge
History has proven gold to be an effective hedge against inflation over time. When the cost of living sees sharp rises, gold prices often trend upwards as well.
For example, during the 1970s when CPI inflation in the US surged over 10% annually, gold prices increased over 2300% rising from $35/oz to $850/oz.
Owning gold bars can help protect purchasing power. This is especially beneficial during economic scenarios like stagflation where both inflation and low growth occur simultaneously.
Long-Term Returns
While past performance is no guarantee of future results, gold bars have delivered consistent positive returns over long periods:
- The price of gold has increased every decade since the 1970s.
- Gold has dramatically outperformed major currencies like the US Dollar over 50+ year periods.
- From 2000 to 2020, physical gold gained over 550% compared to 95% for the S&P 500 stock index.
Gold should primarily be viewed as wealth preservation and insurance, rather than a get-rich quick scheme. But prudent gold bar investment can produce satisfactory long-run returns.
Tangibility
Physical gold bars and coins have tangible value you can see and touch. This provides a psychological assurance that paper forms of wealth can lack.
Knowing your investment is real and concrete – not just an entry in an account – gives peace of mind for many gold owners.
No Counterparty Risk
Counterparty risk refers to the possibility that the other party in an agreement will default on their obligation.
Examples include bonds defaulting, brokers going bankrupt, or bank collapse. Gold bars kept in your direct custody eliminate counterparty risks inherent with financial securities dependent on issuers‘ solvency.
Liquid Asset
Gold bars are highly liquid. They can easily be sold for cash around the world. Greater liquidity brings greater convenience and flexibility versus less marketable assets.
Universal Recognition
Gold is immediately identifiable and accepted everywhere. You can travel across borders with gold that retains recognizable value. This level of global fungibility provides investors added security.
Historic Stability
Unlike fluctuating fiat currencies, gold has largely retained its purchasing power over centuries. This helps instill confidence that gold bars should reasonably preserve wealth into the future as well.
Privacy
Physical gold is not tracked in the financial system like bank accounts or brokerage holdings, offering anonymity that some investors desire.
Satisfaction
There is a satisfying, emotional aspect to physically holding gold bars that more abstract investments lack. The tangibility can bring confidence and comfort to investors during tumultuous times.
Drawbacks and Risks of Buying Gold Bars
No Regular Income
Unlike bonds or dividend stocks, gold does not provide any regular payments. It relies solely on price appreciation. You need other income sources in a portfolio.
Price Volatility
While less volatile than equities long-term, gold remains prone to sometimes wild price swings over weeks or months. Stomach for short-term volatility is required.
Costs
Buying and selling gold bars entails premiums, shipping fees, storage costs, and potential taxes. These expenses chip away at net returns.
No Growth
The amount of gold is finite – it cannot grow or expand like a company. Population growth and economic expansion tend to make other assets like stocks rise faster over full business cycles.
Questions on True Value
Some skeptics argue gold has no fundamental value beyond what investors are willing to pay. However, this criticism could be levied against all currencies and assets if taken to its logical conclusion.
Security Risks
Bars stored at home could potentially be lost, stolen, or damaged. Proper security measures are a must.
Lack of Regulatory Oversight
Gold markets are not regulated like securities, so investors must be cautious of unscrupulous dealers. Only buy from reputable sellers with long track records.
Tax Treatment
In some countries, gold is subject to higher capital gains taxes than typical securities. Understand any tax obligations before buying.
Different Types of Gold Bars
If you decide to buy physical gold bars, it‘s important to understand the different varieties available:
Cast Bars – Produced by pouring melted gold into a mold, these usually range from ~5 ounces up to 400 ounces. Popular for institutional investors.
Minted Bars – Manufactured using precision tooling for an exact weight and stamped design. Most common for individual investors in sizes like 1 gram, 10g, 1 oz, or 10 oz.
Hallmarked Bars – Stamped with a mark from an accredited precious metals hallmarking agency certifying weight and purity. Adds credibility.
Small Bars – Weighing under 10 grams, these "finger bars" offer affordability. Popular gift items.
Assayed Bars – Accompanied by an assay certificate from an independent lab verifying fineness. Provides further validation.
Various Fineness – Bars are produced in different purity levels like .995, .999, and .9999 fine gold. Prices vary accordingly.
Gold Grams – Similar to bars but in gram sizes, these small pieces are stackable. Easy way to gradually accumulate holdings.
Smart Tips for Buying Gold Bars
Here are my top tips for purchasing gold bars in a cost-effective, reputable manner:
-
Compare pricing – Always check premiums between a few dealers to get the best quotes.
-
Verify specifications – Confirm details like weight, purity, and brand before purchasing.
-
Buy hallmarked and assayed bars when possible for integrity.
-
Work with established dealers with long track records and positive reviews.
-
Avoid "too good to be true" deals which may indicate counterfeits.
-
Read terms carefully to confirm delivery, refund policy, etc.
-
Consider smaller sizes like 10 gram, 25g, or 1 oz bars to keep premiums lower on your investment.
-
Use insured shipping with signature confirmation upon delivery.
-
Save receipts and invoices for tracking your cost basis and any sales.
-
Get multiple appraisals when selling to ensure you receive fair current market value.
Secure Gold Bar Storage
Once you take delivery, make sure your gold bars are safely stored:
-
In a home safe bolted down or hidden in a discrete location
-
In a bank safe deposit box for a layer of third-party security
-
In an insured private vault for large gold holdings that require maximum protection
-
In a storage account through companies like GoldSilver, BullionVault, or GoldMoney
-
In a safe at your office if you have access to one with adequate protections
Avoid obvious places like jewelry boxes or desk drawers more vulnerable to theft. You want your gold bars securely out of sight.
Typical Gold Bar Pricing
Popular gold bar sizes and their normal premiums above the fluctuating spot gold price include:
| Bar Size | Typical Premium |
|---|---|
| 1 Gram | 15-20% |
| 10 Gram | 10-15% |
| 1 oz | 6-8% |
| 10 oz | 3-5% |
| 1 kg | 2-4% |
Factors like manufacturing techniques, brand reputation, and limited runs can make premiums vary. But these ranges represent what I typically see for new high-quality bars.
Always compare different dealers‘ prices to get the best deal. Pricing should be competitive.
Geographic Gold Bar Holdings
The countries and institutions holding the most gold bars and bullion are:
- United States – 8,133 tonnes
- Germany – 3,362 tonnes
- International Monetary Fund – 2,814 tonnes
- Italy – 2,451 tonnes
- France – 2,436 tonnes
Source: World Gold Council
Central banks continue acquiring bars as reserves to support national currencies in a benign global competition.
Furthermore, retail demand has exploded in recent decades. Private gold bar ownership is now democratized globally in a market worth trillions of dollars.
Why Gold Confiscation Won‘t Happen Again
Some investors ask about potential gold confiscation given executive orders in 1933 that prohibited private US gold ownership. While anything is possible, I consider gold confiscation highly improbable due to:
- Confiscation being illegal under current US law
- Limited effectiveness since gold is now widely held globally by individuals and institutions
- Drastic shift away from the Gold Standard that led to the ban in the 1930s
- Pushback from powerful banking interests that would oppose such an order
- Logistical difficulties enforcing confiscation across vast private holdings
- Public distrust and resistance to confiscation today versus 90 years ago
While vigilance against overreach is wise, gold confiscation concerns should not deter buyers in my professional opinion.
The Bottom Line – Gold Bars Are Worth Considering
Gold will always have its critics and skeptics. But given its stellar track record, gold deserves consideration by any savvy investor aiming to build a well-diversified portfolio.
When purchased prudently from trustworthy sources and safely stored, physical gold bars check all the boxes:
- Reliable store of value ✔️
- Inflation hedge ✔️
- Long-term appreciation ✔️
- Portfolio diversification ✔️
- Tangible asset with satisfying ownership ✔️
- Liquidity & universal recognition ✔️
Few other assets provide gold‘s blend of attributes. And gold really shines during periods of economic turbulence when it reliably preserves wealth.
While not a silver bullet, I believe judicious allocation to physical gold bars should enhance most investors‘ results over the long-run.
Just be sure to educate yourself fully on the pros, cons, and best buying practices beforehand. Apply the knowledge from this guide, and you can invest in gold bars wisely.
Good luck! Your friend,
Jason