Understanding the true costs of gold investing ensures you maximize what your money can buy in this elevated price environment.
Getty Images/iStockphoto
As the price continues its upward surge, gold continues to captivate both new and seasoned investors. For the last few months, an uptick in the demand for gold has sent the precious metal on an impressive uphill climb, and the price of gold is now sitting at its latest record high of $4,639.06 per ounce. In other words, the yellow metal's performance has been nothing short of remarkable, especially for investors who have been watching their portfolios weather economic uncertainty and inflation concerns.
But while the impressive spot price of gold should command attention, that number tells only part of the story for those looking to buy physical gold. While gold's spot price plays a large role in determining the cost of physical gold bars or coins, there are also factors like dealer premiums, product types, transaction fees and market conditions to factor in, all of which influence what you'll actually pay per ounce for the metal.
Understanding what roles these additional expenses play in gold pricing is essential for anyone looking to invest in gold. So, how much gold will you actually receive if you're purchasing it with a $1,000 budget right now? Below, we'll crunch the numbers.
Take steps to add gold to your investment portfolio today.
How much gold can you buy for $1,000 right now?
At today's spot price of $4,639.06 per ounce, simple math suggests $1,000 would buy approximately 0.2156 troy ounces of physical gold. However, you won't actually receive that much of the precious metal for your money when you're purchasing gold bullion.
Dealers charge premiums above the spot price to cover their costs, including acquisition, storage, shipping and profit margins. And, these premiums vary significantly based on the type of gold — and the size of the gold holdings — you're buying, with smaller gold products typically carrying higher percentage premiums than larger ones. For example, a 1-ounce gold bar might come with a premium of 2% to 5% over spot price, while a 1-gram bar could carry much higher premiums.
The premiums on popular gold coins, like American Gold Eagles or Canadian Gold Maple Leafs, can be even higher than that, though. These types of gold coins command premiums of between 3% to 8% above spot price for 1-ounce versions, though the costs can fluctuate based on market demand and availability. When gold prices are elevated or supply is constrained, gold coin premiums often increase further.
If you're making a $1,000 investment in physical gold, though, you're more likely looking at fractional gold products. A 0.5-ounce gold coin that is currently priced at the spot value of about $2,319.53 would likely be out of your budget, even before the premiums and markups are factored in. A 0.25-ounce fractional gold coin, though, would be a bit closer to your budget, but at today's prices, it would still surpass it even before the premiums are included.
Explore your precious metal investing options online now.
What else impacts the cost of buying gold?
While premiums represent the most obvious markup, other transaction costs can significantly impact the cost of your total gold investment and reduce the amount of gold your $1,000 ultimately buys. Shipping and the related insurance fees are one of them. For a $1,000 purchase, these fees alone could add a significant amount to the total cost of your investment. Some dealers will waive shipping fees for orders above certain thresholds, but it's unlikely that a $1,000 purchase would qualify.
The payment method you use also makes a notable difference in your final gold investment costs. Credit card purchases typically incur processing fees of 3% to 4% when you're buying gold, adding between $30 to $40 to a $1,000 transaction. Wire transfers and checks could help you avoid these charges, though wire transfers may carry bank fees (depending on your financial institution).
Sales tax presents another variable cost depending on your location. While many states exempt precious metals from sales tax on purchases above certain thresholds, others charge full state and local taxes. In states with combined rates of 8% to 10%, that's $80 to $100 added to your purchase price.
For investors planning to eventually sell their gold, the buyback spread represents another cost worth considering. Most dealers buy gold back at a percentage below the spot price, meaning you'll risk losing money if you need to liquidate quickly. This spread doesn't affect your initial purchase, but it's a cost factor to consider when evaluating the total economics of gold investing.
Storage considerations also factor into long-term costs. While home storage is free, it carries security and insurance concerns. Professional vault storage can be a smart move, but there are added costs that are determined based on the amount stored. These ongoing costs can erode your investment returns over time.
The bottom line
With gold at $4,639.06 per ounce, $1,000 will buy approximately 0.2156 troy ounces of gold before accounting for dealer premiums and other fees. While factoring in those extra costs means that you're receiving a smaller amount than you would if you were paying just the spot price, the benefits of gold investing can be worth the extra costs for many investors. After all, the precious metal continues to serve as a portfolio diversification tool and potential inflation hedge, both of which are important in today's economic landscape.
Edited by Matt Richardson
