The cheapest ways to buy gold are:
- Dollar Cost Averaging
- Buying Scrap Gold
- Buying Gold When The Price Is Low
Looking at these in more depth:
What Is The Most Cost Effective Way To Buy Gold?
Dollar Cost Averaging
This is where you buy smaller amounts of gold over a longer period of time than spending a large amount of money in one go.
The advantages are that if you bought say £500 of gold today, then £500 next month, then £500 the month after, etc for a full year, then at the end of the year you have £6000 of gold at the purchase price.
By doing this you have ridden the ups and downs over time and smoothed out the price of buying to (hopefully) a lower average price.
For example, if you bought your first £500 of gold and then the price went down 20% you’d be £100 out of pocket right away, whereas if you’d spent the whole £6000 at that point in time, then you’d be £1200 out of pocket (on paper).
With a gradual approach to buying (the Dollar Cost Average Method) next month you buy the next £500 at the lower price, and it brings down your average purchase price for both transactions.
If the price keeps falling you keep buying at lower prices, if the price goes up you keep buying with the rising trend and over time you make a good return.
The thing that gets to a lot of people when they buy all-at-once is if the price goes down they panic, sell and turn a paper loss into a real one.
Buying Scrap Gold
One of the cheapest ways to buy gold is to buy scrap gold rather than gold coins or bullion bars from dealers.
All dealers have to make a margin, and all bars and coins have a premium when you buy them, but since gold is gold, if you can buy old scrap gold (like broken jewellery, watch cases, etc) from end users (the public) then you can get gold at a price that doesn’t have loads of fees and the dealers margin on top.
While eBay and other sites might be easier places to find gold, if you can cut out payment processors and auction fees then you can get a much better price, so finding a way to buy in person is a way to get your gold at a much lower price.
If you think about it, if a person has £800 of gold to sell and they list in on eBay there will be 10% costs plus payment fees of c.5% which means it’s cost them £120 in charges, leaving them with just £680.
If you offered them £750 they’d be £70 better off, and you’d have paid £50 less than the value of the gold – a win-win for both of you.
Buying Gold When The Price Is Low
This is really the opposite of Dollar Cost Averaging, where you hope to buy at the lowest price to get the best return, which is great if you get it right, but not so great if you get it wrong.
You can for sure make more money if you buy a large amount at the lowest price, but you can also lose a lot more if you get the timing wrong.
You can get some more thoughts on The Best time To Sell Your Gold by clicking the link.
What Is The Cheapest Form Of Gold To Buy?
The cheapest type of gold to buy really has to be scrap gold bought directly from the person selling it so that you avoid fees and dealers costs and their margins.
This means that you need to be able to check the carat of the gold you are buying, and the weight so that you do not over pay.
Calculating the weight is more complicated if it is for example a piece of jewellery with stones in it, since you do not want to include the weight of anything other than the metal itself.
While people think of “scrap” gold as being damaged or broken items, it includes anything from coins, to bars, to watches, anything with gold in it.
It is not the condition of the gold piece that explains why it is called “scrap gold”, it is because the item itself will be scrapped to remove the pure gold from it.
So if you are buying “scrap gold” then you could be buying coins of all kinds of sizes, types and from different countries (like Sovereigns, half Sovereigns, Krugerrands, Maples, etc) or any of the various sizes and makes of gold bars, which can start in the low grams, and be up to kilos in weight.
To make sure you get a good price and get your gold at the cheapest price, you need to really make sure you understand the different carats of gold, coins, etc, and make sure the item is genuine and you are paying a fair price.
Is It Cheaper To Buy Gold From a Bank?
No. It is always going to be far more expensive to buy gold through a bank than from a specialist dealer, or online, or from a person wanting to sell gold.
Banks want to make large margins and they tend to sell expensive (new) gold coins at very high mark-ups.
This is very similar to buying from The Royal Mint, you get a brand new coin with impeccable provenance, but you pay an appropriate premium for the privilege.
Rather than coins from the bank or the mint costing the value of the gold, they have the mintage costs, the mark up costs, and the assurance that you are indeed getting a real, genuine gold coin or bar from a legitimate source.
Buying gold from a bank or the mint is an expensive option, however it does guarantee you that you will receive a bona fide gold coin or bar, and you can sleep easy knowing that there is zero risk of buying something inferior to what is offered to you.
Where Can You Buy Gold Scrap Without Getting Scammed?
If you want absolute security then you should buy gold through a bank or from the Royal Mint, after all you can argue it is better to pay a premium for a 100% guaranteed “solid gold” product (if you’ll excuse the pun).
Alternatively to obtain gold at a better price than from the Mint or bank, but with a high degree of confidence, then there are many reputable online dealers who you can trust.
Buying from these kinds of long established, major gold players is very safe, but just to be totally transparent we have heard of one person who bought around £10,000 of gold sovereigns from one, and they received a lot of fake sovereigns in the package.
That is to say they were still 22ct gold coins, but they were not genuine sovereigns (the UK Gold Sovereign is one of the most counterfeited gold coins of all time), they were crude knock offs.
When this person complained the dealer said “oh well it’s still gold and has the same value”.
That may be true but if you pay for a sovereign you want a sovereign, it’s pretty shabby to do anything else, but we do believe this is a rare occurrence.
The cheapest way to buy gold is to buy online at places like eBay, but these are rife with scams where either the item is not gold, or you receive nothing for your money, or to buy in person from someone who wants to sell.
However this requires carrying around cash and could lead to being scammed or worse, so if security is what you are most interested in then the bank or the mint are your best, most reliable and trustworthy places to buy.