5 Common Mistakes New Gold Investors Make

Gold is booming. As of November 2024, gold's price is over $2,600 per ounce, up nearly 500% from 20 years ago. With such impressive growth, it's no surprise that 85% of professional investors now own gold, up from just 69% in 2018, according to the World Gold Council.

But what about retail investors? Investing in gold can be appealing, but it can also be overwhelming. Many new investors make some serious — and costly — mistakes as they begin to put their money into precious metals.

To better understand how to avoid them, here are some of those most common missteps new gold investors make.

1. Not considering storage costs

When you buy gold, you have to consider how to store it. If you're buying physical coins or bars for yourself and want to handle storage yourself, you may need to think about purchasing a secure safe or renting a safe deposit box at a local bank or credit union. Additionally, you may consider purchasing insurance coverage for your physical assets.

If you're investing in gold through a precious metal individual retirement account (IRA), you can't keep your gold at home per IRS regulations. Instead, for gold IRAs, you must use an approved depository, which is often recommended by the IRA provider.

How much storage costs depends on the company, the value of your holdings and whether or not you opt for segregated storage. Assuming you have less than $100,000 in gold, you can expect to pay anywhere from $4 to $50 per month.

2. Not researching gold dealers before buying

Gold providers vary significantly in terms of price, reliability and customer service. But the best gold dealers are known for their dependability and trustworthiness.

Although gold prices are consistent industry-wide, you don't only pay the current per-troy ounce rate. You also have to pay the gold provider's premium. Rates vary by company; depending on the gold provider, you can expect to pay anywhere from 2% to 8% over the spot price — or the current market price — of gold.

Additionally, the industry has had issues in the past with unscrupulous companies. The Federal Trade Commission and the Commodity Futures Trading Commission (CFTC) has announced lawsuits and actions against some gold companies who provided unlawful investment advice or made fraudulent misrepresentations.

You can find information about a company's reputation by looking it up on TrustPilot, or you can contact the CFTC or the National Futures Association to check the company's registration status, background and disciplinary history.

3. Trying to time the market

The old adage, “Time in the market beats timing the market,” isn’t just applicable to stocks. With any type of investing, the goal is to buy low and sell high. However, new investors frequently end up losing money because they try to time the market, or they put off buying gold in anticipation of price dips and sell too soon because of concerns around market changes. Those can be costly mistakes.

Gold, like other assets, experiences price fluctuations on a regular basis. Its price ebbs and flows along with economic changes and demand. However, over the long term, such as a period of 10 years or more, gold has delivered impressive returns. Plan on buying and holding your gold for several years (or decades) to maximize your chances of success.

4. Buying novelty gold coins or gold bars

As a new investor, you may be surprised by the vast number of choices for gold coins, rounds, bars and ingots are available for sale. Besides established options, you'll see special commemorative or novelty pieces, too. For example, you can buy licensed coins, such as Snoopy coins or Marvel Iron Man coins.

These coins tend to cost significantly more per ounce, and their value can drop if demand slows down or collectors move on to another trend. Additionally, these forms of gold aren't IRS-approved for use in a gold IRA. IRA-eligible coins must meet certain purity standards and must come from approved mints, so only select coins and bars fit that criteria. For example, some approved options include American Gold Eagle coins and Canadian Maple Leaf coins.

5. Not diversifying their portfolios

Gold investors sometimes put all of their money into one coin or investment choice. But, whether you're investing in the stock market or precious metals, diversification is critical.

Instead of investing in one coin or bar, you can invest in different types of gold asset classes. For example:

• Physical gold: Investing in physical coins, bars or even gold beans can be a good way to invest in precious metals if you prefer to have tangible ownership.

• Gold exchange-traded funds (ETFs): For those who don't want to worry about storing and managing their own gold holdings, an ETF can be a good alternative. Gold ETFs are tied to the per- troy ounce price of gold or hold baskets of stocks of gold mining companies. These ETFs provide exposure to the gold market without committing to owning physical coins. ETFs also tend to be more liquid, since you can buy and sell shares on the market.

• Gold mining stocks: Another way to invest in the gold industry is to invest in gold mining stocks. With these investments, you can benefit from gold's performance without having to own the underlying physical asset.

Investing in gold

Investing in gold can be a useful way to diversify your portfolio and to protect your finances against market changes. However, it's important to do your homework: Research gold dealers and compare pricing and storage fees before making a purchase, and choose your gold coins or bars carefully to ensure they're appropriate for your investing goals.

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