Common traps for new investors

Please note that although we are happy to comment on the market as we see it, you should not take any information or opinions provided by us as personal financial advice. You must consult a financial adviser as personal circumstances vary.

How to avoid the common traps for new investors

Listed below are some traps to watch out for if you are a first time investor in gold.

1.	Not selecting a quality trader You must make sure that you are selecting a trader whose main focus is trading precious metals. Otherwise you may find yourself having difficulty selling gold back to the supplier when you need to. To avoid this trap, deal with a reputable and long-term trader, and make sure you ask them plenty of questions.
2.	Buying bullion that is not investment grade You need to make sure that your bullion is a tradable, investment grade bar. In gold this means the preferable purity of 99.99% (marked on the bar) and with a Hallmark of ABC Bullion or PAMP. If you buy gold which is not investment grade, you may have trouble selling it (or face the cost of either assaying to prove its value, or refining it to convert it into an investment grade bar).
3.	Buying bullion which does not exist Some so-called trading companies take your money and then promise to buy you the gold at the time you want it (therefore taking a financial risk rather than making an immediate purchase on your behalf). You should ensure that your trades are for physical (held) bullion to avoid the risk of not getting what you paid for.
4.	Not understanding the effect the US/AUD exchange rate will have on your investment Remember that although the spot price of gold is in US dollars, the fluctuations of the Australian dollar can cancel or multiply the movement in the global price. You need to bear this in mind unless you plan to trade using a US dollar denominated account (and even then you have to consider the potential exchange rate risks when it comes to repatriating your cash into Australian dollars.)
5.	Paying too many charges and therefore losing return for your investment There are some firms in the market that are charging very high barring and other charges. You need to make sure that you are dealing with a firm that has sufficient scale to offer you attractive prices. Many firms are actually resellers adding an extra layer of costs between you and the spot price.
6.	Paying GST by buying non-investment grade bullion Remember that GST is not payable on investment grade bullion such as ABC Bullion and PAMP bars. If you choose the wrong type of bar, or other types of assets such as some types of coins (eg sovereigns or krugerrands) or Palladium, you can end up paying 10% GST and will lose this money from your investment. Every year we see some new precious metal investors get into a bit of trouble, often with their first purchase of gold bullion. If you have any questions at all, please do ask us to help or explain further; we take pride in our ability to help new investors get it right.

Stop! Do not invest in gold until you have asked your trader these 12 questions:

Here are some simple questions to ask before you buy or sell precious metals with anybody:

1.	How long have you been trading continuously? (Look for a company - not a trading name - that has been in continuous operation for over 20 years and over at least 3 economic cycles).
2.	Who is in charge of the firm? (Have they been in the business of precious metals trading for over 15 years, and will you be able to talk to them with ease?)
3.	Is precious metal trading the core of your business? (Look for a company that has precious metal trading as its reason for existence rather than as an add-on).
4.	If I open a trading account with you, will you physically hold every gram of gold I purchase? (Avoid firms that make you a promise to secure the physical gold only when you need it. Watch out for operators who will sell you gold for storage accounts and then not actually hold the gold for you at the moment you buy. This is surprisingly common so you must ask to ensure that your gold physically exists.
5.	If I want to gain access to my gold, will it take less than 2 business days? (Any longer than this and you should be concerned about what is happening behind the scenes. If you are an investor in gold for its liquidity, it is very important that you are confident you can sell back your gold exactly when you need to.)
6.	Can you provide high security storage and replacement insurance? (This is essential unless you plan to self-store. Replacement insurance is important because it means your investment is covered at its current market value even in the event of theft.)
7.	Will you be willing to buy back gold at any time as part of your normal business operations? (Avoid firms that only sell as they are not serious traders).
8.	What brand (hallmark) of gold will you be supplying me with? (Look for ABC Bullion and PAMP brands, for maximum liquidity in Australia. You need to be careful to ensure you are dealing with a professional firm that deals in the GST-free trademarks and provides 99.99 (four nines) gold.)
9.	Do you have a physical location I can visit? (Look for a yes, even if you don’t currently plan to visit in person).
10.	Do you provide secure meeting rooms and waiting areas? (You want to be able to trade discreetly and safely).
11.	Does the supplier offer a competitive “spot plus” price for you, or are they offering expensive gold? Often this comes down to scale, and the ability to pass on cost savings in the form of smaller spread between spot and sell prices.
12.	Lastly, and most importantly, here is a question to ask YOURSELF: “Will I feel comfortable investing with this firm and these people?” Our advice is - if you have any concerns or niggling feelings about dealing with anyone in the precious metals industry, then please listen to your gut and use extreme caution.