With gold's recent meteoric climb in price, everyone is talking about the metal. How much do you put in your portfolio? Is it a good investment? Why can't I buy it from an ATM?
Wait, what?
It's true, while they're not yet in Canada, gold-bar vending machines are popping up all over the world. Last week, the first gold vending machine in a Chinese shopping mall was unveiled in Beijing, and there are plans to roll out 2,000 more nationwide. You can already find them in Europe and south of the border. Miami has had them since 2010.
The gold ATMs retrieve pricing every 10 minutes, and in exchange for cash, debit or credit, will provide gold coins, wafers or bars in high-end boxes 24 hours a day, 365 days of the year. You know, just in case you need to make a last-minute run to grab some milk and bullion on Christmas Day.
A cynic may suggest this is a signal that the gold market is now officially in bubble territory, that the price of gold is at a peak. Or perhaps that peak is behind us. After touching $1,900 (U.S.) an ounce just weeks ago, gold has dropped to about $1,650. Still, others suggest gold is just taking a pause on its roll, since many see it as disaster insurance for a portfolio.
I hear from people all the time who say that in a true Armageddon situation, be it a nuclear disaster or (and I'll humour them for now) a financial and banking system collapse so dire that paper money is shunned, people would resort to using hard currency. They would use gold. And therefore they say gold represents real wealth.
Salman Khan of the Khan Academy had what I thought was a brilliant analogy to explain why this could be a questionable assumption. Suppose you were flying a plane and it was known to be crashing in the middle of the ocean. But right where you were going to crash there were two small islands. You can only land on one and the islands are far enough apart that you can't go back and forth once you've crashed. There is no chance of rescue. One island has animals, fruit trees and a fresh-water lake, and the other island has nothing except a beach and the biggest pile of gold you've ever seen. What do you think real wealth is in this Armageddon scenario? It sure isn't gold.
But anyone who uses a vending machine to purchase gold is probably not thinking like an investor. If you buy the smallest quantity of gold offered, the markup can be about 30 per cent at these ATMs. Clearly these machines are capitalizing on the novelty factor of owning gold.
If you want to buy gold, you have much better options. For a keepsake, look to the Royal Canadian Mint. They have beautiful coins on display at many post office locations. For investors, you can buy gold certificates that are tied to the price of gold, or you can buy shares in an exchange-traded fund that invests in gold bullion, among other options.
Maybe the best of both worlds is to try to buy into the companies that provide these gold ATM services. Because there is money to be made on gold – from selling it to suckers through a vending machine.
Where to buy physical gold
You can buy gold online. Sprottmoney.com and Scotiamocatta.com, for instance, both have e-stores from which you can purchase coins and bars. There are other reputable online bullion dealers in Canada as well.
The Royal Canadian Mint offers coins and other collectibles. You can find some samples at Canada Post locations. You can also try local coin and jewellery shops.
Remember to check on the current price of gold and compare it to the price and quantity being considered as gold has been very volatile lately. Compare the markups offered at the various sources and keep in mind the face value of a gold coin may be wildly different than its gold content value. For example, a 1/25th ounce gold coin from the Mint's website that has a face value of 50 cents is listed at $109.95.
Preet Banerjee, BSc, FMA, DMS, FCSI is a W Network Money Expert, and blogs at wheredoesallmymoneygo.com . You can also follow him on twitter at @PreetBanerjee
Preet Banerjee