Money Talks

1222961516Every Thursday, Francis Storrs will take an inside look at high-stakes finance and dealmaking. This week: The do’s and don’t’s of the gold market.

In times of financial crisis—like now, for instance—there is always a run on gold. Last Friday, the demand got so unwieldy that the US Mint had to temporarily suspend the sale of its 24-karat American Buffalo coin.

“My phone is ringing off the hook,” says Ken Murphy of Boston Bullion (located, somewhat confusingly, in Arlington). “My dealers usually have at least $5 million worth on hand and they’re sold out.”

Although the only gold I own is in my wedding ring, I understand the appeal. People like to have an investment they can hold, put under their pillow, or drop on their foot if they’re so inclined. (Try that with a collateralized loan obligation.)

Since I aim to please here at Money Talks I asked Murphy for some pointers about the bullion business. If you’re looking to put sink some of your money in gold—please not everyone at once, that’s what got us into this mess—here are five things you need to know.

1. You won’t be spending them at Stop & Shop

Gold coins are not Sacajawea dollars; you can’t spend them anywhere. Nor would you want to: the American Eagle coin has a $50 face value, but is currently selling at around $1,000. But you should also know you can’t cash them in at banks. Your only choices, really, are selling them to a jeweler or back to a precious-metals dealer like Murphy (you’ll tend to get a slightly higher price at the latter.)

2. You can put gold in your IRA

You can legally purchase American Eagle coins for your IRA, something people will do because the investment is tax-deferred. But just because it’s legal doesn’t mean everyone should do it. Cautionary tale from Murphy: “A guy just came in who put $3,300 worth of gold into his IRA when gold was $250 an ounce. Now that it’s quadrupled he wanted to cash it in, but he only had $2,800 because of maintenance fees. He was swearing.” Moral of the story: Watch your maintenance fees.

3. Consider fractionals

Coins don’t only come in one-ounces sizes, like the Eagle and Buffalo. They’re also available in fractionals of 1/10 ounce, 1/4 ounce and 1/2 ounce. The nice thing about a fractional, obviously, is you won’t need to cash in your entire hoard at once. If you have a $1,000 worth of 1/10 fractionals—under your bed, say—you can simply sell one of them, then hold on to the rest and hope for them to increase in value.

4. Buy something you’ll enjoy handling

Part of the fun of gold, Murphy tells me, is being able to pick it up and hold it. The 24-karat Buffalos are 99.99 percent pure gold so they scratch easily. If you can’t handle that, try the 22-karat Krugerrands or American Eagles—they contain a full ounce of gold but are mixed with other metals to make them tougher. Either way, you’ll get essentially the same return. “An ounce of gold is pretty much an ounce of gold,” Murphy says

5. Gold is risky, too

Gold can experience some massive gains and falls—it’s like the stock market, only shinier. Murphy wants me to tell you he’s not an investment advisor (neither am I, Lord knows), so please, please consult with the experts before moving your money around. All that being said, I hope you’ll consider selling me some of your American Eagles. You know, the ones that say $50 on the front. I’d be happy to pay every penny of that face value.