Why gold bars aren’t how you should invest in gold

Carley Garner, Senior Strategist and Broker at DeCarley Trading, explains how to properly invest in gold.

Transcript

00:00And I'm wondering, you know, we've been seeing these media reports about, like, Costco selling

00:05gold and people buying gold and stuff like that. So as someone, as a professional,

00:11what is your view of taking that route in terms of making an investment in gold?

00:18Well, obviously, that's a really hands-on, literally, way to purchase gold. And there's

00:23nothing wrong with it. And I can see why people would be attracted to that. But the reality is,

00:29once you have it, it's not going to be that easy to sell it, right? You have to find someone that's

00:34willing to buy it from you. It's not as liquid, is what I'm trying to say. So it's not extremely

00:39liquid. You're not going to be able to sell it as quickly as you want to, to use the proceeds for

00:44whatever it is you want to use it for. So it's OK. But it's not efficient. It's very inefficient.

00:52And like bullion, anything, any bars that you purchase, whether you have mail to you or you

00:57from Costco, there is a wide bid-ask spread. So let's say, just hypothetically, if you pay

01:04$2,000 for an ounce of gold and you want to sell it, you might have to lower your price to $1,900

01:10or $1,800, even if the market price is $2,000, because of the lack of liquidity in the physical

01:16market. There really is no perfect way to invest in gold. There's a lot of different ways, and

01:21some have some advantages and disadvantages, but there's no perfect way. I believe that the

01:26futures market is the best way because it's the most efficient. However, it's not for everybody,

01:32because futures contracts have leverage built in. And what I mean by that is you can control a gold

01:38contract that's worth, there's several sizes, I'm just going to kind of throw some numbers out

01:42there, like a $50,000 futures contract that represents gold in the amount of $50,000. You

01:48can control that or buy or sell it with a couple of thousand in a trading account. That's not a

01:53good idea for most people. For most people, you want to take all of the leverage away and then

01:59purchase the gold in whatever size you want to purchase it in. But the leverage complicates

02:04things. So futures is the most efficient because you can get in and out around the clock, 23 hours

02:08a day, six days a week. You can get out of your gold or purchase it, whatever you want to do.

02:14You can trade in and out, let's say that. Not that I'm saying anyone should be actively trading it,

02:18but you could. If you're holding bullion, it might take you several days or weeks to actually

02:24liquidate what you have just simply because of the logistics. You have to pay for storage and

02:28delivery. So that's a very complicated way to do it. And I think it's really inefficient,

02:33especially since the price that you can buy or sell at has a really widespread. I mean,

02:37you're leaving hundreds of dollars on the table every time you do a transaction.