As the demand for physical gold bars continues to rise, many are wondering if this is the best investment strategy. Carley Garner, Senior Strategist and Broker, DeCarley Trading, joined TheStreet to discuss the best methods for investing in gold.
Transcript:
CONWAY GITTENS: And I’m wondering, we’ve been seeing these media reports about Costco selling gold and people buying gold and stuff like that. So as someone as a professional, what is your view of taking that route in terms of making an investment in gold?
CARLEY GARNER: Well obviously that’s a really hands on literally way to purchase gold and there’s nothing wrong with it. And I can see why people would be attracted to that. But the reality is once you have it, it’s not going to be that easy to sell it, right. If you, you have to find someone that’s willing to buy it from you. It’s not as liquid as what I’m trying to say, so it’s not extremely liquid. You’re not going to be able to sell it as quickly as you want to use it for. Use the proceeds for whatever it is you want to use it for. So it’s OK. But it’s not. It’s not efficient. It’s very inefficient. And like Boolean, anything, any bars that you purchase, whether you have mailed to you or you buy from Costco, there is a wide bid ask spread. So let’s say just hypothetically, if you pay $2,000 for an ounce of gold and you want to sell it, you might have to lower your price to $1,900 or $1,800, even if the market price is $2000 because of the lack of liquidity in the physical market.
But there really is no perfect way to invest in gold. There’s a lot of different ways and have some advantages and disadvantages, but there’s no perfect way. I believe that the futures market is the best way because it’s the most efficient. However, it’s not for everybody because futures contracts have leverage built in. And what I mean by that is you can control a gold contract. It’s worth there’s several sizes. I’m just going to throw some numbers out there like a $50,000 futures contract that represents gold, gold and the amount of $50,000 you can control that or buy or style it with a couple of thousand in a trading account. That’s not a good idea for most people. For most people want to take all of the leverage away and then purchase the gold in whatever size you want to purchase it in.
But the leverage complicates things. So futures is the most efficient because you can get in and out around the clock 23 hours a day, 7, six days a week. You can get out of your gold or purchase whatever you want to do. You can trade in and out. Let’s say that. Not that I’m saying anyone should be actively trading it, but you could if you’re holding Bullion, it might take you several days or weeks to actually liquidate what you have, just simply because of the logistics. You have to pay for storage and delivery. So that’s a very complicated way to do it. And I think it’s really inefficient, especially since the price that you can buy or sell at has a really wide spread. I mean, you’re leaving hundreds of dollars on the table.
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