Investing in gold

Most investors who hit Bill Haynes' Certified Mint office in Phoenix expect to pocket the real thing. Bullion coins come in one-twentieth, one-tenth, one-quarter, one-half and 1 ounce weights. Most citizens are familiar with the American Eagle (it currently stakes 90 percent of the bullion market, thanks to patriotism and good marketing, says Haynes), Australian Kangaroo Nugget, Austrian Philharmonic, Canadian Maple Leaf and South Africa Krugerrand.

Bars sell in weights between 1 troy ounce and 400 troy ounces. Experts such as Amerigold's president, Greg McCoach, say this more cumbersome form pays off. In bull markets, the premiums rise on popular purchases, so coins cost a bit more than bars of the same weight. Just insist your bar comes from one of the main fabricators: Inglehard, Johnson Matthey or Credit Suisse.

"Other mining companies' bars are .99 pure gold, too," McCoach warns, "but because they don't have the nice Hallmark name as these, they don't bring you quite as much money on resale."

Old-wealth families typically keep 5 percent of their portfolios in hard assets such as gold at all times, upping that to 20 percent in bad times, he adds.

Bullion's biggest headache lies in storage. Never keep it in your house, lest thieves someday stumble onto a bonanza. High rollers rent space in major depositories in Switzerland and Australia. Doofuses bury it in their backyards.

Haynes recommends that most people put their gold in a safe-deposit box at the bank. Just be aware that when the feds confiscated citizens' gold during the Great Depression, politicians put a law on the books that said an IRS officer must be present when you opened your safe-deposit box. In another government grab, Congress could try to resuscitate this oddity.

These days, gold tempts from a tax standpoint. Dealers who buy your bullion aren't required to issue a 1099 on American Eagles or Austrian Philharmonics. (Sell more than 10 Canadian Maple Leafs, however, and expect the paperwork next January.)

"It's a private transaction, and as a dealer I have no record of it," McCoach notes. "But by law as a citizen of the United States, you do have a capital gain. It's the honor system."

And you'll pay for being honorable. The capital gains tax on metals is 28 percent, well above the standard 20 percent capital gain tax for most investments. Of course, if you take a loss, you can claim that too, although that doesn't apply to jewelry.

The true difference between a good deal and rip-off lies in the upfront transaction fees. If you plan to purchase more than $2,500, experts say, walk away from any dealer charging more than 5 percent over spot, the technical term for where the market is trading. Smaller amounts should not incur more than a 10 percent markup. Haynes tells his clients to pay no more than $20 an ounce over spot for coins.

Since 1997, it's possible to put gold coins at least 995 fine (99.5 percent pure), Silver Eagle and Silver Maple Leaf coins into individual retirement accounts, but you must store the physical metal at HSBC Depository in New York City or Delaware Depository in Bloomington, Del.

You must also find an IRA fund such as American Church Trust in Houston that accepts precious metals, says Haynes. And this offer is open only to new coins you purchase -- you can't take the bullion from your safe-deposit box and send it to your fund manager.

Bull markets bring out scams, myths and lies in the metal markets. Heed these experts' advice:

• Buy jewelry only as a fashion accessory. In the Middle East and Southeast Asia, players buy bullion jewelry at an 18 percent markup. U.S. retailers impose a 300 percent to 600 percent hike on that sparkling chain under the glass. "Gold jewelry here is not an investment by any stretch of the imagination," Haynes says.
  
  
• Steer clear of collector coins. Old coins appeal to numismatic collectors, but investors don't need to step into a world where they pay $600 to $700 for a coin containing $350 worth of gold. Unscrupulous dealers, however, pound home the fact that President Roosevelt's confiscation exempted "gold coins having a recognized special value to collectors of rare and unusual coins."

  So what, says Haynes. "That doesn't mean any future call-in would do the same," he points out.

  McCoach pacifies the truly scared by recommending the quarter-ounce British Sovereign. This pre-1933 coin lacks collector value, so you can buy it close to spot price.

• Run from deals. In roaring bull markets, opportunities to get in on fledgling new mining companies whose true connection goes no deeper than the "Amalgamated Gold and Screen Door Manufacturing" name on the door of an empty warehouse flourish. Boiler-room scams also blossom, featuring dinnertime phone calls about "the chance of a lifetime."

Check your instincts against recognized advisers found at sites such as www.gold-eagle.com, www.321gold.com, www.sharelynx.com, www.goldseek.com, or www.lemetropolecafe.com. Prechter's book also includes a lot of groundwork on safe providers from banks to mutual funds and brokers.

"I wish I had saved more when I was young so I could have committed more to gold when I did," says Ferry. "I'd be that much further along."