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Dollar-cost averaging gold

By Barbara Whelehan · Bankrate.com
Friday, August 26, 2011
Posted: 4 pm ET

Has gold finally reached its peak, or will it continue going up? The precious metal has had a 10-year-plus bull run, but since 2008 it's been on a tear. This week it breached the $1,900 threshold for the first time, before retreating a bit. Today gold moved up again. And soon, your employer may be offering gold and silver as part of your employee benefits package.

The ability to buy gold and silver is the latest voluntary benefit program available to employees, according to Employee Benefit Adviser, a trade newsletter.

No, it's not part of a retirement plan. It's a separate program, like the extra life insurance you can buy through payroll deduction. But as with a 401(k) plan, you can buy fractions of precious metals by dollar-cost averaging as little as $25 each pay period.

One company with 16,000 employees went live with the program yesterday, and 10 more companies have signed up, according to Todd Fletcher, voluntary benefit specialist with SilverSaver.com, which offers the plan through Mass Metal, based in Lawrence, Kan.

"It's a way for people to take a portion of their savings and put it into precious metals," says Fletcher.

How it works

As soon as a worker buys 20 ounces of silver or 1 ounce of gold, they can take possession of it immediately. Or they can store it in a secure vault at First State Depository, a facility in Wilmington, Del. All holdings are insured by Lloyds of London, Fletcher adds.

It costs employers nothing to offer it and requires minimal administration, but employees pay transaction fees on purchases -- though at a discount to what Mass Metals charges individual clients. The typical premium is 7.49 percent, says Fletcher. "What we do for employees is put it at 4.99 percent."

If employees need to sell their investment, they pay no transaction fees.

How is the price of gold determined? Josh McCleary, Mass Metal's chief operating officer, says the company has a once-daily price. "We purchase in the morning hours typically, and (the price) is applied to all the individual transactions that happen through the site between 10 a.m. and 2 p.m. Central Time," he says.

"Our goal is to mirror other internationally recognized prices like the London daily fix that is set at 6 a.m. What we do is try to get as close to that price as possible. So over the last 18 months we've been within 1 cent of the London daily fix on silver." The same method applies to gold, he says.

Anyone who pays attention to CNBC sees the price of gold fluctuate all over the place from one minute to the next. So if the price of gold goes down later in the day, employees will be stuck with the earlier price. But McCleary says that's the nature of having a once daily price.

"Some days we're going to be below where it is later in the day, and some days we're going to be above it," he says. "But the whole plan is set up as a savings vehicle for people, not a trading vehicle. So if people are buying every pay period through our site, it's not going to necessarily matter what it's doing minute by minute. They're dollar-cost averaging into precious metals. Kind of like a mutual fund. People that save using mutual funds don't sit there and watch the stock ticker every minute."

I don't think it makes sense to use this benefit as a retirement planning vehicle. But this is one way to make the physical commodity accessible to small investors.

Just keep in mind that the metals have long left the mines and are selling at nosebleed levels. Yet they may also have more room to go.

Fletcher says he got out of the stock market a year and a half ago because he didn't care for the volatility. "One of the things about precious metals is, they've never had a value of zero. Ever."

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