Buy Gold in Small Amounts

Posted on February 15, 2021

Buying large amounts of gold is an aspirational goal, but collectors and investors must also consider this precious metal's relatively high price. For most of us, buying small amounts of gold is more realistic. Read on to learn how to buy small amounts of gold for collecting and investing, including considering the gold-silver ratio and investment strategies.

How Much Gold Should I Buy at Once if I Am Planning to Collect?

As a collector, there are no best practices governing how much gold you should buy at once. This means you can decide how much you want to buy at any given time, such as buying gold in small amounts when you see gold items that interest you. Limited edition and especially beautiful items are good choices for collectors. Your budget and tastes are the only factors limiting your gold collection's size.

There are several options for collectors wondering how to buy gold in small amounts. They include:

Consider how you will use your gold and what you want it to look like when deciding the best gold quality for your pieces. The higher the karat, the purer it is. The purer gold is, the softer it is. Soft gold can scratch easily, so it may not be as attractive to collectors as less-pure gold. Less-pure gold is stronger, but it lacks the attractive luster of purer gold.

The purest gold is 24-karat [1]. Common gold values include:

  • 10- and 12-karat gold: This purity is typically found in rings and bracelets. Being a bit stronger, the gold helps maintain these pieces' integrity since they're regularly knocked against hard surfaces.
  • 14- to 18-karat gold: This softer, purer gold is typically found in necklaces and earrings as these are less likely to get damaged.
  • 22- to 24-karat gold: Collectible coins, bullion and gold bars are typically made with higher-purity gold because these pieces are usually admired rather than handled.

How Much Gold Should I Buy at Once if I am Planning to Invest?

Gold investors can invest in gold in all the ways collectors can. However, gold jewelry can be a gamble for investors because even expensive pieces can lose their value. Any appreciation on a piece is usually because it's collectible rather than valued for its gold content.

Tangible options like gold bullion, bars and coins are better investment options because these items have much purer gold than jewelry. Gold investors may also enjoy investing in less-tangible gold options. These include:

  • Gold certificates
  • Gold exchange-traded funds
  • Futures contracts, which can pay high dividends but are much riskier and not recommended for new investors
  • Gold mining stocks
  • Gold mining-focused mutual funds
  • Gold mining-focused exchange-traded funds, which are a top option for investors wanting small amounts of gold that are liquid and relatively low risk
  • Stocks in streaming and royalty companies, which the Motley Fool suggests is the best all-round option for gold investors

Investment experts recommend buying small amounts of gold and other precious metals as part of a broader investment portfolio because gold prices stay relatively stable. For example, gold increased in value during the 2007-2009 recession. Between Nov. 30, 2007, and June 1, 2009, the S&P index dropped by 36%. During that same period, gold's value increased by 25% [2]. This stability makes gold a great option for hedging against volatile stocks and government-backed currencies.

The Motley Fool suggests making gold no more than 10% of your investment portfolio and buying small amounts of gold over a long period of time rather than a lot of gold at once [3]. Buying gold when its value is relatively low will pay off in the long term when gold values inevitably rise. You might sell your gold during these periods of demand, then reinvest in gold when it's more affordable again.

If you're looking to sell and gain returns on your investment, check the price ratio of one ounce of gold to one ounce of silver. This ratio tells buyers whether gold is well-priced compared to silver. Here's how to use this ratio:

  • Ratio higher than 80: This shows that the value of silver is lower and that it's a better investment than gold, so this is when you may want to buy small amounts of gold and large amounts of silver.
  • Ratio lower than 80: This is a good time to invest in more gold and less silver.

Historically, however, it's rare that the gold-silver ratio trades above 80 [4].

What Are Dollar-Cost Averaging and Value Averaging?

Dollar-cost averaging and value averaging are two practices that help investors reduce their risk.

Dollar-cost averaging refers to investing the same set amount at regular intervals. Investors who choose dollar-cost averaging might invest $500 every month or every quarter in new gold mining shares, for example. By investing just a little at a time, people who follow a dollar-cost averaging approach never invest more than they feel they can afford. Investors attracted to volatile investment options often use this approach to make sure they invest within their limits.

Value averaging refers to creating an investment portfolio worth a set amount that grows steadily over time. Investors who favor a value-averaging strategy follow the movements of the investment markets. They invest more when prices fall and spend less when prices rise. They determine the value of their total portfolio over time, then they make adjustments in each period to reflect this.

Someone who follows a value-averaging strategy might want to grow their portfolio by $500 every quarter. They would buy gold to the value of $500 in the first quarter. If their investment grows to a net worth of $625 in the next quarter, they would invest another $375 to boost its value to the $1000 they planned.

Every collection or investment portfolio needs to start somewhere. With the right options and strategies, you can collect or invest in gold no matter your budget. Small amounts of this precious metal are an excellent addition to your collection or portfolio.

Article Sources:

1. Scientific American. Is 24k Gold Pure? https://www.scientificamerican.com/article/is-24k-gold-pure/. Accessed September 22, 2020.

2. The Motley Fool. The Beginner's Guide to Investing in Gold, https://www.fool.com/investing/the-beginners-guide-to-investing-in-gold.aspx. Accessed September 22, 2020.

3. The Motley Fool. The Beginner's Guide to Investing in Gold, https://www.fool.com/investing/the-beginners-guide-to-investing-in-gold.aspx. Accessed September 22, 2020.

4. CNN Business. How Much Gold and Silver Should you Own? https://edition.cnn.com/2019/03/22/success/wealth-coach-gold-silver/index.html. Accessed September 22, 2020.