Gold nuggets are some of the most attractive pieces of gold you can get your hands on. They come in many different forms and can sometimes be sold for many times their actual gold scrap value. With this in mind, many people are asking themselves if they make a good investment?
So, is it a good idea to invest in gold nuggets?
Gold nuggets make a good investment in smaller numbers if held long term, and not for emergency situations that would require selling quickly. The reason is that gold nuggets are illiquid investments when compared to gold bullion, as they need to be sold to the right buyer to command a fair price.
There is a lot you need to consider before deciding whether investing in gold nuggets is the right move for you and your finances.
In this article, we will shed light on the critical aspects you need to consider, and also compare buying gold nuggets to investing in gold coins and gold bars.
We’ll also look at how to avoid getting scammed when buying gold nuggets. Many snake oil salesmen take advantage of inexperienced buyers, and you certainly don’t want to become one of their victims!
Table of Contents
Gold as an Investment: Why It Makes Sense!
Before we look closer at gold nuggets specifically, I would like to give you an overview of the reasons why you should even consider investing in gold. Having a good understanding of the points raised below will help you assess whether investing in gold nuggets is for you, once we get to the coming parts of the article.
So, here come the most common arguments for gold as an investment!
Long History
Gold has retained its value for thousands of years and has been used as money for longer than any other currency!
Gold is also widely considered one of the safest investments you can make, which has to do with its unique properties. For example:
- Gold doesn’t rust or tarnish
- It’s a finite resource and finding more keeps getting harder and harder.
- Gold is an element and can’t be created artificially
All of these factors have historically made gold a secure value holder that has withstood every demise of major currencies so far! Just have a look at the chart below.
Another closely related benefit is that gold generally doesn’t suffer from inflation, but keeps its value rather intact throughout time.
To give you an example, the average price of a new car in the 1930s was $760, while the average car today will cost you $40,000! At the same time, the cost of a car as expressed in gold has been rather stable!
No Counterparty Risk
Holding physical gold means that you have a tangible physical asset that will always be there, which is very different from paper investments that always carry counterparty risk.
For example, investing in bonds means that the value of your investment is completely dependant on the government’s ability to pay its debt. And if it defaults, then your investment will be partly or fully lost.
Liquidity
Since gold is accepted worldwide, there is a liquid marketplace that allows you to sell your gold at any time. In general, liquidity is a critical aspect to consider, as being stuck with an investment that only is worth something on paper practically makes it worthless.
Diversification
Not keeping all eggs in one basket is a prudent tip that is well worth listening to. Although it varies greatly, many experts recommend keeping at least a small portion (5%-10%) of one’s free capital in gold.
Demand is increasing
The world population is growing, and as more and more people enter the middle class, demand for gold will inevitably rise, both when it comes to investment gold and jewelry.
If you want to learn about gold as an investment, I recommend checking out the video below:
Investing In Gold Nuggets VS Bullion: What Are The Differences?
When people say that they want to invest in physical gold, the first thing that usually comes to mind is investment gold, such as gold coins or gold bars.
Investing in gold nuggets is very different in several respects. Let’s look at the most important differences!
1. Gold Nuggets Are Not Pure Gold!
First of all, in contrast to bullion, gold nuggets are not pure gold but are to some extent made up of other metals such as silver and copper.
Most gold nuggets contain between 70%-90% gold, which means that the weight of a nugget can’t be directly translated to the current gold market price, like with bullion.
2. Gold Nuggets Are Priced Differently
Gold nuggets tend to not be priced after their actual gold content, as long as they are not sold to a refinery to be turned into bullion. In general, collectors are ready to pay large premiums for natural nuggets. The bigger and more unique, the higher the price tends to get.
Due to this, there isn’t a market price to go after, as every gold piece is unique and priced differently. Depending on how you see it, this either creates uncertainty or an opportunity to market your gold and sell it for more.
Later in the article, we’ll look at how nuggets are priced, and what traits that collectors will pay extra for!
3. It’s not a liquid market
In contrast to the world gold market where you can sell your gold at any moment, the situation is very different when dealing with gold nuggets.
In order to get a good price when selling gold nuggets of any sort, you have to market the gold pieces individually. And as if that wasn’t enough, you must also find a buyer who is ready to pay the premium you are asking for, which can take a long time.
This makes gold nuggets a very impractical investment form if you’re looking to buy more than a couple of them, as getting them sold can take quite some time.
SO, Are Gold Nuggets Good Investments?
At the end of the day, it all comes down to your own preferences. For instance, if you’re looking for a liquid investment that can be sold off at any time, then gold nuggets are definitely not for you. On the other hand, if you are more into collecting gold nuggets and holding them long term, then they could be for you!
To make the decision easier, I have compiled a short list of pros and cons below:
Pros of investing in gold nuggets
- Can be sold for high premiums: Gold nuggets can be marketed and sold at a high premium. Basically, if you’re a good marketer and know your stuff about the gold, then you could sell it for a higher premium than you bought it for.
- Rarity: They are rare, and will likely become even rarer. Most gold nuggets were melted down in the past, and today it’s estimated that around 2%-4% (numbers depend on the exact source) is in the form of gold nuggets. As they are becoming increasingly harder to find, together with an increasing world population and middle class, I find it reasonable to expect that owning them will prove beneficial long term.
- More fun!: They are beautiful, collectible, and much more fun to buy and keep than bullion.
Cons of investing in gold nuggets
- Not standardized: When you buy bullion gold from a reputable vendor, you know exactly what you get. This makes the buying process much easier, quicker, and more secure. Gold nuggets, on the other hand, are always unique and must be assessed individually before a price can be determined.
- Illiquid market: To get a fair price that adds a nice premium on top of the gold value of your nugget, you need to do some marketing. This takes time and is a far cry from the liquidity that owning gold bars offers.
- Requires more expertise: Unfortunately, there are many examples of how unscrupulous vendors have successfully marketed fake gold nuggets to newcomers. And even if the buyer you are looking to buy from is a serious one, it can be hard to know whether the asking price is realistic or not.
Best Gold Nuggets To Invest In
One thing you must make clear for yourself before heading out buying gold nuggets is whether you want to invest or collect nuggets:
- Investing: When investing, for most people, the objective should be to get as much actual gold for your money as you can. That is, you want the premium added on top of the actual metal scrap value to be as low as possible. This will make the gold easier to sell at a later stage.
- Collecting: This is very different from a collector who is most concerned with the rarity and uniqueness of the gold, and often will be ready to pay many times the metal value if the gold is special enough.
The best gold nuggets for investors, with the above in mind, are small, round, and polished nuggets, which are the most common kind of nuggets, and therefore usually command a quite low premium.
Why Small Nuggets Are Better
By buying small gold nuggets you not only get more actual gold for your money, but they will be easier to sell at a later stage as well. Most people are not prepared to pay the high premiums that big nuggets would command, and frankly, many don’t even have that money to spend!
With all this said, buying a big and expensive rare piece of gold is by no means a bad investment. Just as you paid a large premium for it, you can ask the same when deciding to sell. The only problem, once again, is that those buyers can be harder to find.
Fine Placer Gold Is Another Option
With the above in mind, investing in fine placer gold can be another option if you are not that concerned with the physical appearance of the gold.
Fine placer gold has the benefit of being much easier to sell, as you mostly pay for the gold content itself. You can generally expect to both buy and sell it for about 70%-85% of the current gold spot price.
For more information on how to sell gold, I recommend checking out my complete guide to selling placer gold. Even though it’s not strictly about buying gold, it contains a lot of information you might want to know before buying gold from someone yourself!
How Much Are Gold Nuggets Worth?
So, if you have decided to invest in gold nuggets, it’s time to look at little closer at how they are priced, and which ones that typically sell for really high premiums.
Here are the four main factors that will determine the value of a gold nugget.
Size
The bigger the gold nugget, the rarer it is, and the higher the premium tends to be
Usually, it’s reasonable to expect a gold nugget up to half an ounce to sell for up to 40% more than its gold value. Similarly, gold nuggets between 0,5 -1 ounce could command prices between 50% – 80% higher, while nuggets above 1 ounce generally go for at least double the gold price.
Shape
As mentioned earlier, the round and smooth nuggets are generally the least valuable, since they are among the most common types of nuggets. This is because most of the gold found by hobby prospectors has been concentrated by a river, in which the gold has been polished against sands and gravels to create the even surface we are used to.
Crystalline gold nuggets, on the other hand, are especially attractive to investors and can yield a quite hefty premium upwards of 5 times the metal value, if sold to the right person. As you see in the image, crystalline pieces have much sharper edges, which means that they are unlikely to have been in a river for an extended period of time. Most of the time they have laid protected inside the rock, which explains how the crystalline structure has managed to survive and not get hammered flat by the elements.
Another thing to note is that Quartz specimens that contain a high percentage of gold can often be sold for the same price as normal gold nuggets.
Origin
Gold nuggets that come from well-known locations, such as the mother-lode in New Carolina, or the Yukon, tend to be worth more than those found in less famous locations. In some cases, it’s because collectors are looking for a specific gold shape that is known to only exist in a certain location. Other times it might simply be the location itself is so famous that the gold becomes more attractive.
Purity
As long as the purity is within normal limits, buyers are generally not that concerned with the purity of the gold. However, it’s important to note that a purer gold nuggets will have richer color, which could very well impact how much some buyers will be ready to stretch for it.
For instance, gold of low purity often contains a lot of silver which results in a duller and less attractive color.
Buying Gold Nuggets: How to Avoid Getting Scammed!
When buying gold nuggets, be it online or in person, it’s critical to take in that there are people who will fool you if they can. Especially the online gold nugget industry has seen and still sees vendors that use questionable methods to market their gold. And of course, there have been many cases of outright fraud where buyers have been sent fake gold.
Here are some tips to help you avoid getting scammed:
Buy from trusted businesses or individuals
The best way of not falling victim to scammers is to buy from a seller with a long track record and/or an established business. Even if a seller on eBay or similar sites has a lot of reviews, you should not trust them. Reviews are easily made up, either by paying for them or by deceived customers that are unknowing of having been tricked!
Get to know what gold looks like
Regardless of whether you’re meeting up with the buyer in person, or make the purchase online, you should also make sure that you know what real gold looks and feels like.
If you haven’t seen real gold yet, I certainly recommend that you go and see some, if that’s an option. Gold has a very special luster to it that’s hard to replicate with other metals. Someone who has dealt with real gold just a couple of times should be able to tell if it’s real or not
Of course, another key property of gold is the weight! If a gold nugget feels light when you’re holding it, it should definitely raise suspicion!
Don’t buy it if you’re unsure!
Well, this is a simple one. Never go through with a purchase if you’re doubting the seller or the authenticity of the gold. Put mildly, scammers are not that interested in dealing with dissatisfied customers and will offer no help once you find out!
If you want to test the gold before buying it, you could kindly ask the buyer if you’re allowed to test the gold for purity using a simple acid test. It’s a quick and cheap way of removing any suspicion.
Never Buy Gold Without a Specified Weight
One shady tactic used by some sellers online is to take a photograph of the nugget with no object for reference. This may make the nugget look big, while, in reality, it weighs no more than a few tenths of a gram. Always look up the weight of the nugget, and if it isn’t specified, don’t buy it!
Conclusion
Investing in gold nuggets can be a good idea if you want something more unique than the typical gold bar or gold coin. I personally prefer gold nuggets over bullion not necessarily because they are a better investment, but more because of the fact that they are unique, collectible pieces of gold.
However, if you are looking to hold physical gold purely as an investment, it’s better to go with bullion. Gold nuggets are quite illiquid assets and can’t be sold immediately at a fair price point, would the need arise to quickly get some cash!
Happy prospecting!
