I was doing some research and was told about gold certificates. Basically instead of having to purchase actual "gold", a person buys a certificate that shows they own xxx number dollars of gold on a piece of paper.
First, am I understanding this correctly ?
Yes, you are understanding it correctly.
What kind of costs are involved at buying a gold certificate?
You will get charged a premium over the spot price of gold, but it will be significantly smaller than if you bought the actual physical metal.
Can you go down to your local bank and buy them?
Yes. I'd recommend the nearest Scotiabank, because their subsidiary ScotiaMocatta is the largest precious metals bank in the world.
Appreciate any feedback as this is an area I would like to get more info on.
I personally wouldn't recommend gold certificates, and here's why. You can get two types of gold certificates: allocated and unallocated. Allocated means they have a serial numbered bar with your name on it that no one else can have. Unallocated means they will just give you any old bar from their inventory at the time you redeem. The catch is that there are waaaaay more gold certificates in circulation than there are actual gold bars -- it's a fractional reserve system just like your local bank. And like your local bank, if everyone tried to pull all their cash out at once the bank would quickly go out of business. If everyone tried to redeem their gold certificates at the same time, probably only the first 10% or even less would actually walk away with metal. The rest would just get an IOU. If you buy an allocated certificate your odds of getting the metal on redemption are better, but then you may as well have just bought the metal.
If you are buying gold as money of last resort if the world's paper currencies implode, you definitely should be buying the physical metal itself and storing it at your home. Anything less exposes you to counterparty risk. That is, if the bank that will redeem your certificate goes out of business, your paper gold means nothing. Or if you store it in a safety deposit box, in a true financial apocalypse scenario the bank may not be open or open in a timely fashion so you can get your gold out. Worst case, it could simply be confiscated as what FDR did in the U.S. during the Great Depression -- your gold would be taken in the interests of national security and in return you will get a bunch of dollars, which defeats the whole purpose of getting it.
That is the true gold bug view of it. Don't settle for anything less than the physical metal in your possession. It's like if you were Noah and God told you there was going to be a flood. Do you want an actual ark ready, or do you want the design of an ark written on a piece of paper?
However, if you don't want gold as money-of-last-resort insurance and are simply looking at it as an investment to trade, I would just purchase the gold and silver ETFs sold on the U.S. stock exchanges. The ticker symbols are GLD and SLV respectively. That way you will get exposure to the precious metals price without paying any premiums, and you can easily trade in and out of them.
