Dan Wilson: How (and how not) to buy and sell gold

We have all been bombarded lately with opinions regarding buying gold and, even more, we've been encouraged to sell our scrap gold. Let's examine the reasons to buy gold:

1. Gold always has been and always will be a good hedge against inflation.

2. The track record and increase in the price of gold over time is excellent.

3. During periods of a weak dollar, gold usually maintains or goes up.

The confusion begins with people who predict gold going to unheard-of highs. I see, on the other hand, gold rising at slow but sure levels, allowing it to find stability at those new higher prices. Those who say, "Gold could be $2,000-plus soon!" may have other motives. I was recently shown a $20 gold coin that had been sold to an individual by a well-known dealer, at a huge premium, because he said gold would go up. After a year, the same dealer would not buy it back. Why? Because gold had not gone up enough. That all being said, if you want to buy gold, take the following steps:

• Establish a budget. Metals should not exceed 25 percent of your portfolio.

• Diversify in metals as you would in stocks, i.e., buy rare coins and bullion.

• Buy from reputable dealers and always shop around, as prices can vary greatly.

• Be prepared to hold your investment for a decent period of time. That way, day-to-day price changes will be less important to you.

Because of the runup of gold recently, more and more places have sprung up and are buying gold. We are also hearing, "Highest Prices Paid." I have even seen check-cashing places buying. The "Road Show Buyers" swing into town, rent a large room, spend thousands on ads, and who do you think pays for all of that?

When selling your old jewelry, simply take the spot price of gold, divide it by 31.1 to get to grams. Then multiply that figure by .73 (18kt); .56 (14kt); or .39 (10kt). This gives you the melt price per gram. The price most pay as a percentage of melt will vary greatly. I believe 85 to 90 percent is what is fair. If you are checking around and can't get someone to tell you what they are paying, you may want to go elsewhere. Education is key, so use this simple math to get the most for your scrap.

A word on silver: The ratio between gold and silver at present is approximately 51 to 1. This makes silver a good buy. When investing, you may want to buy gold and some silver to round out your portfolio.

These few simple steps will help me hear fewer sad stories - and may make you some money!

• Dan Wilson is the owner of Downtown Coin in Carson City and president of Downtown Coin Club.