Written on 10 December 2011 by Dr. Alex Cowie

[Please note: There is an updated version of this article. For the most recent version of How to Buy Gold and Silver go here .]

When it comes to buying physical gold and silver. there are a range of options you can take.

Precious metals Exchange Traded Funds (ETFs) are the cheapest and most convenient way to buy and sell gold and silver.

But if you take that route, you also expose yourself to counterparty risk. In short, when you buy an ETF, the metal you buy is not held by the ETF provider. Its held by a large global bank, like HSBC or Morgan Stanley.

If the bank goes bust, your gold and silver could be gone too. Besides, you can never really be sure theyre holding the gold they claim.

Why do you need to worry about this?

Because the US Commodity Futures Trading Commission, with the Gold Anti Trust Action Committee, reports there is now one hundred times more paper gold in the world than physically exists above ground.

For this reason we believe its much safer to have the bullion in your hand (details on how to store it in a moment).

Owning the shiny stuff

But, buying physical gold or silver is more expensive than investing in an ETF. Dealers charge a premium. Then youve got the cost of delivery, storage and insurance. And when you sell, your dealer will take a cut.

On top of that, buying bullion isnt risk free.

The risk, of course, is that gold and silver prices fall through the floor and you take a loss on an asset you cant always buy and sell easily. Please note: I dont expect this to happen, but its a risk to be aware of.

So what sort of gold do you buy? You have a choice of coins, nuggets or bars

Coins are elaborate, and more expensive to make than bars or nuggets so they cost more to buy per ounce. Some may be rare collectables, but this added value can be in the eye of the beholder. The same can be said with antique gold and silver coins. This is a specialised market and is best avoided unless you really know your stuff.

Nuggets are beautiful. But the price can vary a great deal depending on purity and other factors. They arent as straightforward to buy and sell as bullion bars or coins.

If youre after a long-term investment, in my opinion its best to go with bars.

With silver. one kilo bars are a convenient size and are worth about A$1000 today.

An ounce of gold is surprisingly small nearly A$1700 of value squeezed into just one centimetre squared. You can get two-ounce, five-ounce and 10-ounce bars. And a kilo bar of gold will set you back about A$53,900. Each bar is iPhone sized truly portable wealth.

Just remember that with precious metals, the ounces are troy ounces, which are equal to 31.1 g.

Australia has quite a few bullion dealers, and Ive listed the main ones in this table below. Click on the name to link to the website.

Australian bullion dealers