When considering the purchase of gold and silver it’s important to understand why you’re buying it, because that will influence what you purchase. The most typical reasons people consider buying gold and silver fall into three basic categories.
- Business uses: As a hedge against inflation and counter-weight to cash investments such as bonds and money market funds.
- As a crisis currency: So when things finally collapse you have something to trade for supplies.
- As an investment: This would be mainly collectible coins with numismatic value.
To help choose between those options, you have ask yourself whether in a time of crisis the government might seize your gold?
The reason that’s important is there are regulations on the books that preserve the government’s right to come and get your gold if the circumstances are extreme enough and collectible coins with numismatic value are exempt from seizure. If you’re worried about that possibility, then collectible coins are the way to go.
Collecting and trading coins with numismatic value are a hobby for many and a living for a few that can take years to learn. If you’re leaning toward collectibles, then talk to someone with years in the business.
Otherwise, investment grade gold, silver and fractional coins or bars for business uses are what you’re interested in learning about.
Physical Delivery or 3rd Party Storage?
I tend to back physical possession over 3rd party storage. Let’s look at the reality of physical storage. When people think of buying gold, they think of scenes in the movies with huge 25 pound gold bars stacked on pallets. The reality for you will be somewhat different. Even if you were going to buy $50,000 worth of gold, which is a lot for most people, at $1,500 an ounce that’s a maximum 33.33 ounces, or just over two pounds. Even if you spent $150,000, the gold will weigh somewhere under 6.25 pounds. Not that difficult to transport, secure or conceal.
The downside to physical possession is the risk of loss or theft, but, with proper precautions, it’s no more dangerous than keeping cash on hand.
The Purchase Premium
Like everyone else, your gold and silver vendor has to make a living. They make their living on the premium between the spot price and the price above that you pay to buy gold, and the price below when you sell it. Your goal as a gold buyer is to minimize the spread on both sides of the spot price.
What About Gold Jewelry?
Gold jewelry is a whole different animal. Jewelry is rarely made from investment grade precious metals. It’s frequently mixed with other metals and when selling for them for the gold content, you will be paying a very steep premium. Expect the disconnect between the spot price and what you get for gold jewelry to be very wide.
Know Your Buyer
You can buy or sell gold at a variety of local merchants, but be very cautious when you see those sign spinners out on the street. It’s rare a pawn shop will give you anything close to the spot price, even for investment quality precious metals. It might take a bit of legwork to find the most reliable gold and silver dealers in your area.
I prefer to deal by mail with established gold and silver dealers that specialize in the trade, like National Gold Group, but might also include companies like AMPEX. Reputable dealers will carry a variety of gold and silver investment options and plainly state the premium you’re paying above the spot price.
Another general rule is you’ll pay a higher premium for gold and silver coins and fractional coins than you will for silver rounds or gold bars. With coins you have to stay clear on the difference between collectibles and investment grade coins. You will pay a significantly higher premium for collectible coins.
What To Buy?
When we get to actually what to buy there are so many options, this is where you’ll need to pick up the phone to one of the friendly customer reps at your gold dealer. All I can do is offer general guidelines.
When buying precious metals for business use or crisis currency, the goal is to buy fractional products recognized by anyone in the business with an eye toward minimizing the premium on the spot price. Very few people can afford, or would want to carry, a 400 oz gold bar (that’s 25 pounds, $600,000 worth), or try to buy groceries with it.
As An Inflation Hedge
For a hypothetical $10,000 investment as an inflation hedge, I’d put two-thirds in silver coins or 1 oz silver rounds and roughly one-third in fractional coin like British Sovereigns, French 20 Francs, quarter oz. American Eagles, Krugerrands, Austrian 100 Coronas or Mexican 50 Pesos. Whatever you can get the best deal on the day you’re buying.
You can also opt for fractional gold bars. For those I’d stick with a well known name like Credit Suisse. Personally, I wouldn’t bother with anything smaller than 5 gram gold bars, too easy to lose.
As Crisis Currency
A hypothetical $10,000 for crisis currency, I’d go a little heavier on fractional sizes of both gold and silver, because it’s going to be tough for vendors to make change.
Consider putting half in U.S. 90 percent silver coins and 1 oz silver rounds. Put the rest in either fractional gold coins or fractional gold bars and go heavier on the smaller sizes. The goal is to maximize their trading value as currency.
Trevor Gerszt, President and COO of National Gold Group, recommends as a currency hedge, common date-mixed denomination Liberty gold coins. The $20 American Double Eagle, the original American Gold Eagle, $5 Gold Liberty, the $2.5 Liberty and the Morgan silver dollar. “This way you have gold and silver coins that have already been used once before in our country as currency,” says Gerszt. “Coins for large and small purchases, gold coins that are exempt from the Gold Confiscation Act of 1933, and they do have semi-numismatic value but the premiums are not as high as numismatic coins because they are common date gold coins, which means the coins were minted in a year with a large quantity of coins being minted.”
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