Thursday, July 17, 2014

How I Buy Gold, Silver, Platinum, Palladium

Update  3-24-13 -- A friend had asked "how do you buy gold" and I did a write-up for him, and for your benefit also.    I have quite a bit of experience.

With the continued shenanigans in the EU and Cyprus, including the threat of direct theft from insured bank accounts, well just about anything goes.

This article is how I buy Precious Metals (PM)

Any form of "electronic wealth is suspect, easily diverted / stolen at a keystroke.

Owning hard assets in a potentially deflationary world (aka Pretcher / MISH) could result in large losses, however with the whole world running their printing presses to Kingdom come, the chance of inflation seems no-brainer low.

Suggested Inflation Hedges

1) Gold, Silver, Platinum, Palladium
2) Direct Ownership of Oil Wells
3) Direct Ownership of Solar Electric producing assets
4) Ownership of Real Estate, especially income producing real estate.
5) Direct Ownership of a business that can last through recession and inflation.



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Here it is in a nutshell:  

Buy
  • One Ounce gold Bars
  • Junk Silver, pre-1964 dimes, quarters, halves
  • Platinum and Palladium in 1 ounce coins, the only real choice is Canadian Maples
Allocations?


Junk silver up to $15,000 or 15% of your overall "Stack"
And the rest in Gold Bars and then some Canadian Maple Coins or Krugerrand Coins.
Up to 10% of your total stack in Platinum and Palladium

Stay away from numismatic collector coins, they all have “good stories”, just stay away unless you are a real coin collector.

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GENERAL COMMENT -- BUY THE MOST METAL YOU CAN
Whatever PM you buy, always look at markup over spot price of the metal (use futures for spot price).  Get the most metal you can! 
Finviz is an OK place for futures spot price.
 
Always try to get the most metal for your money.    

Don’t be impressed with coins that come with a high markup (aka premium) over spot like the American Eagle gold coins.   On the Eagles sell price $1688 when spot is at $1614, that’s a big premium.  Also watch out for shipping and insurance costs, the good dealers I recommend are always reasonable on this, unscrupulous ones may hit you with a big cost that effectively raises your premiums.   Oftentimes, orders over $10,000 or $20,000 will get free shipping and insurance, but the shipping and insurance is not really large anyway, you shouldn't pay more than $25 or so---------------------------------------------------------------------------------------------

Silver:
For starters, get $5,000 to $15,000 in pre-1964 silver dimes and quarters, this is called JUNK SILVER and there is nothing junky about it.  A quarter is roughly worth $6, a dime is 2/5 of that, around $2.50 for notional thinking.    You need this for barter and making change in the coming New World Disorder. (NWDTM)
Junk silver is sold by “Face Dollar”, so a Face Dollar of Quarters would be 4 quarters, or 10 dimes.   The weight of silver in dimes and quarters is exactly proportional to the USD face value of the coin.    10 dimes has exactly as much silver as 4 quarters.
A face dollar of either Half Dollars, quarters or dimes will be around .715 ounces of Silver depending on the wear on the coins, although it won't vary much.
     
Silver is heavier than you would think.   You can’t put $20,000 in a backpack, grab your bug-out bag, and just hit the road.    For notional thinking, Gold is about $25,000 per pound, so you could easily transport $100k of wealth.
 
Silver also comes in
1)      Government minted coins (credible but higher markup)
2)      “Rounds” which are round coin like objects but that aren’t minted by a Government, these are sold at lower premium, but in a Mad Max world you might have issues “proving” them to be real.  
3)      10 ounce bars, very cool, roughly $300 notional, stack well.   You can also get 100 ounce and even 1000 ounce bars, but dont.   

Many people are recommending a higher percentage of silver in your portfolio than gold in dollar value.    They think that because the long term ratio of gold to silver pricing is high, that silver can appreciate more than gold.   But silver is also “poor man’s gold” and the poor man is “retail” and retail panics when things get a little sketchy.    Also silver does not make it easy to transport serious wealth, whereas gold does.  

Gold: 
Your main choices are Government Minted coins and little 1 Ounce bars.    

There are also large bars, but why get a large bar?   For ego?  There is no real benefit in getting large bars, and bars may need a certification when you sell them.   There have been a few instances in which Tungsten was put into the middle of the Gold Bar.  Tungsten is almost exactly the same density as gold, its just .02% heavier than gold, so they can hide it inside the gold.

The bars have a lower premium than the coins in general, as low as $16 over spot, although that low is rare, under $30 premium per ounce is normal.   Also the bars have one benefit that you may not think important at this time, but it may be very important in the future.   Gold in the form of a “monetary instrument” has different reporting requirements when transporting out of country. 
  
Many experts say that you should diversify the country in which you hold assets, indeed, why put all your eggs in one basket?   For sure, all countries will competitively devaluate their currency until some event causes them to stop printing money and devaluating their currency, AND they will also try to prevent wealth from leaving their country, AND the US will beat all other countries over the head with financial and military might.  
On the other hand it is also good to have a bunch of gold close to you.    Gold storage is a complex matter, and not part of this treatise.
Some gold coins are .9999 pure gold.   The only problem with this is that pure gold is soft and it may get scratched in “use”, but how much use are you really going to do?   How often are you going to have a $1600 coin kicking around in your pocket.
 
1)      The US Eagle is 22 carat, it has 91.67% gold, 3% silver, 5.33% copper
2)      The US Buffalo is 24 carat, or 99.99% pure gold, it will scratch more if that is a concern, and premiums vary quite a bit.  For a pure gold coin, I am going to go with a Canadian maple, which sells with a lot less premium.
3)      Canadian Maple – 24 carat, or 99.99% gold, great coin, great credibility, reasonable premium over spot
4)      The “Krug”, or classic Krugerrand from South Africa.   A great coin with some of the lowest premium on well regarded gold coins.   The Krug is 22 carat,  91.76% gold the rest is copper, an alloy known as “Crown Gold”.   It does contain a full ounce of Gold though.
5)      There are others, the Austrian Philharmonic, and the Chinese Panda.   I think the Panda looks silly and have no interest in supporting China’s PM market.

Gold Bars
These are the lowest premium of all gold products ($16 over spot is the best I have seen this decade, $30 premium is normal).   Buy always the 1 Ounce bar, larger bars are for ego or seriously large portfolios (over $10M). 

  1. Perth Mint,
  2. Austrian Credit Suisse, 
  3. Royal Canadian Mint, and the 
  4. Pamp Suisse are all you need to know.
Platinum and Palladium Coins: 

Why not?  Diversify a bit, I bought platinum in November 2012 when one of my recommended dealers had a good bull session with me and stated “I like being diversified into a metal that is produced in a volatile country like South Africa”.   Indeed, just days afterwards, a violent strike hit a major producer in South Africa and the metal surged.   The Canadian Maple Platinum has a reasonably low premium, it is a $50 “face value” as a real Government coin, worth around $1700 in minted cost.   A premium around $60 per Maple is normal.  For Palladium, the premium is around $30 per Maple.   

The PGM Platinum Group Metals are not "monetary metals" per se, so they may not be as useable in a SHTF Armageddon scenario, however, I am assuming that after Armageddon, that some normalcy will return in my lifetime.
Jewelry
Some have suggested that jewelry is a good investment, although the “minting” value of jewelry often takes the price far beyond the “melt value”.    I don’t buy into this jewelry thing, as proving the purity could be quite troublesome in the future.   There are methods of testing purity, which involves putting acids on your gold, and there seems to be no need to cross this bridge.   There are also electronic testers, which are brutally expensive, and just silly to even consider unless you were a large dealer.
24 karat (millesimal fineness 999) – almost pure gold- These carat weighting apply to coins also
22 karat (millesimal fineness 916)
20 karat (millesimal fineness 833)
18 karat (millesimal fineness 750) – 75% pure gold
15 karat (millesimal fineness 625)
14 karat (millesimal fineness 585)
10 karat (millesimal fineness 417) – 41.7% pure gold
9 karat (millesimal fineness 375)
Copper (Don't buy copper as a speculation)
There are companies selling copper bars, with insane large markups over spot.  Personally I think this is a silly form of speculation, especially given the insane markups.   The bursting of the Chinese housing bubble will pressure copper for a long time to come.  Housing is 40% of all copper use.   At $3 per pound, compared to silver at $480 per pound, and gold at $25,000 per pound, those PM’s are much more practical.    Although I did scrap some 16 solar panels, and turned the copper into 2 nice shiny gold coins!
Copper pennies---I don’t roll up my pennies, I put them into vases that get really heavy.   I did a representative sort for kicks, the 1909 to 1982 pennies actually are worth 2.23 cents in melt value, the 1983 to current pennies are actually 95% zinc, 5% copper and have a melt value of  0.48 cents.
I got 819 grams of pennies in my sample
1983 and later was 615 grams, 198 pennies or 75.1%
1982 and earlier was 204 grams, 65 pennies or 24.9% and one of these was a “wheaty” believe it or not.
At 3.11 grams per penny, my sample size was 263 pennies.  1 Wheaty.
198*.48=95 cents
65*.223=145 cents
Total value of 263 pennies in 240 cents face value, sheesh!   I don’t think sorting pennies is a real business model, however, why not keep them?   It cost more money to get rid of them in time and gas!

Confidentiality—

There are certain types of transactions that require the PM dealer to report to the government in PM transactions.   The reportable transactions are very rare.   Some dealers will report only the essential reports, and other dealers will come right out and state that they WILL be reporting your transaction almost all the time.    Which do you prefer?   You should read the dealers policy and question them when you call in to buy.    There will be tax consequences when you sell, if you ever sell.   Gold and silver are generally treated as a collectible with exceptions, and subject to a high 28% Capital Gains tax rate. 

Taxes

--Got to admit, the tax issues are complex and I have spent a few hours at different times trying to get a handle on it.    I saw this on a retirement website, now people are holding PM's inside 401k and IRAs, I have no idea the physical logistics of that.    

There are exceptions . Certain bullion coins issued by the U.S. (generally the American Eagle gold, silver, and platinum coins) and any coins issued by any of the states are not collectibles. Also gold, silver, platinum, or palladium bullion are not collectibles when the metal equals or exceeds the minimum fineness required under a regulated futures contract and is in the physical possession of a qualified trustee.

Clear as mud?   Yep, let me know when you got it figured out.
 

14 comments:

  1. junk nickels may also be a valuable store of intrinsic wealth
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  4. My son has a coin collection and for his birthday he wants a few new coins. Would you happen to know of a place where I can find their gold coin prices near Barrington, IL.

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  5. I have some pieces of gold that I would like to transfer over and get the cash equivalency of. Is the pawn shop the only place that I can go get gold coinage for my actual gold? What is gold worth these days.

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  10. The prices of gold and other jewellery are just not up to the mark in the current times. You need to be very careful while selling your gold to someone. A jeweller's price would be about 5-10% less than the original price of your gold. One of the pawn brokers can easily provide you with good and instant cash offers for your gold.

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Insightful and Useful Comment!