Gold, Silver, Platinum, Palladium HOW TO BUY

How I Buy Gold, Silver, Platinum- October 7, 2012

I think that Precious Metals (PM) are pausing right now, and may even pull back to their recent breakout point. I recommend that if you are thinking about PM, that you really do your own due diligence now. I am prepping to buy more, a pullback would be nice. _________________________________________________________________________

Here it is in a nutshell:  

Buy 1 ounce Gold Bars, and 

Buy "Junk Silver" which are pre-1965 US coins with real silver in them

Portfolio Allocation?

25% of my PM portfolio can be Junk silver up to $15,000 worth of silver.   $15,000 in silver is actually quite heavy and bulky

And the rest in Gold Bars and then some Canadian Maple Coins or Krugerrand Coins.

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

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 in the coming New World Disorder. (NWD^TM)

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 quarters or dimes will be around .715 ounces of Silver.     

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)      Nationally 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.   I like Rounds.

3)      10 ounce bars, very cool, roughly $300 notional, stack well.   You can also get 100 ounce and even 1000 ounce bars, but why?

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.  

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 OK place for futures spot price.

 

http://finviz.com/futures_charts.ashx?t=METALS&p=m5

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.   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.

Gold: 

Your main choices are coins and little 1 Ounce bars.   Why get a large bar?   For ego?  There is no real benefit in getting large bars. 

The bars have a lower premium than the coins in general, as low as $29 over spot.   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 – 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 ($29 over spot is the best I have seen this decade).   Always in 1 Oz, larger bars are for ego or seriously large portfolios (over $10M).    The Perth Mint, the Austrian Credit Suisse, and the Pamp Suisse are all you need to know.

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.

Platinum Coins: Why not?  Diversify a bit, I bought platinum last week 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 7 hours ago, 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 $1500 in minted cost.

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.

Karat Weighting of Gold - How does it work

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

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!