How
To Invest in Precious Metals
"The absence of gold as an intrinsic part of our monetary system
today makes our century, the one that has just passed, unique in several
thousand years..." --Robert Mundell, 1999, accepting the Nobel
prize in Economics
Disclaimer: The following
information is for investors who handle their own accounts and accept
responsibility for their actions. If this description does not fit you,
please leave.
Safety and Liquidity.
Gold and silver are wealth-preserving assets as opposed to wealth-producing
assets (such as stocks, rental-property, farmland, etc). Holding gold
and silver is not an investment, any more than holding U.S. dollars
is an investment. (This is more true for gold than silver, since silver
has important industrial use as well.) They are both money—a medium
of exchange, no more and no less. The only increase in the value
that gold and silver may have is in relation to paper
(i.e. fiat) money. This is because historically fiat money has always
failed and gone to zero. Invariably, nations inflate their paper currency
into oblivion. It is not because gold and silver are going up in value,
but because the value of paper currencies is going down in relation
to them. While one is racing to zero, the other is climbing to infinity.
- Percent of portfolio.
It is commonly recommended that 5 to 10% of one's equity (or investment
portfolio) be composed of precious metals. In terms of allocation,
an equal dollar amount of gold and silver is often suggested. However,
in today's environment of high inflation (see ShadowStats.com
on the real inflation rate) and mountains of debt at all levels
of American society, many are strongly recommending a higher percentage
allocated to precious metals. In a highly inflationary environment
"cash is trash."
- What to buy. I
recommend Gold American Buffalo or American Eagle coins and Silver
American Eagle coins. The Buffalo coins are pure 24-karat (or .9999
fine) gold and the Eagle coins are the traditional 22-karat (or .9167
fine) gold. The silver coins are pure .999 fine silver. Dealers are
currently selling silver coins at $3.00 to $3.50 over the current
("spot") price (it used to be $2.00 to $2.50 a year ago),
and buying them back from you at below spot. However, online
dealers (like Monex.com)
will buy back at above spot.
- Where to store.
(See below on where
to store).
- Where to buy. (See
below on where to buy) I generally buy my gold and silver coins from
Monex.com,
DBScoins.com,
and may be trying GainesvilleCoins.com
in the near future. I have also bought locally and through eBay.
- When to buy. Generally,
the best time to buy gold and silver is through the summer months
(see Seasonality
of silver).
- When to sell. The
best time to sell is in a hyper-inflationary event. If hyper-inflation
were to occur in the United States, as a result of the government
trying to print its way out of its mounting debt, then asset prices
will collapse and gold and silver prices will soar. A marvelous opportunity
would then exist to sell one’s stash of gold and silver for bargain
basement opportunities in real estate, equities, and other assets.
As everyone is selling assets to gain cash, you are selling gold and
silver to buy up those same assets. This would also be an ideal time
to clear out any long standing (“fixed interest rate”) debt,
including mortgage debt. In fact, the best positioning into a hyperinflationary
event is to be heavily invested in gold and silver and highly indebted
in real estate (assuming the mortgage is of a fixed interest rate).
- How to ship. Ship
via USPS.com
(i.e. United States Postal Service) using Registered Mail with Delivery
Confirmation. Don't bother with insurance unless you have a contractual
requirement to insure it, or the value is very high. Use Safe-T-Mailers
when mailing very small quantities. Use Air-Tites
for additional protection and a more professional look. For 1-3 rolls
(of 20 coins each), use a corrugated box of 6 X 4 X 3" from ULINE
and pad with newspaper. For larger quantities, put them in a box inside
a USPS Priority
Mail Medium Flat Rate Box (11 X 8.5 X 5.5"; see video).
That's right, a box inside the USPS box. Thus, you need a 10 X 8 X
5" box for the inside box, such as from ULINE.
Cut cardboard sheets the size of the inside of the inner box and cut
holes that will fit the rolls that you have prepared. You end up with
a solid stack of cardboard which holds the rolls tightly, won't slide,
and if dropped will distribute the force. Another method is to insert
the individual rolls into 4
X 8" Jiffylite Mailers from ULINE then surround the mailers
with bubble pack. Delivery Confirmation is free if you buy the postage
online at USPS.com
or $1.80 at the post office (as of 5/1/2011). Registered Mail with
Postal Insurance is NOT the same as "insured mail." And
don't put more than $25,000 value in one package. Insurance has to
be bought at the Post Office, not online. As for insurance, (1) USPS
won't pay unless the package is also Registered, and (2) USPS won't
pay unless you can prove the value of the shipment.
Where to store
- Safe deposit box.
Most people store their coins in safe deposit boxes in one or more
banks. However, safe deposit boxes may not be so safe in a crisis
(see Not-So-Safe-Deposit
Boxes: States Seize Citizens' Property to Balance Their Budgets).
- Gun safe. Others
store them in a "safe" place at home, typically a gun safe
(bolted to the cement foundation). A good gun safe can average from
$500 to $2,000 depending on the size and quality.
- Hiding places in the
home. Ideas on hiding places in your home are found here
and here.
- Burying it. Underground
caching can work, if no one suspects you have buried treasure. Otherwise,
treasure hunters using high-end Deep Seekers--professional
metal detectors costing $25K and more--will be able to find it. Deep
Seekers can detect gold and silver coins to great depths. See
this depth
table for an idea on how deep. However, the inexpensive (under
$800), hobby-type metal detectors won't detect more than about 15
inches deep. (See
Lesson
1: Metal Detector Depth for an explanation.) To deter these, you
should bury the treasure at least 3 to 4 feet deep. Again, you don't
stand a chance against a professional with an expensive Deep Seeker.
Factors that affect the accuracy of metal detectors is moisture (increases
sensitivity), electrical lines (decreases sensitivity), coal cinders,
hot rocks, black sand, mineralized soil, and salt water. Naturally,
the smaller the cache and its profile (i.e. vertical orientation)
the harder it is to find underground. It is common knowledge that
for finding the greatest amount of gold nuggets with a metal detector
you need to use an all metal mode (no discrimination or target ID)
and must dig all signals. Thus, "spraying" the area
of your burial site with shotgun or other metal will frustrate the
metal hunter. Ideas on making an underground cache are here
and here.
- Caution on using PVC
pipes. Make sure not to directly enclose silver in PVC
pipes since it corrodes silver. Thus, either keep them in the convenient
plastic rolls they come in or wrap them in something else before enclosing
in PVC.
Where to buy gold and
silver
There are many reputable gold and silver dealers both online and local
to your area, including:
- eBay.com.
A convenient way to buy in smaller quantities is through eBay. Make
sure you buy silver in multiples of 20 coins at a time, so you can
get them in plastic tubes or "rolls." Also, make sure it
includes free shipping. Go with reputable (100% positive feeback)
eBay sellers. I have had a very good experience with both these prominent
eBay sellers: GREAT SOUTHERN COINS and AYDIN.
- Local dealer. You
can buy through a local dealer, if you intend to buy in smaller quantities.
Make sure you know what you want and at what price before you go.
When I lived in Los Angeles, California, I bought from Goldcoast
Coin Exchange on 20929 Ventura Blvd. Woodland Hills, California.
- Monex.com.
They are competitively priced and convenient to buy and sell through.
However, when ordering from Monex, you have to buy in minimum quantities
of 10 gold or 100 silver coins. You can keep a cash account with them
and get around 2% interest (as of May, 2011) while you decide on a
purchase. The markup is roughly computed as the spot price + $2.40
+ 1.75% commission + $25.00 S&H.
- Texas
Precious Metals. Competitively priced. They have an online store
and accept Visa/Mastercard.
- DBScoins.com.
Competitively priced. As of September, 2011, a $30 spot price on 100
silver coins using Visa/Mastercard would cost $3,413 (shipping included).
It's computed at $3.20 above spot price + 2.8% on the total for credit
card usage. If you send a check or bank wire, you save the 2.8%. The
check must arrive in 3 - 5 business days. They intend to sell online
by November, 2011.
- APMEX.com.
American Precious Metals Exchange has a lot of inventory. Always a
little more expensive than DBScoins and GainesvilleCoins and possibly
others.
- AmerGold.com.
This online dealer seems competitively priced, but I have not tried
them myself. They appear to be a little more competitively priced
than Monex.
- BlanchardOnline.com.
Online dealer is also a little more expensive. They also charge for
shipping.
- List of other sellers
are found at GoldShark.com
- Northwest
Territorial Mint. To buy/sell a wide variety of collectable coins.
They are a little pricier on U.S. Mint coins, however.
- QualitySilverBullion.com.
Sells bullion rounds (non-American Eagles) near spot price. They also
sell American Eagles, but too expensive.
- GainesvilleCoins.com.
Accepts credit cards and seems reasonably priced.
- ProvidentMetals.com.
Recommended by BrotherJohnF because of real-time prices. However,
I don't see credit card acceptance.
- FirstMajestic.com.
Very large Canadian silver miner who sells inexpensive silver rounds
and bars.
- Tulving.com.
Sells gold/silver bullion coins and bars at good discounts when buying
large quantities.
Notes
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