Request Advice on buying Gold and Silver.

[wilspeak]

Hello, I am interested in buying Gold and Silver. I don't trust the paper currencies, 401K, and IRA plans. I want to start saving some of my small income in Gold and Silver coins, bars and ingots.  Can someone Please tell me what is the best and most profitable way to invest in Gold and Silver coins or bars?  What are the best companies to buy from? and how do I sell the Gold or Silver if I had to cash them in?   Also please include any other advice that someone new to buying Gold and Silver should know. Thank You

[Lowlow]

I think the first thing you have to decide is do you want to make money on the premium, or just the gold and silver, you have to decide that before the rest of your questions can be answered.

IF you are a collector, want to purchase older coins, want to collect proofs, want to get special keepsakes that have low production runs, care about how your gold and silver looks more than you care about what it weighs, want to dust your collection, enjoy sorting through coins for condition and date, like hunting that special something in antique stores, look forward to finding a dealer who will let you wait in queue to purchase a mint's new limited edition pretty, and generally just like to deal in the "extra" (premium) above the actual weight and price of silver and gold ... then you're a collector, and not a bullion buyer.

IF, on the other hand, you couldn't give a &^%^ about all of that, and you think to yourself ... all I care about is that I can buy gold and silver close to spot and sell it later at spot, you don't care that coins are scratched up because they're still worth spot, you like junk silver (also called constitutional silver) in the U.S. because it is priced just over spot, the idea of dusting coins and keeping up with old coin prices is annoying and tedious to you, the idea of spending a lot more than the spot price on something just because it is pretty makes you wonder how you'll ever recover what you paid above spot, and makes you feel apprehensive, then you're not a collector, you're a bullion buyer.

There are people who fit into both of those categories, but it's a basic question that has to be answered, it's important to understand your own motivations before you get into it.  Collectors like to show off collections to family, friends, and neighbors, they like display cases, they like show cases, they like treasures, glistening, gleaming, sparkles, history, etc.  Bullion dealers on the other hand are usually in it because silver and gold is a store of value, preppers often fall into this category, bankers, investors, people who just want to stack as much gold and silver as they can get for their limited money, a motto like "stack it high" means something to them.

Everything else ... where to purchase, what to purchase, how to store your metal, where to sell when it is time to sell, etc, all basically fall out of your answer to that basic collector vs. bullion buyer question.

Collector - you basically have to cultivate a market with other collectors if you want to sell, or take a hit with a coin dealer.  For collectors, it isn't about the spot price (though that figures into it), it is about recovering their premium over spot, so they are relying on finding someone who values the uniqueness, beauty, someone who values how their treasures were stored, the fact they were protected and don't have tarnish, the way they were cleaned, their rarity, etc, they're basically trying to find someone like them who appreciates the aesthetics and history of a piece when they want to sell, and like an antique car, historical artifact, or other treasure, those buyers can be hard to find, but when you find them they'll often pay an even higher premium than you did.  Collectors who deal in collectibles like these are often very familiar with their market, they understand the ins and outs of ebay, know how to advertise their wares when it is time to sell, know other collectors, etc, and most importantly they know the value of their treasures, track coin prices, etc.

Bullion buyers and sellers - you basically just have to find a bullion buyer who has the cash and desire to accumulate more metal when you want to sell.  Gold and silver has a market price, spot, with a premium over that based on circumstances, but for the most part bullion is easy to both purchase and liquidate, and simply requires finding someone who deals in bullion to buy and sell with.  Limited amounts of bullion are very easy to liquidate, larger amounts may require multiple bullion dealers who can absorb all of the metal.  Bullion dealers don't really care about condition (for the most part, private dealers sometimes care a little bit), and instead it's really all about weight, purity, and price.  Bullion dealers who are active in the market keep spreads, including some private investors ... they're usually willing to purchase at spot (or very close), and they sell for a small premium above spot, and it is through this spread that active bullion dealers make their money.  Bullion dealers online publish their spread, what they will buy at, what they will sell at.  Bullion dealers also charge a small premium over spot based on the size and shape of the bullion - so larger bars (1000oz comex bars as an example) carry a very low premium over spot, and the premium per ounce goes up a little bit as the bars and coins get smaller, because it takes more effort to create a lot of small things than it does to create one big thing.  Once you get down to 1/10th ounce in silver (unless you're talking about junk silver) a large percentage of what you are paying is premium in the price.  Bullion dealers are wary of pretty stamps on coins, and deal in calculations to see how much those pretty pictures are costing them over spot.  Bullion dealers view precious metal as a commodity to be bought and sold by purity and weight.

That's probably enough to get you started.

[wilspeak]

36 minutes ago, Lowlow said:

I think the first thing you have to decide is do you want to make money on the premium, or just the gold and silver, you have to decide that before the rest of your questions can be answered.

IF you are a collector, want to purchase older coins, want to collect proofs, want to get special keepsakes that have low production runs, care about how your gold and silver looks more than you care about what it weighs, want to dust your collection, enjoy sorting through coins for condition and date, like hunting that special something in antique stores, look forward to finding a dealer who will let you wait in queue to purchase a mint's new limited edition pretty, and generally just like to deal in the "extra" (premium) above the actual weight and price of silver and gold ... then you're a collector, and not a bullion buyer.

IF, on the other hand, you couldn't give a &^%^ about all of that, and you think to yourself ... all I care about is that I can buy gold and silver close to spot and sell it later at spot, you don't care that coins are scratched up because they're still worth spot, you like junk silver (also called constitutional silver) in the U.S. because it is priced just over spot, the idea of dusting coins and keeping up with old coin prices is annoying and tedious to you, the idea of spending a lot more than the spot price on something just because it is pretty makes you wonder how you'll ever recover what you paid above spot, and makes you feel apprehensive, then you're not a collector, you're a bullion buyer.

There are people who fit into both of those categories, but it's a basic question that has to be answered, it's important to understand your own motivations before you get into it.  Collectors like to show off collections to family, friends, and neighbors, they like display cases, they like show cases, they like treasures, glistening, gleaming, sparkles, history, etc.  Bullion dealers on the other hand are usually in it because silver and gold is a store of value, preppers often fall into this category, bankers, investors, people who just want to stack as much gold and silver as they can get for their limited money, a motto like "stack it high" means something to them.

Everything else ... where to purchase, what to purchase, how to store your metal, where to sell when it is time to sell, etc, all basically fall out of your answer to that basic collector vs. bullion buyer question.

Collector - you basically have to cultivate a market with other collectors if you want to sell, or take a hit with a coin dealer.  For collectors, it isn't about the spot price (though that figures into it), it is about recovering their premium over spot, so they are relying on finding someone who values the uniqueness, beauty, someone who values how their treasures were stored, the fact they were protected and don't have tarnish, the way they were cleaned, their rarity, etc, they're basically trying to find someone like them who appreciates the aesthetics and history of a piece when they want to sell, and like an antique car, historical artifact, or other treasure, those buyers can be hard to find, but when you find them they'll often pay an even higher premium than you did.  Collectors who deal in collectibles like these are often very familiar with their market, they understand the ins and outs of ebay, know how to advertise their wares when it is time to sell, know other collectors, etc, and most importantly they know the value of their treasures, track coin prices, etc.

Bullion buyers and sellers - you basically just have to find a bullion buyer who has the cash and desire to accumulate more metal when you want to sell.  Gold and silver has a market price, spot, with a premium over that based on circumstances, but for the most part bullion is easy to both purchase and liquidate, and simply requires finding someone who deals in bullion to buy and sell with.  Limited amounts of bullion are very easy to liquidate, larger amounts may require multiple bullion dealers who can absorb all of the metal.  Bullion dealers don't really care about condition (for the most part, private dealers sometimes care a little bit), and instead it's really all about weight, purity, and price.  Bullion dealers who are active in the market keep spreads, including some private investors ... they're usually willing to purchase at spot (or very close), and they sell for a small premium above spot, and it is through this spread that active bullion dealers make their money.  Bullion dealers online publish their spread, what they will buy at, what they will sell at.  Bullion dealers also charge a small premium over spot based on the size and shape of the bullion - so larger bars (1000oz comex bars as an example) carry a very low premium over spot, and the premium per ounce goes up a little bit as the bars and coins get smaller, because it takes more effort to create a lot of small things than it does to create one big thing.  Once you get down to 1/10th ounce in silver (unless you're talking about junk silver) a large percentage of what you are paying is premium in the price.  Bullion dealers are wary of pretty stamps on coins, and deal in calculations to see how much those pretty pictures are costing them over spot.  Bullion dealers view precious metal as a commodity to be bought and sold by purity and weight.

That's probably enough to get you started.

15

Hello LowLow, I just want to save money in different areas and not just in a bank account or a 401K. I was told if the US  or world economy fails, Gold and Silver will be one of the currencies that will help keep people afloat. I am not trying to become a collector, I want to be a saver. So in order to hedge against some sort of market crash of the dollar, I was thinking about investing and saving Gold and Silver bullion and bars. Keeping them locked in a safe place until a rainy day when I may need to cash some of them out. Thank You for such an informative response. 

 

[Lowlow]

7 minutes ago, wilspeak said:

Hello LowLow, I just want to save money in different areas and not just in a bank account or a 401K. I was told if the US  or world economy fails, Gold and Silver will be one of the currencies that will help keep people afloat. I am not trying to become a collector, I want to be a saver. So in order to hedge against some sort of market crash of the dollar, I was thinking about investing and saving Gold and Silver bullion and bars. Keeping them locked in a safe place until a rainy day when I may need to cash some of them out. Thank You for such an informative response.

I'll talk to you like a prepper.

Gold and silver bullion comes with a premium, as I said in previous post, mostly based on its size but also whether it has a government stamp on it for purity and weight.  There are two terms used, "round" and "coin" for coins .. with "round" being a coin that is minted by a private mint without a government stamp for weight and purity, and "coin" being a government minted round with a government stamp.  Bullion (physical) is bought and sold in bars, coins, and rounds, as well as another kind of coin that is popularly called "junk silver" or "constitutional silver" which is older 90%, 50%, or 40% silver coins that used to be used as actual currency, have no (or very low) numismatic (collectible) value, and are bought and sold based on weight.

By category ...

Bars, they come in all sizes from 1/10th ounce, or gram, up to 1000+oz bars, and the premium depends a lot on the weight of the bar, like I said in the previous post it costs more to make lots of little things than one big thing, so you pay less premium per ounce on large bars than you do smaller bars.  That is true, at least, until you get to like 100oz bars or 10oz bars which are such a widely used standard for size that the premium over spot is almost non-existent.

Rounds, they come in different sizes, but overwhelmingly rounds are bought and sold as 1oz rounds.  Private mints create these, and they usually (but not always, be careful of getting into collectibles and paying too much premium) they usually have a very low premium over spot, but higher than 10oz or 100oz bars.  Preppers like 1oz rounds because in an emergency situation it would be easier to use them for purchases than a 10oz bar, which is a larger value, it's like trying to buy bubble gum with a 100$us bill, they prefer to have "change", smaller denominations.

Coins, the government stamp on silver eagles, canadian maple leaves, etc, carries a slightly higher premium over spot than on rounds, but may be worth it depending on your thinking, it's an individual decision without a clear answer.  For some, that government stamp on a silver eagle is worth the extra approximately 2-4$us/oz you're going to pay for it, and it isn't a total waste of money on the premium because secondary buyers are also usually willing to pay a buck or few extra for that stamp too, so it usually isn't lost.  That's especially true of gold coins, for which the government stamp of purity and weight means a lot (it would be counterfeiting to fake it), and because the price of a gold eagle's premium over spot is such an insignificant part of its premium that you basically can't even find "generic rounds" in gold, because pretty much everyone is willing to pay the premium for a government mint mark on a gold coin - I'm not even sure I've ever seen a privately minted gold round with a large production run, they are usually art pieces for collectors.  Silver, on the other hand, it's not so obvious ... a 2-4$us/oz premium on approximately 15$us/oz worth of silver, you're talking 15 - 25% of the overall price, which is significant.  With generic rounds the premium is a much lower percentage.

So called "junk silver" or "constitutional silver", are old coins that used to be in circulation, and they are purchased and sold by weight, but the terminology is slightly different in the U.S.  Instead of saying "premium over spot" and talking about the spot price, the language is "amount per 1$us face value".  So, for example, I made a purchase today at 11$us per 1$us face, so I was paying 11$us for each 1$us of face value for 90% silver coins - which in this case included both Mercury dimes and "Walkers" which is bullion shorthand for Walking Liberty half dollars (50 cent pieces).  Since these pre-1965 coins are basically all (with some exceptions) 90% silver, 10 dimes cost the same amount as 2 50 cent pieces which costs the same as 1$us silver dollar, and the bullion dealers are willing to sell most of them for the same price per 1$us face value.  This DOES translate back to spot price, with each 1$us face value of 90% coins being approximately 0.715 troy ounce of silver, so to do that in reverse you can figure out the premium you are paying and compare it to silver rounds and coins.

So for some math ...

If I paid 110$us for 10$us face of junk silver, that was 7.15 troy ounces of silver, which at today's price of 14.50$us/oz means I purchased approximately 103$us worth of silver for 110$us, so I paid about a 6% premium over spot.

You can use these kinds of calculations when comparing online dealers in bullion (be sure to include shipping price and tax and/or vat if you are in the UK) to see where the best deals are.  You also want to figure into your calculations whether you can trust the seller, giving higher trust to bulk bullion dealers, and less to private sellers especially relatively anonymous ones like you run across on ebay.

Worth mentioning, preppers also like junk silver because it is recognizable, many people in the United States who know nothing about silver and gold understand that a mercury dime has value, even if they don't understand why or what that value is.  It wasn't that long ago that these coins were currency, and many people who have dabbled in coin collecting know these coins from their youth, and for preppers that's worth something.  The most important reason that preppers like junk silver, however, is that they can get small denominations without paying a high premium for it ... so, for example, you could get 10 mercury dimes which is each less than 1/10th ounce of silver for a very low premium because the government minted them along ago, whereas if you went to a private mint and tried to purchase 1/10th ounce rounds you would pay a much higher premium because it costs them money to create such small rounds.  The government's mint (long ago) basically covered that manufacturing cost of junk silver, and that has value to preppers today.

Feel free to ask more questions if you like.

[Lowlow]

Here's a video that is helpful, I think ... it's just a regular guy, going to a coin store, to buy some junk silver.  It shows a junk silver purchasing transaction from beginning to end.  Later in the video he also buys a couple of generic rounds.

Selling is basically the same thing, in reverse.

Transactions between private investors are the same thing, usually over a cup of coffee or something.

Doing the math, he posted this video on the 2nd of November 2018, and the price of silver that day was about 14.50$us/oz.  He paid 500$us cash for 42$us face, so he was paying 11.90$us per 1$us face.  Each 1$us face is approximately .715 troy ounces, so he purchased about 30 troy ounces of silver, so he paid about 16.67$us/oz.  Given the 14.50$us per ounce spot price, he paid a premium of about 2.17$us/oz over spot, or about 13% of his final price in premium.  That's a pretty average price given he was able to just sort through all of the available coins and choose whatever he wanted from among them, but something closer to 5-10% premium is of course better.

Compare that to, say, an online dealer for bars, I'll chose silver.com for the hell of it, they're selling generic 10oz silver bars for 150.80$us/bar, plus 5.95$us shipping, total 163.03$us for 10oz of silver.  Divide that out, that's 16.30$us/oz, so buying a 10oz bar from silver.com online is a slightly cheaper price than the junk silver that was purchased in the video above ... but there's the tradeoff of just having a 10oz bar instead of a bunch of smaller denomination coins, etc.  Here the premium is about 11% of the final price.

Now to compare all of that to what might be considered a popular "collectible" bullion coin, in this case let's say a 2oz Queen's Beast Bull in silver from JM Bullion for 34.44$us paid with credit card 37.96$us, plus 3.99$us in shipping, for a total of 41.95$us/coin.  Divide that out, you're paying 20.98$us/oz, or 6.48$us per ounce in premium, so the premium is approximately 31% of the coin's price.  Expensive.  You pay for that collector value.

On the other side of that, liquidating junk silver, I'll choose at random coingallery.com, they say they have a graduated purchasing schedule depending on how much junk you are selling, but let's pretend you're selling 100$us face value, they are paying 9.60$us per 1$us face.  At 0.715oz per 1$us/face, they're paying about 13.40$us/oz, a little over 1$us BELOW spot.  That's pricey, anyone selling silver in any form should get at least spot price for it unless they are super desperate ... but in general that's how bullion dealers make their money, by maintaining a spread, buying at spot, selling at a premium.  It's really no different than if you went to a forex desk and wanted to buy or sell foreign currency, they make money on the spread in the same way.

[wilspeak]

When I Buy Gold or Silver bars and then sell them, do I have to report any profit to the IRS?