Friday, September 3, 2010

Buying Gold and Silver Coins

Gold and silver coins are a means to carry wealth through hard times such as war or the collapse of a currency/government. Holding Gold & silver doesn’t pay dividends; Gold & silver are just a store of value. Insurance if you will. Gold & silver (particularly coins) will help you reestablish yourself after a financial storm.

One hundred years ago you could buy a Colt pistol with a one ounce gold coin. You still can. The value of gold hasn't changed, just the value of the currency. Let the traders make a "killing" in precious metals, unless you're a trader you want gold to hold.

Unless you’re planning to buy a small country someday gold, platinum or silver bars are out. Each bar represents a huge hunk of value and it’s hard to make change for a gold bar when you’re buying a loaf of bread. There is also the problem of proving the bar is 24 karat or whatever. Coins are of a known weight and karat.

Coins enable you to carry value without making it look like you've got a pistol in your pocket. (You should have a pistol too, but the pistol should be in a holster.)

If you must you can buy bullion gold and “junk” silver coins by phone or over the Internet, but in doing so you are leaving a paper trail. Take delivery. If you let them talk you into allowing them store it for you there's a risk (despite what they say) that your gold & silver may be "intermingled" in the vault with their PM and/or the PM (Precious Metals) of other customers. Then if the gold dealer goes bankrupt, as they are wont to do, your gold will be held by the bankruptcy judge until it can be divided up between all the claimants. (Translation: You ain't gunn'a get all you paid for.)

This almost happened to me many years ago, but I got wind of the gold dealer's problems (via Howard Ruff's newsletter) and demanded (via registered airmail) immediate delivery of my coins. My coins went out the day before the bankruptcy was declared. (Whew! Thank you Howard Ruff.)

It's better to buy bullion gold and “junk” silver coins from a local coin dealer. Park around the corner, pay cash (NEVER check or credit card), don’t give your real name, wear a wide brimmed hat & don't look up at the security cameras, be sure you’re not followed when you leave the store. No, I’m not kidding.

If the time ever comes when the government wants to crack down on people "hording" silver & gold (à la 1933) you don't want to make it easy for them to find you.

Unless you've acquired enough coins to fill the hall closet, don't store your coins in a bank “safe” deposit box or with someone else (e.g. the company that sold them to you). Safe deposit boxes are not safe. The contents aren’t insured by the bank and the bank will be more than happy to open your box for the government. Also, the bank may be closed when you need to get at your “safe” deposit box most urgently. Can you spell Banking Holiday?

"Bullion Coins" means the PM is valued by its mass and purity rather than by a face value as money.

"Junk Silver" refers to circulated silver coins which have no collector's value due to their wear & tear incurred as a result of being used. The silver content is the same as a collector's coin, but less of a premium because numismatists aren't interested in them.

Buy Bullion pre-1964 US silver dollars. As scarcity spreads prices (even in PM coins) will ratchet upwards.

Buy Bullion "Junk" pre-1964 US silver coins (Dimes, quarters & half's) they'll come in handy for small purchases.

Buy Bullion Krugerrands (10th, 1/4, 1/2 & 1 oz.)

Buy Bullion Canadian Maple leafs (10th, 1/4, 1/2 & 1 oz.)

Older U.S. Eagles (pre 1933) are collector's coins and should be treated as such.

Modern Gold Eagle coins generally cost more to buy, and are generally no more recognizable than Krugerrands or Maple Leafs to John Q. Public. You'll pay premium for them and end up selling them at wholesale if TEOTWAWKI doesn't happen.

Their sole redeeming social value, in my opinion, is the fact that they (like all US money) are legal tender for all debts public and private at their face values which means, in theory, that the government couldn't confiscate them any more than they could confiscate the regular coins in your pocket. But, as Yogi Berra once said: "In theory there is no difference between theory and practice. In practice there is." I consider them only slightly safer from confiscation than Krugerrands and Maple Leafs.

Also, if the gold eagle coins are "recalled" by the government, expect to get no more than face value for them. Receiving $5.00 dollars for one tenth ounce of 22 karat gold is not my idea of a fair deal.

Other countries make bullion gold coins but they are not as well known as the Krugerrand and the Maple leaf so such coins will be harder to 'pass' if bad times come to pass. Do you know what a British gold Sovereign looks like, its karat (purity) or how much it weighs?

Eschew “Rounds” they have no status as a legal tender and those premium brand gold and silver coins you see on TV (Franklin Mint etc.) will not be easily recognized by non collectors i.e. the very people you're likely to be trying to spend them with or sell them to in an emergency.

You’d be buying them, Rounds, at retail + a premium and you’ll end up selling them at wholesale without a premium. They are not collector coins so don't expect a premium when you sell them. The guy at the coin shop will laugh at you if you start talking about premiums on Rounds when you're selling them. (Of course if you're buying Rounds it's a different story.)

Want to know if that gold or silver coin you hold is really a gold or silver coin? You'll want to buy a Fisch fake coin identification wallet for each type of the coins you invest in. Fisch Instruments, POB 160332, Sacramento, CA 95816.

With a Fisch wallet you can buy a coin with confidence anywhere there is a flat surface.

And if things get really bad you could set yourself up in business checking other people's coins for them.

NEVER buy "collector" coins ! They are a rip off for non-experts. First off, the people you’re likely to be selling them to in an emergency aren’t likely to know a collector’s coin from a Kopeck and won’t willingly pay your premium. Most people have at least heard of Krugerrands so they should be easier to spend.

You'd have to study numismatic coins for years to get enough knowledge to be sure of getting a “collector” coin that was sure to go up in value over the years. Collector grading of collectable coins is simple: his coins are top grade your coins are trash. Stick with bullion gold coins and "junk" silver coins and leave the "grading" to numismatists.

Remember, if the world doesn't go to Hell in a hand basket you are buying at RETAIL and will be, someday, selling at WHOLESALE which means value of the coins must go up just for you to break even. If you buy collector coins or rounds prices will have to go up a whole lot more just for you to break even.

Check out the local pawn shops/coin dealers many advertise "we buy gold" but there are usually only one or two who do it big time in any town.

A coin shop, as opposed to a pawn shop that buys gold, will be selling gold daily to a processor; the little guys have to save up enough gold & silver to justify a shipment. This is one time you want to be dealing with the big dog that's getting the volume discount.

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