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1. Pricing – Spot price vs. Premiums
After deciding Precious Metals as an investment will suit your needs the next question is what is the absolute best way to buy Gold and Silver? The answer to this may seem complex but all you need to do is understand these 8 things and you’ll have enough information to make a safe and secure transaction.
When it comes to buying Precious Metals the first thing you will notice is there are a huge number of places, either online or physical location, where you can buy Gold and Silver. There is also a wide range of prices and different types of bullion to purchase, why is this?
It is nearly impossible to buy Precious Metals for exactly what it is trading for on the stock market. This is because the London Bullion Market Association sets the suggested bid, ask, and spot price of the commodity-based on theoretical and provisional mining contracts. The current mining contracts are a good way to establish what the current demand is and supply will be, because remember, Precious Metals is not only for investing but has a wide range of industrial usage. In fact, over 70% of the Gold and Silver market is for industrial use such as Jewelry, Dentistry, Technology, et cetera.
The spot price of Gold and Silver is largely used to determine the value of raw ore. Raw ore is purchased by a refinery from mining companies and is then refined into its pure form. This process is extremely lengthy, difficult, and expensive. The pure .999% +/- form of the Precious Metals is then sold to businesses or mints that then turn the commodity into the final product. The mints (both private and government) have business overhead such as employee wages and expensive tools such as coin presses.
Now that this is established, it is important to ask, what then is a reasonable premium?
What is a reasonable premium for Gold and Silver?
There are a lot of variables that go into answering this but once you get familiar and browse the extraordinary variety of Gold and Silver products, you will start to get a good feel of what is a good or bad over spot premium. Though the variables I mentioned are vast let’s go over a few important ones, some folks never really consider.
Take two of the same metal type and weight coins minted by two different governments. The 1 oz Silver Maple Leaf by the Royal Canadian Mint vs. the 1 oz American Silver Eagle by the U.S. Mint. Both of these Silver coins are absolutely stunning and serve as the premier Silver bullion for both countries respectfully but there is one difference. The 1 oz Silver Maple Leaf can be purchased at about the current market spot + $2.00 to $3.00 whereas it’s American counterpart regularly trades at about $4.00 to $6.00 over market spot price. Why is this?
Well, in this instance its because the Royal Canadian Mint controls the refining process and the U.S. Mint does not. The Royal Canadian Mint has its own refinery whereas the U.S. Mint actually contracts several private mints to refine the metal and create the blanks used in manufacturing.
Other reasons could be efficiency, volume, supply, volatility in the market, among many other variables.
2. Scams and Counterfeit Gold and Silver
Many folks will never end up buying Precious Metals because they are worried, they will be scammed or sold counterfeit bullion. This is certainly a threat and happens ALL the time in our industry, however, there are VERY easy steps you can take to avoid being scammed. First and foremost, buy a test kit. Test kits range from chemical, magnetic to x-ray machines and are so readily available and inexpensive there is no reason you can’t test a questionable item. Don’t want to buy a test kit? You don’t have to. Walk into any jewelry store and they will have a handheld x-ray device that can test purity in a matter of seconds.
Secondly, it is extremely easy to avoid ever being sold a counterfeit piece in the first place. ONLY buy from a reputable dealer and know how to do a little bit of a background check on a bullion retailer before purchasing. Don’t feel like doing that? Here is a shortlist of bullion retailers who will NEVER rip you off. (Any company that does not make this list is not necessarily a scam this is just a list of folks we can personally vouch as we have worked with them in the past. There are reputable bullion dealers beyond this list!!)
Investor Crate – Best company on the planet! Of course, I am just joking, we are obviously bias of ourselves. We do, however, conduct random batch testing and PHYSICALLY have hands-on every single item that leaves our facility, pride ourselves in an easy cost-effective subscription-based model, and sell millions of dollars worth of Gold and Silver a year so you be the judge! So if you want to build your stack every month for years to come, consider us! But you absolutely cannot go wrong with;
- JM Bullion
- Provident Metals
- Bullion Exchanges
- SD Bullion
- Money Metals Exchange
- Gold & Silver Inc.
If you only ever purchase from these companies, you will never go wrong.
It is highly recommended that you avoid auction websites, random third-party sellers, sellers on social media, self-proclaimed “brokers,” Chinese websites, and popular big box websites (that sell Precious Metals and other non-related items). If everyone simply stopped using these outlets to buy Precious Metals there would no longer be counterfeits in circulation. This is because our company as well as the aforementioned companies buy directly from the Mint or pool inventories at big suppliers who buy directly from the Mints.
3. Individual Retirement Accounts vs. Physical Precious Metals
Precious Metal IRAs are good for folks who want to roll their 401k or Roth IRA into Precious Metals and may not have the capacity to store a great deal of Gold and Silver. The various IRA companies provide an easy outlet to buy, to sell, they store it and they give you monthly or quarterly earning statements. With that said though, this means they control the entire process and the fees can get extremely expensive. Fees vary from company to company but they can hit you with storage fees, very high markups, brokerage fees, and take a fairly large percent when you go to sell. This isn’t to say Precious Metal IRAs are a huge scam just make sure to research into which trust company is the best for you.
Physical is certainly the preferred method as most folks want to possess this type of wealth and investment. This gives you much more control over premiums as you are not paying a third party to purchase and custodian the bullion on your behalf.
4. Selling Gold and Silver
A common misnomer is that you will pay a premium for Gold and Silver when you purchase it but when you go to sell it, you won’t even get spot price. This is largely true if you decide to sell it to a local coin shop, cash for gold, or pawnshop. We recommend reaching out to actual bullion retailers to sell your Gold and Silver as often you will be able to sell it at spot with a premium (albeit usually small). This is because everyone will inevitably resell the bullion and need to make a profit but this is easily offset if you sell higher than when you purchased it. See the last section “Strategies” for more elaboration.
A small monster box of 1/2 oz Silver Coins from the Royal Canadian Mint. Photo taken in Dallas, TX at one of Investor Crates warehouses.
5. Local Coin Shops and Pawnshops
LCS and Pawnshops have a huge varying degree of trustworthiness and fairness in terms of what products they sell and what type of premium they charge. This would take some scouting, learning, and talking to folks and getting an estimate of what they are charging. In my personal experience with local places in my area, these businesses are largely overpriced. Though, there is a difference between being overpriced and nefariously price-gouging customers.
Keep in mind that owning an inventory of Precious Metals as a small business is extremely costly, subject to market loss, needs to be insured, has extremely small margins to work with, on top of security and building leases. So again, there is a difference between fair pricing and nefarious pricing but don’t forget to consider these things before you give them a 1-star review online! Some folks enjoy the experience of going in, browsing, picking out what they want, and supporting small business and if that comes with 50 cents or a dollar premium over spot, that is OK!
6. Buying Gold and Silver online
Buying Gold and Silver online has its pros and cons as well. As we covered above, there is a bit of research you have to do on each company to make sure you didn’t accidentally stumble onto a scam website. Besides that, there is much more variety to choose from than a pawnshop or LCS and you can easily tab through prices and find the best prices, for whatever it is your looking at, in live time.
Most online bullion retailers don’t have an inventory and pool their inventory together. This is because a shoebox of Gold could easily be a million dollars in inventory. The price fluctuation between retailers usually boils down to marketing and business overhead as well as efficiency and company optimization. The legitimate bullion retailers aren’t ripping you off, they are just adjusting their prices to keep their business running. The biggest misconception in the Precious Metals investment industry is that the retailers all drive Ferraris to work. When in fact, selling retail bullion to investors is the least profitable venture you could ever get into as the margins are extremely small.
7. Strategies – How people use Gold and Silver to make money
Mining stocks – Some folks prefer to get it from the source!
Some of the big publicly traded mining and refining companies purchase land that is rich in Gold, Silver, Platinum, and other noble metal deposits. They do a few things such as flip the land, hold onto it until the price goes up, mines the Precious Metals or buys and sells contracts. Some of these stocks have impressive returns and are certainly an option when it comes to commodity investing.
Rolling over to or starting a new IRA – You’ve seen the commercials!
Some people, especially those who have a lot of money, tend to go this route. They don’t want to bother with researching the commodity or buying a safe and just want the potential investment benefits in the form of a gain. They do not want to be bothered with the whole process and don’t even want to see it unless its in the form of a piece of paper that says its more valuable than when they bought it. This is perfectly fine and always an option for folks.
Long term investing.
Some people say Gold and Silver is a lousy investment and the counterargument is always that it is a long-term investment. It might not always increase in value but if you take a look at the charts, it certainly has. Gold and Silver, historically speaking, consistently go up in value. In fact, in the last 20 years, Gold has gone up 550%. With this information, folks purchase Gold and Silver bullion with the intention of holding on to it for a few decades. Because of this, investors also pass their bullion down to children and grandchildren.
Hedging against inflation.
Historically speaking, Gold and Silver always spike when something bad happens to the economy. The main tool in the government's toolbox to get out of an economic crisis is almost always to print more money. When this happens, the value of the dollar goes down which means you’ll need more of those paper fiat tinders (whatever that means) to purchase Gold and Silver with.
This always has a two-prong effect, as this is always predictable so the value of the dollar decreases and demand for Gold and Silver spikes dramatically because the industry tries to stockpile as well as investors.
Not everyone has $800,000.00 to buy one of those Gold bars you see in bank heist movies, so one of the most common strategies when investing in Gold and Silver is dollar cost averaging. This is for folks like you and me who want to buy a few rolls of something on payday each month to give to the grandkids.
Dollar cost averaging Precious Metals is when you consistently purchase your bullion throughout the year. Buying month after month, regardless of what the market is doing, generally speaking, yields you that year's average Gold and Silver prices. This helps take some of the pressure that can come from staring at the market ticker all day and makes it a fun hobby that will help your family’s generational wealth over time.
8. Have questions about investing in Gold and Silver?
This blog is for entertainment purposes only and should not be considered advice. We urge you, if you have more questions, to reach out to a certified financial advisor and seek counsel before investing in Gold, Silver, Platinum, or anything for that matter. Do your due diligence and ALWAYS know the risks of investing your hard-earned cash!
If you have any questions about our services specifically, we are always here to help. You can reach out to us by scrolling down a tad bit further and click on the 'contact us' button to get a hold of us.
As always, we hope we were able to clear up some things about the industry and always appreciate you guys sharing this with friends!