Precious Metals Investing for the Savvy Conservative

There's a lot of talk about buying precious metals as a hedge against inflation but most people don't know how to do it.   If you do, feel free to skip this.  If not, I hope this helps and I'm putting this out as a financial service to my fellow fiscal and moral conservatives.  I used to be a financial consultant for Citigroup and have been doing precious metals investing for several years now.  This is a brief synopsis of what I learned over the years to get someone started.

This may sound complex but I will make it as simple as possible.

Precious metals have a benefit that isn't found in other forms of savings: They are never worth "nothing." If the market completely collapses and tanks, silver and gold are still worth something. The advantage of precious metals was observed in Germany after World War I when the Mark fell to below the value of kindling (and was used as kindling!) and families that had stockpiled gold and silver were still able to provide for themselves.

An advantage to buying precious metals is that the people selling them or buying them require no licenses - you can purchase them anywhere they are sold and sell them anywhere someone wants to buy - pawn shops will usually buy them even and they usually play by the market as well in terms of price and value.

There are other precious metals, namely platinum and palladium. However, due to the high cost of platinum and the "unusualness" of palladium most people trade in silver and gold. There is also rhodium (+$3,000/ounce) and I've never seen it in person.

Palladium does have an advantage that if the gold market becomes short in supply, we have seen palladium skyrocket, but it isn't as reliable a trader in an economic crash as silver, gold or platinum.  So I will focus on those.

Prices:

The market price in US dollars of precious metals can be found up to the minute at www.kitco.com/market/ . The prices listed are in American dollars and are per OUNCE of the metal. I've enclosed a file that is a snapshot of a price chart and circled these for you. We are concerned only with the New York market - not Asia or anywhere else. (And prices have climbed since I put this together).

When you look a price chart there are two prices: "bid" and "ask." You'll notice that the "ask" price is higher than the "bid." The "ask" price is the price you will pay if YOU are BUYING the precious metal from the company. The "bid" price is the current price a COMPANY is buying the metals for. The actual current value of the metal (or SPOT price) is right in between these two prices. So if you see a website that only lists one price for them, it is the price between the "bid" and "ask" price.

Since I started buying precious metals a few years years ago I've made a fantastic profit in terms of value. Silver was at $8.00/ounce and gold was at $450.00/ounce and since then these have both more than doubled. However, even though they go up and down, I do not ever worry about them being worth less than the paper they are printed on or being out of luck because a company went under.

Buying:

There are a couple ways to purchase precious metals - in person at a shop or via phone or email.

You can possess them in a couple different ways: In person or simply buy them and leave them in a vault with a company if you wish to trade regularly with the hourly and daily fluctuations in the metals.

For family emergency preparedness -

I recommend buying them in person from a shop or even a pawn shop in town near you for a couple reasons: You don't pay for shipping.

By the time you factor in shipping online the price of your metals (especially silver) goes up several dollars. If it ever comes time to make a profit off them, those several dollars can bite into your profit. However, if you are simply looking to accrue some, online is a great way to do it. I recommend www.apmex.com to purchase online from.

There are some companies that severely gouge people on the price of precious metals - again - look at the price of metals before you purchase at http://www.kitco.com/market/ or even http://www.ajpm.com/htbin/silver.cgi

Generally - the more you buy, the better the deal you will get on your metals from some companies. Like buying in bulk.

However you can always buy a single ounce if you wish. It is important to note that some companies will not take anything other than cash for a purchase in person.

WHAT TO BUY:

There are a host of products you can buy in precious metals. If you are not a collector, as I am, I would reccomend simply sticking with "bullion."

Bullion is just the metal its self.

It comes in two forms: "bars" or "rounds."

Rounds are more common to silver and are decorative commemorative coins that are made for special occasions and are traded as collectors items sometimes. However, in terms of value they are very easy to cash out - you will get the price of the silver for them - and they are the least expensive for the metal you get. If a shop starts trying to jack the price up on you because they are "art" - walk away or ask for something that is just a regular plain old round that they aren't selling as "art." I've only had one shop do this to me. I've dealt extensively with rounds and they are a safe buy.






BARS

Bars are just that - a bar of gold or silver.

Bars come in sizes from 1 gram to 10 kilograms.

The 1 gram, 2 gram, 2.5 gram and 5 gram sizes are more common to expensive metals such as gold, platinum or palladium. These make excellent purchases for quick trades in a pinch and can be bought for less than a hundred dollars depending on the size or the metal - sometimes 1 gram can be ~$45 for gold.


The most common size is 1 ounce.


CERTIFICATION:

Sometimes the bars are just that - a very old fashioned looking lump of gold with a stamp on it that says where it was minted, the weight and the purity. ***The purity is usually and should be .999 for any precious metal you buy.*** If it is a bar that was minted in San Francisco in 1840 something, it is not likely to have the purity on it, and yes, you can find these in pawn shops quite regularly if you go often enough.

(Beware - Sterling Silver is NOT silver - it has copper mixed into it and is not worth as much. Silver bullion is .999, sterling silver is .925 silver. It has no purity marked on it, does not trade by the ounce and is more of a novelty or collectors item.)

However, you can also purchase "certified" bars - these come in a plastic case with a stamp on them and are airtight and have an "assayer's signature" or "assayer's stamp" on them certifying that they are guaranteed as to weight and purity. These cost a bit more but I've found you can get a bit better price selling with these than you can with a bar that looks like it's from 1850. However, you'll also pay a little bit more as well.

Here is a certified bar of gold front and back:

Certification is more common with gold and platinum than silver. This simply means nobody can nick a little bit out of them and sell you a bar that's not quite what it is supposed to be while they are using the shavings to make a new bar in their basement. Also notice there is a signature on the back of the second case, and often they have a serial number on them that corresponds to the entire process as to when, where, and how it was certified.

Certification is nice, but it costs a bit more than a regular bar and you're paying for the guarantee.  However, when you go to cash it out, dealers often will pay you the same price for the bar if it's certified or not.  I quit buying certified bars to just increase the volume of metals I could purchase.

COINS:

You can also buy precious metal coins. However, for family savings and emergency reserves, the market for these can be especially volatile. In addition to weight and purity for the coins (and that varies) you also have other factors such as condition and rarity. A coin that was worth $400 the day before can suddenly be worth $200 the next day for a host of reasons - an example might be a shipload of them found on the bottom of the ocean flooding the market with a coin that just the day before was exceptionally rare and is now quite common.  For the interests of emergency reserves, I don't recommend dealing in them as if the economy completely tanks, you aren't likely to get what you want out of them in a hasty deal, and that is what this is about: emergency savings.  An example of this is, coins are not just metals but art and history.  In WWII on the topic of art for example, the going price for works in the Louvrre that were kyped by the Nazis was nowhere near their intrinsic value paid during peacetime.
If you're interested - here is a brief bit on precious metal coins:

Common silver coins of which I am very confident of trading in are Canadian Maple Leafs, Mexican Libertads or American Silver Eagles. Gold coins that are very popular are Gold Buffalos, Gold Eagles, and Gold Krugerrands (from South Africa). In platinum there are Platinum Eagles and Platinum Liberties.

These trade a bit more like stocks or even baseball cards in terms of fluctuations, deals and conditions. People can seek out rare ones with a perfect condition and such - like any coin collector. However, they can also trade like straight money.

It must be noted that the face value of the coin is never what the coin is worth in terms of metal - this is because America abandoned the Gold Standard several decades ago and our money is no longer based off of how much gold it can buy. So - if you have a $1 Silver Eagle, you're probably going to pay ~$22 for it depending on its condition - whereas a silver round of the same weight (one ounce) and purity (.999) might sell for $18. You'll get $17 back when you sell the Silver Eagle, however if you're just going for volume, go with just a bar or a round. You're more likely to get the value of it back when you trade or sell it.

These can come like the rounds, you can hold them in your hand, or they can be "slabbed" or "graded" where they are sealed in a plastic case that is air and moisture tight certifying what they are and their condition.

There's a collectors price in terms of value for these coins that are slabbed, and then there's a market price - which is what I was talking about with the hasty deals. The market price (what you can get for them) is usually considerably lower than they are appraised at.  Again, these are voilatile but if you know what you're doing can bring a hefty sum but aren't a good savings.

Taxes:

There are at present no taxes levied on silver and gold purchases in the U.S. - You do not have to pay sales tax, a finders fee, a comission, or anything on them to another person for your purchase. They are tax exempt.

Conclusion:

The market being what it is (and the president being what he is) - there are no guarantees, however, there is always a possibility that everything could go south, either nationally or just for you personally or as a family.

In terms of finances we are supposed to have at LEAST one months savings in cash on hand or in liquid assets that can be easily accessed and converted to cash in a pinch. Preferably we should have three to six.

Right now is a good time to buy precious metals. But - you have to check from day to day!

I generally don't deal in gold right now because it is so high right now though I occasionally buy a tenth of an ounce here and there. But at ANY rate, I will always have my precious metals in a severe emergency and I've never spent it or dipped into it so it just accrues and has gone up in value in the meantime. Long term, it only goes up in value.

IN SHORT:

If you want to make a purchase, go to the website http://www.kitco.com/market/  And look up the price for the precious metal you want.

Find a pawn shop or a coin shop and ask if they have anything in stock and how much they want per ounce or per item and make sure its near the market prices (it may be a bit higher - it usually is by a dollar or so).

Go pick it up.

OR - order it online from www.apmex.com or a similar website (compare before you head off!) and make a purchase! (I prefer to go drop the cash and walk out of the store with it).  Hope this helps!