I’m always surprised by how few people understand the options for buying precious metals. Even the very affluent.
I recently returned from a conference full of highly-qualified investors who “get” the economic risks we discuss here at Wealthion. And on multiple occasions, I was asked if I could demystify the purchasing process for folks who wanted to build a position in gold and silver.
It seems the precious metals industry does a bad job of educating the curious buyer, probably because each player has a bias towards their particular slice of the solution set.
I find myself guilty of assumingthat everyone is as familiar as I with the full spectrum of gold-silver purchase options available. So to correct that, I’ve taken the time this week to detail those options out for the novice buyer.
So, if you’ve been thinking about converting some of your paper fiat money into precious metals but are unsure how to start, wonder no more.
Below is a primer of the main options available to you, and in which situations each makes sense to consider. But before continuing further, let me make a few things absolutely clear. This is NOT personal financial advice. This material is for educational purposes only, and as an aid for you to discuss these options more intelligently with your professional financial adviser(s) before taking any action.
Suffice it to say, everything discussed in this report should be reviewed with your financial adviser before taking any action. Am I being excessively repetitive here in order to drive this point home? Good…
Getting Started: Bullion (Stored Locally)
The primary reason for buying precious metals is Armageddon insurance; to own a form of money that will still have purchasing power should our paper-based currency suddenly become valueless.
Don’t think that’s a risk in modern society? Just talk to someone in Venezuela or Argentina today. They’d gladly trade you millions of bolivars or tens of thousands of pesos for a single gold coin.
Which is why many believe it wise to have a stash (or “stack” in PM-parlance) of gold and silver, in physical form, that you can quickly get hold of in your hot little hands should a currency crisis arise.
Physical gold and silver is referred to as “bullion”. It’s most common form factors are coins and bars.
When buying gold bullion for your emergency stack, most experts recommend restricting your purchases to 1-ounce sovereign coins. These are coins currently minted each year by select governments around the world; most notably the Eagle (U.S.), Buffalo (U.S.), Maple Leaf (Canada), Krugerrand (So. Africa), Philharmonic (Austria),Panda (China), Kangaroo (Australia), and Sovereign (U.K.).
Why stick to the sovereign coins?
First off, they have a low premium to the “spot” price of gold. So you’re buying your gold at a good value versus most other options. that you can quickly get hold of in your hot little hands should a currency crisis arise.
Why stick to the sovereign coins?
The futures market sets the price of an ounce of gold (called the “spot” price) at any given minute of the trading day. Because it takes cost and effort to convert a lump of gold into a specific shape and then ship it to a dealer, the mints tack on an extra fee when they sell their products to precious metals dealers. Those dealers in turn add their own mark-up. The total price above the spot value that you pay at the store is referred to as the “premium”.
OK, got it. So my goal is to try to buy my gold for the lowest premium per ounce?
Yes, in general. And that’s why experts recommend sticking to the 1oz sovereign coins. If you purchase gold in increments smaller than 1oz, the premium per unit of gold increases sharply the smaller you get in size. And if you buy numismatic coins, the collectible value often results in large premiums over spot price.
You lost me again. What are “numismatic” coins?
Numismatic coins are coins that have collectible value. Generally, they are no longer minted today and exist in a secondary market where they’re traded between collectors. Those building their emergency gold stack should steer clear of numismatics — in a crisis, coins are likely going to be valued primarily for their gold content. Any collectible value could be easily discounted or disregarded altogether. Also, unless you have years of experience trading them, it’s easy to lose money or get plain ripped off buying numismatics.
OK, stick with the sovereign coins. Any other reasons why?
Coin dealers — the folks you’re going to sell your gold back to someday — are by far the most familiar with these coins over all other forms. They can spot fakes more easily. So, if you’re buying from a reputable dealer, you can have confidence you’re getting a pure product. And, when the time comes to sell your gold, if you’re holding it as sovereign coins, a dealer will be most likely to accept them.
What about silver?
Government mints also make sovereign silver coins. Those are fine to buy.
There are private mints that also make coins, which are referred to as “rounds”. These tend to have a lower premium to spot that the sovereign silver coins. But you need to be careful here. If you buy rounds, make sure to buy a brand that your local dealer recognizes and agrees to accept. Otherwise, when it comes time to sell, you might find he’s only willing to buy them from you at a discount to spot (or perhaps, not at all).
By far the cheapest way to buy silver is by purchasing bags of pre-1964 US coins (quarters, dimes, etc), aka “junk silver”. Prior to 1964, these coins were comprised of 90% silver. Today, dealers sell pre-weighed bags of these coins at very small premium over spot. Bags of junk silver also give you the option value that, should a crisis ever force us back to transacting in silver, you’ve now got small-increment coins with which to buy lowcost everyday items (bread, milk, etc).
But as every silver investor learns quickly, silver is heavy! And beyond a certain amount, it becomes challenging to store and transport stacks of coins/rounds.
Which is why those looking to own hundreds or more ounces of silver typically purchase silver bars. As with rounds, there are many mints that issue bars, but there are two brands that have been around for a very long time that dealers prefer to deal with: Johnson Matthey and Engelhard
All right, so where can I buy gold & silver bullion?
You can purchase sovereign coins, rounds, and bars from your local coin dealer or from an online dealer. If you stick to buying the products I’ve mentioned, there should be no product quality difference between the two.
In both cases, deal with a firm that has been in business for years — ideally a decade or more — and has a well respected brand. These firms have a reputation to protect and thus will be less likely to gouge you, sell you inferior product, or do anything shady/illegal. If possible, choose a firm recommended by a longtime gold buyer whose opinion you respect.
Ordering online offers usually offers an advantage over local deals on price, selection, inventory dependability and personal privacy. Some of the most established online dealers are JM Bullion, APMEX, and Mike Maloney’s GoldSilver.com – though I prefer GoldSilver.com for a whole host of reasons.
It’s a first-class operation with excellent customer service, order & fulfillment dependability, and range of solutions. And no one – no one – is better at keeping clients well-educated about precious metals, the reasons for owning them and what their latest price outlook is, than Mike Maloney.
Also, and in full disclosure, the investors in GoldSilver also back Wealthion. So I can personally speak to the integrity of the people involved there.
As for locating a local dealer, a quick Google or Yelp search should be able to identify the nearby coin shops in your area. But as mentioned above, if possible, it’s better to select one based on a recommendation from an experienced bullion buyer in your community whose opinion you respect.
How much gold and silver should I buy for my Emergency stack?
This is one of those uniquely personal decisions that a general article like this can’t give you a specific dollar amount for.
The right answer is: Consult with your professional financial advisor to determine the amount that best suits your risk tolerance and goals.
But time and experience has proven that an effective rule of thumb is: Whatever amount lets you sleep well at night.
Buy enough that you no longer worry about having no Plan B should a currency crisis suddenly hit. But don’t buy so much that you’ll worry about getting robbed, or that you’ll panic every time the gold price drops in the market (which will be often, as gold is very volatile.)
For most people, this will be a few $thousand worth, or a low 5-figure $amount. Remember that 99.9% of US households own less than 1oz of gold (if any). If we suddenly reverted to using gold and silver as currency again, with only a few ounces of gold and a little more of silver, you’re going to have WAY more than most other people.
So, once I’ve bought my Emergency stack, where do I keep it?
The first rule of owning bullion is to convince the world you don’t own any. DON’T TELL ANYONE ABOUT IT! Greed and crisis do weird things to people. Don’t make yourself a target unnecessarily by revealing your holdings or where you’ve stashed them. Except perhaps to your spouse, or key family members you trust. You don’t want the gold disappearing forever should you suddenly kick the bucket (from natural causes?….)
The point of having an emergency stack is to be able to get your hands on it quickly should you need to. Some people put it in a home safe, some in a bank safety deposit box, some hide it in the walls or bury it outside. There are pros and cons to each. You’ll need to decide for yourself which is the best option for your unique situation.
The main risks to holding precious metals on your own property are personal safety and loss. If you decide to keep bullion in your home, in a safe or elsewhere, the smart thing to do is to TELL NO ONE. The fewer people who suspect you have any gold, the lower your risk of robbery. As for loss, many insurance companies will not cover more than a small sum if your bullion is lost due to theft or disaster. Be sure you’ve reviewed your homeowners policy to know what your limit is.
Holding your metal in a bank reduces the theft/loss risks, but introduces others. For example, your access is more limited as it depends on the bank being open (it might not be during a financial crisis).
In the end, you’ll need to decide for yourself which option (or combination) best fits your personal risk tolerance level.
Increasing Your Core Position: Bullion (Stored Remotely)
As mentioned, most households’ Emergency stash will range between a few $thousand to a low 5-figure $sum.
Among those households, a number will want to own more precious metals beyond the Emergency stash — for increased protection against monetary devaluation/economic crisis/asset price bubbles. But they don’t want exposure to the increased risks involved with storing greater amounts of bullion.
For investors like this, who are likely the majority of those reading this article, bullion storage companies can be an excellent solution.
In this space, Wealthion endorses solutions like GoldSilver.com and the Hard Assets Alliance, which are representative of the benefits these storage companies can offer.
The Hard Assets Alliance has a commercial-grade platform that allows you to purchase gold and silver at very competitive prices, and then have that metal stored in your name in a high-security vault of your choice.
Hard Assets Alliance can offer such good pricing because it uses Gold Bullion International‘s industrial-grade platform (the same used by major financial institutions like Merrill Lynch) which ensures that a minimum of 4 dealers are competing to fulfill your order.
In terms of storage options, Hard Assets Alliance holds any precious metals you buy in your name. This is “allocated” storage — no one else has claim to that same bullion. This differs from “unallocated” solutions where buyers have a fractional claim on a pool of bullion. When using a storage company, definitely choose allocated
solutions over unallocated.
Hard Assets Alliance gives you the choice of storing your bullion in any of six ultra-secure non-bank vaults around the world, which are audited several times each year. These vaults are owned and operated by world-renown security companies (Brinks, Loomis, Malca Amit) and are in US (New York), US (Salt Lake City), Switzerland, Australia, Singapore and the UK. So you can diversify your country risk, should you wish to.
And should an act-of-god impact the vault, the contents are insured at full replacement value in bullion — meaning if anything were to happen to your bullion, you’d get back the same amount of metal, as opposed to compensation in cash.
And should you decide at any point you want your vaulted bullion sent to you, Hard Assets Alliance will ship it upon demand.
For most investors, a reputable industrial-grade vaulting service offering these benefits is an excellent solution for expanding your gold and silver holdings beyond your initial Emergency stash.
Speculating On The Price Of Gold & Silver (“Paper Gold” solutions: ETFs and ETNs)
For those looking to go beyond a defensive position in bullion, there a number of options for risk-seeking investors to speculate on the price of gold and silver. (NOTE: this is heading into riskier territory vs owning physical bullion.)
Those who wish to bet on the price of precious metals rising or falling can trade within the growing number of ETFs and ETNs tied to the price of gold and silver.
ETFs/ETNs are securities that trade on the financial markets much like a stock does. They are essentially funds that have exposure to the price of the precious metals, either by owning bullion or futures contracts.
It’s very important to understand that most ETFs/ETNs are not fully-backed by bullion. They are exposed to counter-party risk, which is why they are often referred to as “paper gold” or “paper silver”. Don’t think of owning them as the same thing as owning an equivalent $amount of bullion.
The main reason to own an ETF/ETN is as a bet on where the price of the underlying metal is headed. If your time horizon for the bet is short, ETFs/ETNs can be the better choice: they’re extremely liquid and they don’t have the premiums and storage/shipping fees that come with buying physical bullion.
The most heavily traded ETFs/ETNs are GLD and SLV, which are heavily stacked with futures contracts. For folks looking for funds fully-backed by bullion, Sprott offers PHYS (gold), PSLV (silver), and CEF (both); and VanEck Merk Gold Trust offers OUNZ, which has the additional option of converting your stake to physical bullion which it will ship to you upon demand.
There are also an array of leveraged precious metals ETFs/ETNs for those really looking to take big risks on the price direction. Unless you are an experienced PM trader with discretionary capital to lose, stay away from these.
Leveraged Speculation (Mining Shares)
Where do gold and silver come from? Mining companies dig them out of the ground.
When the price of the precious metals rises, so do the prices of the companies that mine them. But the mining shares generally rise/drop much more than the price of the underlying metal.
Why is that?
Because the miner is still sitting on ore in the ground. As the price of, say, gold goes up, not only is the gold the miner is selling today more valuable, but all of the ounces it will dig up in the future just became more valuable, too. So in this way, shares of stock in gold mining companies is said to be a leveraged play on the price of gold itself.
Investors who think that gold is undervalued right now and positioned for a sharp bounce can buy shares of gold mining companies and expect to ride a much bigger wave higher if their prediction indeed comes true.
But there’s no guarantee of that. Mining shares introduce company risk (and many of them are run quite poorly). It’s absolutely critical to understand that mining companies are EXTREMELY risky. And over the past decade, precious metal mining shares have been one of the worst-performing sectors of the market. They have been absolute widow-makers.
That said, with many poor-quality players dying off and the remainders forced to upgrade their balance sheets & management teams over the past decade, the prospects for these miners are suddenly looking very bright with gold now above $1700/oz and silver above $25/oz.
Experts strongly advise that those investing in this space diversify, and do so by owning general indexes of mining companies (GDX is an example for the major mining companies, GDXJ offers an index of junior miners = even more risk!), or by following the guidance of analysts who follow the space closely and do their best to identify the more promising/solvent companies from the riff-raff (Gold Newsletter and Gold Stock Analyst are two respected newsletters tracking these companies, and Jeff Clark, GoldSilver’s senior precious metals analyst, shares his mining stock trades with the public for free on Twitter at @TheGoldAdvisor)
While shares of individual precious metals mining companies can offer truly staggering returns in a gold bull market (e.g., in excess of 1,000%+), don’t put any capital at risk in this space that you can’t afford to lose. These are wildly risky.
Creating An Allocation That Makes Sense For You
As you look at the spectrum of options for owning gold & silver covered by this primer, how do you decide how much (if any) of your capital to allocate to each level?
The answer lies in clearly understanding your current financial situation, your future goals and needs and your risk tolerance. This is why we’re so adamant in encouraging investors to make the decision in partnership with their professional financial adviser (hopefully, one that doesn’t sneer at the mere thought of owning a little gold!).
Those having difficulty finding one can schedule a free consultation with the financial advisor endorsed by Wealthion by filling out the short form at www.wealthion.com. They have years of experience working with investors to answer the question: What percent of my portfolio does it make sense to hold in precious metals?
Positioning Only Works If Done In Advance
So, why issue this primer now?
As mentioned, I was at a conference recently where precious metals were a key topic. At that conference the speakers underscored the trap the Fed finds itself in. Having increased the money supply by nearly 10x since 2008 — through QE1, 2 and 3, and then the massive stimulus response to the COVID pandemic — the Fed can now neither raise interest rates nor reduce its balance sheet without killing the economy.
From here on out, it’s going to be ever more easy credit and ever more stimulus until the economy collapses under the weight of Too Much Debt. On that trajectory, the purchasing power of the US dollar is going to decline faster and faster.
The best hope for the average investor is to own tangible assets that can’t be inflated away. Gold & silver are the easiest for the average investor to access.
But to benefit from the purchasing power protection of precious metals, you have to be positioned in them in advance of the coming fiat currency devaluation.
So if you’re not well-positioned already, make it a near-term priority to become so.