Let me start by saying that I am not a professional financial advisor. Nor am I someone who wants to sell you anything, or give “investment” advice. I am a science teacher. I had some experience working on Wall Street in my previous carrier. I have had personal experience trading stocks. I also have had experience saving money in precious metals. Many of the questions that I had when I started buying silver and gold are the same ones that you may be asking as well. You may ask questions like: how and from who, or what kind, or what is the spot price? I am writing this to give a little direction and share some of our experiences in this matter.
The first time I wanted to buy gold
In 2000, I went to a bank and asked the teller if they had gold. Boy did I feel stupid. Guess what? Most banks don't sell gold. [JWR Adds: A few banks sell American Eagles.] The good news is the teller thought I was joking. So, I went about my business. Then I mentioned to my boss that I was interested in buying gold and, as it turned out, he was a big coin collector. He showed me a couple of his gold coins. I was surprised at how small they were and how much he said they were worth. I did not buy any gold that year. The reason I did not buy gold that year was that I did not know what I was doing. Since then, I have started my own stack and done some homework that I felt I could share with readers on the blog.
The spot price
The spot price is the price you see when you look at the price of a commodity. It is used by commodities traders who buy and sell commodity contracts. As I write this, the spot price for silver is $34.78 per Troy Ounce. The last time that I checked, the spot price for gold was $1712.20. In the same vein, the spot price for 100 bushel of corn is $650.60. You should know what the spot price is before you go out and buy any gold or silver. However, you should not assume that you can go out and buy at the spot price. Nearly all gold and silver bullion, coins or jewelry is sold at a premium to the spot price. The following is an analysis of various types of precious metals that you can buy. This table was compiled by me using various sources of products that I could fine on-line. The prices are the retail price sans any shipping, handling or taxes. The melt value is simply the mass of the item times the spot price. The last column shows the percent of premium that you may pay if you invested in gold or silver using that particular item, on that day, at that price. Keep in mind that these numbers are for comparison only and you may find different prices. The spot price for gold and silver is on the left and it changes daily. I have sorted the "% Premium per ounce" column so you can easily see that jewelry is the most expensive way to buy gold, and bullion bars are the least expensive way.
Example Premiums on Silver and Gold
When Purchased in Different Forms
|Gold (@ $1,725 Per Troy Ounce)|
|Am. Eagle 1 Oz.||1||$1,725||$1,816||$91||$91||5%|
|Silver (@ $33 Per Troy Ounce)|
|$1 Morgan Dollar||0.788||$26||$33||$7||$9||28%|
1 Oz. Silver Eagle
Bullion Bars and Coins
There are may people out there saying “just buy bullion”. As you can see from the chart above, bullion carries the lowest premium. Bars especially, have no numismatic or collector value. You are paying for the gold only and maybe a small amount for the fact that it is in a form that is easily recognized and .999 fine gold. There are also bullion coins that are sold for there content of gold or silver. The American Eagle comes in silver and gold. These carry a premium over the bars because they are easily recognizable and they have known purity. This is also true of other coins such as Maple Leafs, which are produced by governments, but are not intended for circulation as currency. Just so you know, if you sell to a dealer, large bullion transactions will trigger an IRS 1099b report. American Eagles and pre-1933 gold coins [normally] do not.
These are the pre-1933 gold coins that my boss showed me back in 2000. I wish I had bought some then. He had a coin he said was worth $500, but it only had $350 worth of gold in it. Today that same coin is worth over $1,800. Most of our silver and gold is in the form of numismatic coins. I do not buy “Key Date" or Mint State numismatic coins. Key date coins are coins that are particularly rare and carry high numismatic premium. The historic value placed on a 1862 New Orleans gold coin is extraordinary. However, the gold value of that coin is the same as any other $20 gold coin of that period. Buying high value numismatic coins is like buying fine art. And, I am afraid that when the SHTF the numismatic value may go out the window. If you avoid key dates, these coins can be a good way to collect gold and silver. They are a known quantity. The $5 Indian head coin always has around ¼ oz of 22k gold. It has been said that if gold is [again] confiscated that the government won't take away these old numismatic coins, only bullion. That may be the way it happened in the past. However, I make no predictions about what the government will do in the future. I must point out, I find it unlikely that they would confiscate gold today because they simply don't need it to back the paper currency.
This is the old coinage minted in or before 1964. Its not junk. Its 90% silver and 10% copper. Coin collectors call it junk because it is common date and there is a lot of it out there. It often sells for near its melt value. Junk silver is the easiest way to collect silver. Most coin dealers have a bag of old coins in the back. The best time to buy this stuff is a few years ago. The second best time to get some is as soon as possible. If there is an issue with paper currency in the US, junk silver is likely to become a medium of exchange. Many people have it and it is easily recognized. Junk silver is easily the closest to melt value that I have found in a convenient recognizable form.
Jewelry is what people bought when owning gold was illegal. Jewelry also carries the highest premium of all. I would not recommend buying jewelry for its gold value in today's market. Having said that, there are may people who love jewelry and they have been buying the stuff for years. Jewelry is very durable and does not spoil. If you bought a gold chain back in the day, it may be worth more than you paid for it. Throughout history people have used jewelry as an asset in troubled times. In fact one of my students said that when her mother was fleeing Sarajevo, she first converted all of her assets to fine jewelry which was finally traded for US Dollars when she arrived in New York. I doubt if she got a good deal, but she got her family out of a war zone.
Where to buy Silver and Gold
Most towns and cities have a store somewhere call something like “Bob's Coin and Stamp.” These are usually independent guys who buy and sell old stuff. You may check the yellow pages under “coin dealers”. Some of these guys also sell antiques, stamps or other collectibles. They usually have junk silver. They often have gold coins. They generally don't ask questions and they accept cash. The coins that they do have tend to be of the numismatic varieties and they have a constantly changing inventory. They may not have bullion coins and bars because they sell quickly. When I finally found one of these guys near where I live, I started to go there every payday a pick up a small amount of silver coins. You don't have to be rich to start buying junk silver, but when the SHTF, you may be glad you have these.
If you are looking for bullion bars and rounds you may want to check some of the on-line dealers. Northwest Territorial Mint is a sponsor of SurvivalBlog. I have heard good things about them, and they have a good web site. There is also APMEX who I used to get some of the prices in my analysis. Buying gold from these organizations are is not much different than buying books on Amazon. You click on your product, give them your credit card number or your bank routing number, and they send you your gold in the mail.
Jewelry is a no-brainer. You go to any jewelry store and buy it. Make sure its on sale. There is a very high markup on jewelry, so they still make a profit when its 50% off. Try to find items that speak for themselves. For instance, a necklace that is 8 grams of 18k gold may be more useful than earrings with rare stones or artistic merit. Also, of course make sure it's real.
What do you do with your precious metals?
Many of the companies that sell gold will store your gold for you. They may also open a gold IRA for you. There may be financial and tax advantages to having your gold in a custody account. There may also be some risk to using a custody account. When MF Global went bankrupt, they had only 75% of the gold that they were supposed to have. Many of their customers took a 25% haircut on their own gold. Most of these trading houses keep all of their customer assets in “the street name”. This is jargon used on Wall Street. It means that the assets are in the name of the investment company instead of the customer. During a bankruptcy, those assets become subject to the proceeding of the bankruptcy. You may have an account that says you have a claim to those assets, but, there is no box with your name on it. Personally, I feel more comfortable storing my own. Gold does not take up that much space, its easy to hide and you may want to get a hidden safe.
Depending on the scenarios that you are preparing for, precious metals can become an important part of your preparations. If you are thinking about precious metals as an investment, be advised that the price may fluctuate. If the spot price drops, all of the above mentioned items will lose value. If you are preparing for a short term emergency then cash is king. If you need to evacuate from a hurricane or flood, cash is more useful than gold or silver. But, if we are preparing for an economic collapse or hyperinflation, cash is trash. You need to start stacking. Start small, with cash (in small bills), and junk silver (dimes, quarters and halves). However, if you want to protect larger assets from economic collapse then gold and silver bullion may be best.
JWR Adds: As I've often written, consider hedging into precious metals only after you have your beans, bullets and Band-Aids squared away. Precious metals can be bartered under some circumstances, but don't consider them a substitute for the much more important aspects of your family's preparedness.