Investing in silver and gold is a hedge against potential inflation and monetary devaluation; it is a way to keep high concentrations of wealth portable and off-grid and it can be fun and profitable. Gold and silver has been a way to grow and preserve wealth since wealth has been defined. The downside is that silver and gold are expensive and becoming more so, there is a typically a specialized group that you must deal with to see return value and it is not at all edible.
I have been a coin collector on and off throughout my life. As my anxiety about the world shifted me into full scale preparation; my coin collecting experience was easily transferable into hard asset investments. However even with my experience, I still made mistakes and learned a few lessons.
With all things in my life, I am about setting goals with milestones to achieve them. The goal of this article is to provide a novice a quick way to start gathering a heavy metal horde without getting burned. The milestones within are those that I have crossed myself to share as guideposts to the beginner.
The first goal is to determine how much you are willing to invest. My personal goal was to reduce my 401(Mk) contributions and put it in a separate account in order to save up to buy a larger quantity. It is also a good strategy to have a couple dollars for any investment that may come along that is worthwhile. Typically you can get a better deal with gold by buying larger amounts if you are buying from a retailer. A retailer (such as a coin or jewelry store) will add a profit. Thus a 1/10th ounce gold coin is a bit more expensive by weight than a full ounce. However, you have to judge whether the changing price of gold and silver is worth the extra cost now versus buying later. For example, if you wanted to buy an ounce of gold in the beginning of 2010, it was a bit above $1,100. A rational plan of putting a hundred dollars away a month to buy an ounce would be ideal, except for the fact that by the end of 2010 the gold was $1,350. Therefore, buying 1/4th of an ounce on a quarterly basis would have been a better investment even with the additional costs. There is no crystal ball to identify if gold will go up or down and that is a risk factor that you have to decide upon as you view the markets.
Understanding your markets is very important. There are many useful resources on the Internet. Kitco is a great site with historical charts on various metal prices. Coinflation.com is wonderful for knowing the melt value (price for the metal value only). My second recommendation is to follow the spot market regularly. Look at silver and gold spot at least weekly, if not daily. Check out Coinflation.com and know the melt prices of US coins. This is basic information and until you master it, you will never be more than a rookie. Read the investment guides both positive and negative and develop your own judgment. All metals derive their value from the limited quantities available and demand. Demand is determined by the amount mined annually and usage which involves investors and industrial uses. Both gold and silver can be purchased in a variety of ways although I am going to focus solely on in-hand methods and not stocks, funds or “paper” ownership. Hard metals can be sold as coin, bullion or jewelry; all of which have value. By personal choice, I have not purchased jewelry as an investment and therefore my information will be bare on this subject and emphasize coin and bullion. If you have a spouse (especially female) who is not interested in establishing a gold and silver reserve and may have issues with prepping in general, buying them jewelry occasionally could help on several fronts. Fortunately, this is not my situation. So when investing in coins and bullion you need to know the current spot price. Reputable companies should charge the going spot price for plain bullion. Plain bullion will fluctuate with the market and is fairly easy to resell. The difficulty with bullion is that it usually requires a dealer or an educated buyer for a transaction. Bullion is a specialty market and there have been countless efforts in history to fake or short bullion exchanges.
Coins tend to be safer but are more expensive. There is a collector’s [“numismatic”] value to coins. If you are interested in purchasing coins, then you must review the standard references for coin buyers. There are two books, the Standard Catalog of World Coins (commonly called the Blue Book) for the average consumer and the Red Book (the purchasing price) for dealers. It is strange that the industry has published a two tier system, but this is how professional coin dealer’s estimate buying and selling prices. My second piece of advice is to get some practical knowledge and establish contacts. People react and trade better with those whom they know. Identify the places where they sell coins (more about this later) and visit it at least once a month. Regularly purchase yourself a silver dime (pre-1965), quarter or bullion coin of choice. I recommend dimes due to their inexpensive nature and currently averaging between $2.75-$3.00 on the spot market (see Coinflation.com). However, if you are comfortable dropping $20 a month for an educational experience, then buy a quarter. Enter at your comfort level but remember this is for intelligence only and should not be the bulk of your investment until you have gained some knowledge. Talk to the store owners and ask questions. It is my experience that people who work in coin stores love the trade and will tell you all kinds of things. I’ve learned many valuable pieces of information just talking with people and hanging out at such places. After you become regular and more knowledgeable they tend to make a better deal with you when you come in with a bigger wad of cash. The positive aspect is if you are purchasing a dime a month instead of buying a Big Mac, then you are following a primary tenant of investing, which is to buy regularly [a strategy known as Dollar-cost averaging.] It is a low impact way of creating a silver stash. You also have a better chance of buying on a dip.
So where do I buy coins and bullion? I will buy gold and silver wherever I can find it reasonably priced. While I do like to frequent certain stores regularly, I don’t want any single place to understand my inventory of precious metal. So here is a listing of where I bought precious metals over the last several years with the pros and cons.
Retail: Coin, jewelry and other retail outlets are fair places to purchase coins. You can be fairly confident that while priced fair to high end, you are buying exactly what is described. They are also good places to determine values for goods as well as getting knowledge. Retailers are also ideal places for trade. Most retail outlets are not coin specific and will take newer mint coins at book value, baseball cards, comic books and other stuff that you may have from an earlier life or that you might stumble across.
Auction: Coin and bullion auctions are fairly common and are relatively safe when going through a reputable auction house. Local estate auctions can be a great way of getting coins at or below market price. Auctions are advantageous because most are going for coin value and ignore melt value. I have bought gold coins below melt value because collectors were valuing off the Blue and Red book and had no idea that gold had a recent run up spike or that they simply may not wanted to part with that much cash. Auctions are one of the reasons I like to have some cash always set aside as they tend to be good opportunities.
Pawn Store: Like in the show “Pawn Stars” gold and silver is pawned routinely. Many pawn shops, if they have been in business for a while, deal gold and silver like the retail establishments. What is unique about pawn stores is that if you have anything of value that you no longer need or want you may be able to trade and thus acquiring gold and silver without cash. They are much more flexible that traditional retail establishments in this aspect. [JWR Adds: Beware that markups vary widely. Do some comparison pricing before you commit to a purchase or a trade. Use the telephone to minimize your legwork.]
Antique Stores: Antique stores are an interesting place to purchase coins. The majority of the time these places are overpriced and they are selling junk coins at a markup. Sometimes, there is a big jump in spot prices and the antique stores are not diligent in updating their costs. This is one of the few places where your knowledge of the changing spot market can be very valuable.
Internet: There are many places to purchase gold and silver over the Internet. I have done this several times. I dislike it every time. I cannot judge the purchase before I see it and with even the most reputable dealers I have had very long waiting periods. The other downside is that this is a very documentable transaction. So this eliminates one of the positives about owning metals–the privacy. Still, it is relatively safe and if you do not have access to other options, it can be an easy way to purchase metal.
Through the Internet I have also bought coins off Craigslist and other avenues, meeting with people at gas stations and fast food restaurants and exchanging coins for cash. While it feels a bit like a drug deal there are some good deals. It is important to understand that it is rare to find “a steal.” The Internet allows people to research their goods and expect a fair price. If you are willing to deal fairly you can avoid middle man mark up and occasionally find something good. Your knowledge will help you negotiate better prices as well.
Private Collectors: Aside from the aforementioned Craigslist, I have not purchased coins from private collectors. This would require some solicitation on my part and at this time I do not have the funds or the free time to do so. However, if you have both, this could be very advantageous once you are comfortable in your knowledge of the market.
The value of gold and silver is not a mystery and with a bit of time, you will understand the lingo and feel comfortable dealing with the pros. The last thing I would like to share is that collecting coins and bullion is fun. Coins have a sense of history both in the US and around the world. I’ve come across coins dated from the Roman Empire, Spanish coins from the initial conquest of the new world and many other historical items. I am amazed at each time I hold one in my hand. It is something that you can share with your children (and that they can inherit), family and friends. It is profitable and a traditional method used to invest and save. While metal prices may fluctuate, coin values can be fixed due to the limited quantity.
Furthermore, armed with a bit of knowledge you can make easy money just sorting through circulated coins. Over the last year, there have been two US silver coins that entered my collection through general every day transactions. There is a certain amount of pleasure finding a silver dime in your change and knowing it is worth a whole lot more than the ten cents they thought they handed you.