My (revised) argument for the best way to invest in bullion

Hi All, new member. The original post compared gold vs silver via premiums and a mention of junk silver. It's very difficult to pin down an accurate premium comparison because there are so many places to source the bullion. Nice silver gov't minted 1 oz coins like maples can be gotten just a little above spot if you're patient and keep your eye out. I personally prefer silver to gold as I think it's a safe bet silver will rise and ultimately develop a stronger ratio to gold.

On junk silver, the premiums are rising fast. Starting to become a bad time to buy. And the trouble with junk silver, though far more liquid than other numismatic investments, is that refiners only pay up to 80% of spot for it by weight - some pay as low as 63%. It has to be examined, sometimes cleaned, and then refined, so that impacts the bid. If the coins are poorly conditioned any potential numismatic premium is basically nil. Now if you can score junk silver for spot that grades higher, even AU - now there you can't go wrong. But right now I'm only seeing that mostly in foreign coins that remain undervalued. The trouble with foreign silver coins for bullion, is that unless it's sterling, it's usually well under 90%, which means the refiner offers even less. When silver spikes, and silver owners want to cash in, 1 oz holders go to the front of the line, and junk holders go to the back - refiners want it least.

 

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Those are interesting points that you raise. However, I see some issues with some of your thinking.
A) Yes, you can occasionally find government issued bullion coins for close to spot if you are patient. However, you can also get amazing deals on gold, too. So, rather than cherry picking special prices to make our point, we need to rely on regular pricing from online bullion dealers and local coin shops, because this is how prices are 99+% of the time.
B) Even if we are able to find great deals on silver at spot, this does not address the massive inconvenience of storing silver compared to an equal amount of gold. Most people would find it very difficult to store 5-10% of their investment in physical silver. However, doing so in gold would likely not be a problem.

 

No question, gold will store better. But unlike, say, copper, where sufficient value would take a warehouse to store, silver will store pretty compactly - and even more so, once it rises. Of course you can't go wrong with gold. History shows that. I just happen to be a big fan of poor man's gold [silver], and think it is currently undervalued.

I think it's an important consideration that gold is mostly a luxury item, whereas silver has become indispensable in tech, medicine, and industry. The demand and applications keep rising.

If you're with metal for the long haul, and pessimistic about paper and credit, as I am, down the road that small premium and percentage difference won't even be worth remembering. I think buy whichever metal feels right, or buy both, and buy as low as you can. Now's a good time to buy.

 

I would also add, on the storage topic, that some people might prefer their wealth not quite so concentrated, as it is with gold.

 

Very valid points about the industrial uses of silver. However, don't forget that gold has many as well. Plus, through human history gold has been used as that luxury item and store of wealth. While you may be correct that the uses of silver will grow, there is no reason to doubt gold will remain highly sought after for both luxury and economic reasons.

But it sounds like you are saying you realize gold is great but you prefer silver because it is more affordable now and you think it has more potential.

If you can buy your silver at close to spot with little risk to yourself financially in that gamble to maybe get a payoff later, I have nothing to say to discourage you.

I think you're a wise silver buyer. Unfortunately others in your camp don't seem to be so wise.

 

Monster boxes are half the size of a shoe box and they stack perfectly on top of each other....For me I've grown board of buying and stacking silver long before storage became a problem.

I buy slabbed gold at 1.05-1.1x melt, a 20 slab box takes up just as much room as a monster box...most people don't stack tubes of gold, they tend to keep the original packaging or assay and it makes for awkward stacking, that's the reason I like slabbed gold coins, they stack in an organized uniform fashion.

 

If the question is which is smarter, buying gold or buying silver, my answer is yes. They are both money. They both offer protection from counter party risk, a physical asset that literally can't be stolen in cyberspace, that doesn't need default insurance from a bankrupt government.

Premiums don't factor much into which metal I prefer, only what I perceive as fair value compared to the price I have to pay. If the gold to silver ratio is any historical indicator, then silver is the better investment from a strictly value based standpoint, but there are certainly merits to gold, and having been a longtime silver bug I find myself going 50/50 into both metals lately from a cost standpoint mainly for portability reasons. Although if things get revalued to historical norms then silver will meet that function well enough.

 

The industrial knock on gold isn't its usefulness. It's the cost. Silver is also the best conductor of heat, the best semiconductor of electricity, and the most reflective metal. Gold is of course non-corrosive and that is nothing to scoff at. There will always be people willing to pay more for a better product, but for the majority of applications silver is going to get the lion's share of use until something else can do the same job for less, and that's not likely going to be gold.

Gold will always have that luxury/jewelry demand, and that's why it is a very stable asset to hold, but I don't see it having nearly the upside potential as silver. Of course potential does not imply realization.

 

I agree - BUT - between gold and silver, which is more likely to double in value? Using your numbers gold would have to go to almost $2,585 while silver would only need to go to $34.24 in order to double your money. Silver has hit $50 before - twice. While gold has never hit $2500, let alone $3000. So based on those numbers, or possible numbers, which is the better investment?

I try to keep equal amounts (value wise) of both gold and silver. I like gold from the simple aspect that it takes up less space. But I like silver because it's more likely to double in value.

 

If you're paying triple to quadruple the premium on silver as you are on gold, in order to make any significant profit you have to own a far greater quantity of silver than gold to achieve the same value, and you have to hope that it increases much more than gold in order to recoup your premium before you can even hope to make a profit.



Let's do an example to illustrate this. (You can also check your purchases for the year to see if you've even come close to recouping any of your premiums.)

What you will notice is that if you have probably already recouped your gold premiums but that you are VERY far away, still, from recouping your silver premiums. This shows the folly in buying silver.

Here is our case study: July, both gold and silver hit very low points. Gold was as low as $1210 and silver was as low as $15.38.

In that month, from JMBullion, if you bought an ounce of gold at $1210 in the form of a gold Maple, you'd have paid about $1260. If you'd have bought an equivalent value of silver in the form of Maples you'd have paid $18.17 per ounce. You'd buy about 69 silver Maples to total: $1253.75.

Today, Sept 1 spot prices. Gold: $1330 Silver: $17.80

At just spot, your gold is worth $1330. You are up $70.
At just spot, your silver is $1228. You are still down $25.

Please do the math for your own gold and silver purchases this year. You will, unfortunately, find the same thing. Comparing gold to silver Maples, gold to silver Eagles, etc. will show you typically pay a 4% premium on gold and a 16% premium on the silver. This means silver needs to go up 4x that of gold for you to make your money back.

 

Not every one buys online, or do they buy silver in ounce increments.

Anyone who has been doing this for a minute knows premiums change way more dramatically with silver than gold, when silver was over $40 an ounce a common online premium was .49cents over spot, less than 2%.

 

So for instance you would recommend something like a 10 oz silver bar with a premium of something less than $1 an ounce? In other words, a premium of 5-7.5%?

Ok. Great example!

In this case, you could purchase something like a Sunshine bar or a RCM bar. Both contain very high levels of security features, particularly the Royal Canadian Mint bar.

(So far I would agree with you)

However, how about when it comes time to sell? This is where there's a problem. It is very difficult to sell silver bullion bars for spot, ever. But in the case of a Gold Maple (4% premium), I can resell that without an issue for a percent or two over spot.

Do you have a different high security silver example you could give? I'm curious.

The criteria are:
1. High security
2. Low premium
3. Re-sell for spot or above
4. Easy storage

 

That is gorgeous.

Yes, it is the latter. The joy of having it in your possession and having it cast in the shape of a beautiful coin or medallion. However, for that you pay a premium. The first premium is price, the next is liquidity, and the final is actually security. You are more likely to be robbed at home and have your metal stolen, then if you bought ETF's. If you put it in a safe deposit box...well, the bank has it anyway.

Therefore I am an IAU fellow...(the ETF) and long as of a few weeks ago. I keep my gold investing and my gold coin collecting separate.

But, to each, their own.

 

Jason -
In the case you outlined you are absolutely right. But let’s face it, investing in gold and silver is a bit of a gamble.

Let’s look as another window, say Feb 2011 to May 2011. Gold started at $1,342 and went to $1,545. Silver started at $28.61 and went to $40.20. If you’d spent $1,342 on silver instead of gold and sold that silver in May you would have around $1,885 instead of $1,545 from your gold. (That's still $1790 if I lose 5% in premiums)

Of course it is easy to look back and say I should have bought then and/or sold then.

But here is how I look at it, whenever silver is under $20 an ounce I see it as an buying opportunity.

FYI – most of the silver I buy is in 5oz ATB and 10 oz bars. I get hit with lower premium that way. But I also have junk silver and US Mint Silver Eagles.

I’m buying at under $20 and hoping/gambling that I’ll be able to sell it at over $40 in the not too distant future (a few years down the road). I don’t think that I'd be able to buy gold at $1,330 and sell it at $2,660 in as close a time frame.

But Jason - I think your overall apporach is a very sound one. It makes a lot of sense and you make some very good points. Let's just say I'm willing to take a bit more of a gamble.

 

There are a lot of different math results depending on where you pick in the calendar. I think generally gold has lower premiums than silver - that's not really that debatable. However, I think it is likely silver will improve its ratio to gold, and I don't see gold coming down much, if at all.

The issue that may be of bigger concern, though you always want to buy as low as you can, is which will sell better [i.e. - more easily and profitably]. I noticed on one thread most people agreed that Ebay was still the best place to maximize your return on selling bullion. So if that's the case, which will perform better at the sale end? All those premiums complained of for silver due to the greater quantity of items, suddenly offers now an opportunity to cash in all those premiums as the more items you sell, generally the more premiums you collect on the back end.

Though there's always a percentage to kick to PayPal and Ebay for the service of a secure international platform, I noticed big dealers/refiners, though they list their 'buy price' of common bullion items, have all kinds of hidden fees if you look deeper.

 

You are so right. For instance I've found that ATBs are not that easy to sale/trade. Many dealers either don't want then or will only give you spot for any of them. Find the right dealer and you can get a REAL good price for them. For that reason I haven't put all my eggs in one basket. Hence the mixture of ATBs, bars, Eagles and junk. With gold I have a mixture of recent US Mint gold issues (I love the $50 Buffalo) and pre-1933 gold issues. Of course I hope that when I sell it is on my terms when I want to and not because I have to. I have a feeling that we are instore for a round of hyperinflation. If that happens all of us who invested in gold and silver will be sitting pretty. If not - well at least we'll all have a lot of pretty coins to look at.

 

Ok so if I was headed towards fractional gold coins.....I see a Pre-1933 certified MS-61 gold $5 liberty for $385 (.24 oz 90% gold) and a new 1/4 oz RCM gold maple (.999 gold) for $369. What are the pro/cons to these choices?

 

Pre 33 gold has premiums that are just too high. You'll likely never recoup the premium unless the price of gold rises astronomically.

You'll do better buying modern issued gold bullion.

 

Pre 33 is the easiest to get the premiums back if we're talking about a graded MS-61. The only gold coin that I ever sold was a double eagle, made $200 more than I paid and gold was worth more when I bought it.

I use to buy silver Barber Heads about 10 years ago for melt, I haven't sold any but many people no longer consider them to be junk. At the price of that MS61 half eagle it would be what I call junk gold, I feel 10-15 years from now it will no longer be junk gold and be considered numismatic gold.

 

Just like you I prefer a Mercury Head over a Roosevelt.