Newbie here, looking for guidance buying bullion as investment

Good day all, I new to the site (which looks great) and to bullion investing. To keep it simple, I have no time or interest in collecting or in a new hobby, maybe when I retire. At this time, I'm just looking to hedge my bets with some real assets. I've been hammered like everyone else in stocks, 401Ks, real estate, etc. and thought this might be a good time to invest in some bullion. I know a few things about this like: buy at as close to spot as possible; if buying coins, which I doubt I'll do, buy known coins at just above spot like AE's, Maples, and Kugerands. I also like the idea of holding something of value in my hands so bullion seems to be the best option. Maybe all the recent infomercials got my interest, but with all the hype I know there will be sharks in the water looking for virgin meat, so I would greatly appreciate any guideance on who I should be looking to buy from and who to stay away from and thingelse you good people are willing to share. Thanks

 

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It seems to me that bullion should be treated like all other investments. Bullion can go up and down so consider dollar cost averaging into it slowly.

I have heard some say bullion is not a real investment rather, a harbor for your money. For example, some argue that 1 silver eagle would buy the same amount of a product such as "gasoline or milk" regardless of inflation. I am sure someone else can speak more intelligently on this matter than myself.

By the way, I enjoy Mapleleaves which is no surprise. I know you said you don't need another hobby but it is fun to combine my two goals, bullion/collecting.

 

Silver is positioned to do better than gold in the long term as it has more industrial uses than gold. (not counting photos which ups it even more). 10 to 15% of assets in bullilon. And I agree with dollar cost averaging. End of month profit takers usually cause prices to drop at the end of the month. This month and next month should be low and go up after that. Good luck,

 

I think you are better off with silver than gold, but it is difficult to be dogmatic about it. Both are good. You have a good grasp of the basics. One thing to consider is that it is probably more important to buy something of quality like an ASE than damaged or junk silver because it will be easier to resell. Others may disagree. Another thing to consider is that it is important to buy low than to buy close to spot. For example, it is better to buy an ASE for $16 when spot is $14 than to buy at $18 when spot is $17. Personally, I think that all silver prices below $20 will turn out to be excellent entry points ten years from now. Remember, the spot price is a paper price for settlement on the futures exchanges which more often occurs in cash than in physical bullion. So don't get hung up on the spread.

 

Bullion is just as cyclical as the stock market, real estate and everything else. If you live another 50 years then it will beat inflation but there is no guarantee it will do better than that.

Actually the best bullion to buy IMO is probably the bullion you don't want to buy, when the market returns to normal those rare coin assets will go up farther than just ordinary pieces of bullion that are very high mintage or bars.

However as you say it takes a lot of knowledge to know what to buy. If you do want just bullion though take a look at apmex.com they have a huge inventory with decent prices.

 

will throw my financial advisor 2 cents here... for bullion investing... there is more to it than coins... dont be afraid to pick up a few mining company stocks as well. send me a pm if you want more info, as there are some easy portfolios you can add for gold/silver/palladium/platinum, as well as currency.

but bullion investing is fun, keep in mind, dollar cost average. and if storing at home..... get a safe.

 

As a long-time resource stock investor [i.e., since the 1970s], I would add a note of caution. The vast majority of mining stocks range from outright frauds to just terribly managed companies. There are a few good ones and perhaps one great one, but I would warn anybody against accepting the idea that there are "easy portfolios" out there.

 

Thanks folks for all the good feedback and insight, its most appreciated.
My take aways are "dollar cost averaging", buying at the end of the month when profit takers drive the cost down. Siver seems to be the best play right now. Gold at over $900 oz seems high, but than again we are in the biggest recession since 29, so migh still be a good play. I have owned mining stocks in the past and may still have one in my portfolio, but I'm looking to diversify out of stocks. However, maybe a EFT with bullion commodies might be a good play if the sector is moving up. I think I'm too green to buy collector coins unless someone has a fool proof way to start with a few best known easy to sell/liquid coins. (and where is the best places to acquire them). Once I'm in I don't seem any reason I would need to sell for a long time (unless things totally crash). I should live another 30 yrs God willing. Again, many tks!:bow:

 

I'm a Gold Bug. The main reason I own gold and silver is because they're real, whereas fiat paper money is make believe, and is backed by nothing. When we have total economic collapse, an EFT could be worthless. Gold and silver are the only things dollar cost averaging works with, because they can't go to zero. The "spot price" is really meaningless. What matters is what price can you buy, and what price can you sell. For the price of 9 one tenth ounce gold eagles you can buy 1 one ounce gold eagle. That would lead one to believe the 1 ounce eagles are better. But, when you sell tenth ounce eagles, you recover the premium you paid, so it doesn't really matter.

I'd buy tenth ounce gold eagles, silver eagles, "junk" silver dollars and mercury dimes. I don't think $900 is expensive for gold. I expect it to go to $4,000 within 3 years.

 

I suggest that the best way to invest in anything is to do your homework first. Sites like Kitco.com provide a good source of information on PMs. Once you're ready to buy, I would recommend Tulving.com since they have very low markups.

 

basics of pm investing - longish

Howdy,

I wrote this a year or so back, but it's still pretty appropriate.

Investing in Precious Metals – a primer

First of all, what’s an investment and what’s speculation. From my perspective, I consider a small holding of gold (more specifically precious metals) as an investment. It’s what I consider a ‘core’ holding. By small, I mean 3-5%. More than this is speculation and while speculation is fine, you need to be certain that is your intent.

I consider a small holding of precious metals as a core investment for several reasons. It serves, in many cases, as a portfolio diversifier; it is well known as a hedge against inflation; and, it’s also the number one investment in case of ‘black swan’ or Y2K type events such as war, terrorist attacks, and in general outsized uncertainty. Lastly, in recent years it’s been moving opposite the U.S. dollar. To the extent you feel the dollar will continue to drop relative to other currencies and ‘real stuff’ largely due to the twin deficits, but also because our trading partners are so $ flush, they’re starting to seek alternative investments, you will want to own some.

As for speculation, that’s a subject of personal taste and investing tactics. Some approach this from a fundamental perspective, while some from a technical perspective. I’m bullish for the longer term on precious metals for both reasons. Fundamentally, most bull markets in the natural resources (including precious metals) last for years. This is because of the nature of the beast. If the price of gold goes up, the lag time before new supplies can come to market is measured in years. It’s not like automobiles, where they can add another shift and produce more next week. With mining, you have to explore, discover, test, build refining plants, obtain all your permits, and then ship the product to market. This is true for all extractive commodities. Add to this the twin deficits and excessive amount of currency being the precursor of inflation. Further add that our trading partners hold so many dollars that they’re starting to look for alternative investments. From a fundamental perspective, these all point towards a long term bull market in the precious metals.

From a technical perspective, the current bull market began in 2002 and since then the gold index has not dipped below its 200 day moving average.

There are many ways to invest in gold – mutual funds, ETF’s, individual mining stocks, futures and the actual bullion itself.

Mutual funds that invest in the precious metals include natural resource funds, precious metals funds and some types of ‘defensive’ funds such as hard currency or Permanent Portfolio (PRPFX) type funds. With each of these funds, you need to do your research and determine exactly what they own. The easiest place is Morningstar using their Portfolio selection and Top 25 Holdings choice. Most mutual funds investing in the precious metals do so by owning shares of mining companies, although some own a little bullion. There are exceptions, such as the defense funds above that invest mostly in bullion.

Probably the least risky way to invest in precious metals is with a good broad based natural resource fund. These funds invest in energy, base metals, timber, and among other things, precious metals. A couple of examples are Price New Era PRNEX and US Global PSPFX.

Then there are precious metals mutual funds. With these there are pure play gold funds and true precious metals funds. The former only invest in gold mining stocks, while the latter also invest in silver, platinum, palladium, copper, etc. In all honesty, the vast majority of funds in this sector invest in all of the precious metals to a greater or lesser degree. First Eagle FEGIX is the only pure play gold fund I found while in the precious metals category, there are dozens. Examples include Vanguard VGPMX, Midas MIDSX, US Global UNWPX, Rydex RYPMX, Tocqueville TGLDX, etc.

In recent years, there has been the onset of ETF’s, or Exchange Traded Funds. These are sort of like mutual funds but trade like stocks. There have been some introduced that invest in bullion. These are primarily gold, but also silver. Gold ETF's include GLD, IAU, GDX, while silver has SLV. Note that there is also a metals and mining ETF XME, which includes base metals, or GDX which is gold miners.

A word of warning: Bullion ETF's have been determined by the IRS to be ‘collectibles’ and as such their capital gains are taxed at 28%. This is unlike mutual or closed end funds which are taxed at 15% for Long Term Capital Gains. This means you want to own a bullion ETF tax deferred account and NOT in a taxable account.

One last similar category that needs to be mentioned is Closed End Funds. There is a fund, the Central Fund of Canada CEF that invests in gold and silver bullion in about a 60/40 mix. This fund has NOT had an adverse IRS determination to date, so it’s still taxed at 15%.

Mining stocks provide the most leverage but are tied to the overall equity market. Bullion and mining stocks parallel each other over time, but often lag each other, sometimes by a significant amount. In this arena, the most leverage is with the smaller companies, but they also carry the most risk. With individual mining stocks, you can target a specific precious metal such as platinum or palladium and many actually mine more than one precious metal (e.g. Freeport-McMoran FCX is copper and gold).

Lastly, for those that wish to actually own some of the stuff, you can buy bullion. In large amounts, this is normally warehoused and insured and you don’t actually take possession. In smaller amounts, folks buy various bullion types and keep them in a safe deposit box or safe. The cheapest form is with plain vanilla bullion types such as rounds (coin like disks) or ingots. By cheapest, I mean that they sell for closest to the spot price. With gold, platinum and palladium, you can buy 1 ounce ingots or rounds and fractional sizes, such as1/2, 1/4, and 1/10 ounce sizes. With silver you can buy ingots and rounds in 1, 10 and 100 ounce sizes. The one caveat with buying plain bullion ingots or rounds is that they should be stamped and marked as to weight, fineness, etc. Indeed, you’re better off going with one of the major producers such as Engelhard, Johnson-Matthey, or Credit-Suisse as these are easier to sell. Also, as with most things, there are volume discounts meaning the more you buy at one time, the cheaper (closer to spot) they are on a per ounce basis.

You can also buy actual bullion coins issued by many countries. These include the U.S., Canada, Australia, South Africa and many others. Bullion coins will have a greater premium over the spot price, but because they are ‘official’, they can be much easier to sell. Bullion coins come in two basic varieties – Proof and Uncirculated. The former are special coins made for collectors and carry an even higher premium than uncirculated. They make great gifts, but are a terrible way to buy bullion. Bullion coins should be the uncirculated variety. Gold and platinum can be had in 1, 1/2, 1/4, and 1/10 ounce sizes while silver come in the 1 ounce ‘silver dollar’ size. In this category, the American Eagle series is the primary U.S. offering. While these have a higher premium than some of the other national offerings, they’re very easy to buy and sell.

Lastly, you can buy ‘junk’ U.S. silver coins. These are dimes, quarters, and half dollars from 1964 or earlier when they were 90% silver. These are normally sold either circulated or uncirculated and by the ‘face value’ of the coins (e.g. $50, $100, $1000).

As for futures, they’re a subject beyond my understanding, and can be very complicated. I would suggest that this is NOT an arena for the novice.

Web sites of interest are:

www.gold-eagle.com - great commentary

www.kitco.com – current spot prices

www.apmex.com – good source for buying bullion in its various forms

Note that these are all sites that are bullish on gold and the precious metals so their commentary may be biased.

finis,

rono