The Gold Dollar

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The Gold/Dollar Relationship

The relationship between gold and the U.S. dollar is an important one. Understanding this relationship can be advantageous when it comes to making investment decisions.

 

The relationship between gold and the dollar began a long time ago. This relationship began as gold was used to set the value of currency. Under the gold standard monetary system, the value of a country’s currency was directly tied to the value of a specific amount of gold. The United States went on the gold standard in the early 1900s, and remained on this monetary system until 1971.

 

Following the end of the gold standard in the United States, the U.S. dollar and gold were free to fluctuate on open markets. At this time, the U.S. dollar became a true fiat currency that was traded on open markets with no risk to the country’s gold reserves.

 

The price of gold was also now free for trade, as it was no longer tied to monetary policy and financial policies that were designed to keep currencies in order.

 

Over time, the price of gold has seen more relative stability than currencies. This is one of the reasons that gold is considered by many to be a “safe-haven” asset. Another way of looking at this relationship is that the price of gold is indicative of overall confidence in the dollar. After all, when the dollar goes up, gold often goes down. When the dollar falls, gold often goes up.

 

The U.S. dollar is the reserve currency of the world, and as such its value is very important to the global economy and financial engine. This reinforces the idea that as the dollar weakens, reserves may be shifted to currency, and as currency weakens, reserves may be shifted to gold.

 

Because gold is a dollar denominated asset, there are other factors involved as well. When the dollar weakens, gold becomes relatively less expensive for foreign investors. On the other hand, when the dollar is rising, gold becomes relatively more expensive for foreign investors. This fluctuation between relative cheapness and expensiveness can drive the price of gold as supply and demand forces take hold.

 

Does the dollar/gold inverse correlation always hold true? No, it does not. For example, if there is an economic crisis in another country, that country’s currency may fall against gold while the dollar may rise with gold. In other words, there are times when both assets may be seen as safety instruments and draw buying interest.

 

Understanding the gold/dollar relationship may help one make better investment decisions. It is important to understand how a weaker dollar eats into purchasing power, and how owning gold may potentially offset this loss of purchasing power.

 

While the dollar remains the reserve currency of the world, there could be challenges to its status in the not too distant future. Should the dollar begin to lose its status as the reserve currency of choice, not only could the price of gold potentially move significantly higher, but many other new financial dynamics would be set in motion. 

What Determines the Spot Price?

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What Determines the Spot Gold Price?

The spot gold price is in a constant state of flux. The price of gold may experience quiet periods as well as volatile periods in which large swings in price may be seen. That being said, there are a number of factors that may potentially influence gold prices.

 

Current Supply and Demand

As with any other commodity, the current price of gold is driven by supply and demand. Supply and demand may fluctuate wildly based on many different factors, and the spot gold price is a reflection of these forces at work. While there is a limited supply of gold, there are no limits on potential demand for gold. Because of this, gold has the potential to experience rapid and significant rises in price. On the other hand, should demand for gold drop significantly, then the gold price may also potentially see significant drops in price.

 

Risk Aversion

Gold is commonly referred to as a safe haven asset. This means that investors may elect to buy gold in times of uncertainty. Gold typically has little to no correlation to stocks, for example, and when stocks begin to falter some investors may choose to take capital out of equities and put it to work in gold and other precious metals markets. In addition, investors may elect to add gold to their portfolios for diversification purposes.

 

Geopolitical Risks and Uncertainty

Because gold is viewed as a safe haven by many, it is often bought during times of geopolitical turmoil.  These issues can take many different forms, and current headlines give some prime examples. The ongoing conflict between Ukraine and Russia, for example, could potentially have a dramatic impact on global financial markets. The continuing debt issues in Greece and the possibility of a Greek exit from the EU could also have a large impact on world markets. In both cases, should equity markets begin to slide, gold and other perceived safe haven assets could potentially benefit.

 

Gold has been considered a store of value for thousands of years, and has no counterparty risk. In uncertain times, investors may seek out the comfort of gold ownership and potentially drive prices higher in the process.

 

Outside Markets

Outside markets that may affect the spot gold price include but are not limited to stocks, the dollar index and crude oil. When stocks are moving higher, investors may chase returns in equities. When stocks are moving lower, investors may want to diversify or put capital to work in alternative asset classes such as gold.

 

Crude oil prices can also affect the price of gold. As crude oil rises, inflation risks become more of a concern. As crude oil prices fall, inflation becomes less of a concern-and in fact deflation may become more of a worry. This is being seen currently with the recent slide in oil prices from $100 per barrel to less than $50 per barrel.

 

Because gold is denominated in dollars, any movement in the dollar index can drive spot gold prices. As the dollar weakens, gold becomes relatively less expensive for foreign investors and thus prices may potentially rise. On the other hand, as the dollar strengthens, gold becomes relatively more expensive for foreign investors and thus the spot gold price may potentially fall.

 

Government or Central Bank Buying

Governments and central banks have more purchasing power than other market participants. If one of these entities decides to make a gold purchase or sale, it can affect the spot gold price. When central banks are buying gold, demand is higher and thus prices may potentially rise. When central banks are selling gold, supply is greater and thus prices may potentially fall.

The spot gold price is always moving, and is affected by numerous factors. As with any market, however, the laws of supply and demand drive the spot gold price. Simply put, when gold prices are falling there is more supply and less demand. When gold prices are rising, there is more demand and less supply

Which Precious Metals Should I Buy?

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What Physical Precious Metals Should I Buy?

What should I buy is a common question among those new to investing in precious metals. The reality is that there is no one size fits all when it comes to buying physical gold, silver or other precious metals. Here we will provide a quick guide, however, to help you decide what products may be best for your needs. Please keep in mind that no investment advice is being given or implied.

 

What are your goals?

Why are you buying precious metals? Is it simply for the bullion content, collectability or other reasons? Knowing the why can help you buy the most suitable products. For example, someone looking to own physical silver may be best off sticking to the basics such as silver bullion bars and bullion coins or rounds. Someone interested in the collectability of numismatic gold coins, however, would look at entirely different products. Those looking to buy coins for their precious metal content will likely stick with bullion coins, and those looking to buy coins for their scarcity or collectability may buy numismatics. Knowing why you are buying precious metals will help steer you in the right direction.

 

What is my budget?

Different precious metals products carry differing dealer premiums. As an example, a basic one ounce silver round may carry a premium of less than $1.00 over the spot silver price, while a one ounce Canadian silver maple leaf bullion coin may carry a dealer premium of $2.25 to $5.00 or more over the spot silver price. For those looking to acquire as much gold, silver or other precious metals as possible, sticking with lower premium rounds and bars may help you get more bang for the buck.

 

Where will I store my metals?

Storage is another important consideration to take into account. If you will be storing your precious metals at home, coins, rounds and small bars may be a good choice. If you are looking to buy larger quantities of precious metals and are thinking of buying larger bars such as the 100 ounce or 400 ounce, you may want to consider a safe deposit box or depository. These can be sources of additional cost, and should be considered when making a purchase.

 

Is liquidity important to me?

Liquidity refers to the relative ease or difficulty of buying and selling a product. For example, one ounce Canadian silver maple leaf coins are very liquid-one can buy them or sell them to dealers easily. On the other hand, very large bullion bars or numismatic coins may be less liquid-or less easy to buy and sell. If liquidity is important to you, you may want to stick with smaller, more popular bullion products such as bullion coins, rounds and smaller bullion bars. Some examples of these products include:

 

  • One ounce Canadian gold or silver maple leafs
  • One ounce American gold or silver eagles
  • One ounce silver rounds
  • One ounce gold or silver bars
  • 10 ounce silver bars

 

Do I want to diversify my precious metals holdings?

Diversification is usually a good thing, and precious metals holdings are no different. Different precious metals products will have differing premiums attached to them, and may experience periods of relative scarcity. Premiums can and do fluctuate, just like the values of the precious metals themselves. As with other areas of investment, one may want to consider diversifying their precious metals portfolio. For example, one could build a portfolio on the most popular and liquid bullion products and then add some additional larger or more collectable products. One could buy bullion coins issued by different countries or by different mints. One could also buy varying sizes of bullion bars. There are many ways to diversify a precious metals portfolio, and this may be another thing to consider.

 

Of course there are additional issues to think about. This simple guide, however, should help you lay the groundwork for your precious metals purchases and help you narrow your product search. 

Why Buy Gold Online?

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Why Buy Gold Online?

One common question gold investors may face is whether to buy their gold or precious metals from a local bullion or coin dealer or buy from an online precious metals dealer. The fact is that buying precious metals online can have a number of advantages. This short guide will outline why buying your gold online may be a better deal.

 

Lower Dealer Premiums

If you were to compare the premiums on several different coin or bullion products, you will likely find that an online precious metals dealer will quite often have lower prices than a local bullion shop. A Canadian gold maple leaf one ounce coin of the same year, for example, will be the same whether it is bought from dealer A or dealer B. When comparing apples to apples in this way, one wants to get the lowest price possible all else being equal.

 

Why do online dealers often have much more competitive prices? The reason is simple-a lower cost of doing business. A brick and mortar coin shop has many expenses that online dealers do not. Expenses like rent or mortgages, utilities, real estate insurance and others. These costs of doing business often force physical store owners to charge more for their products in order to maintain a profit margin. It all comes down to simple math….

 

Larger Product Selections

An online precious metals dealer is not limited by space. They can carry as much coin and bullion product as they like. A physical storefront, however, is limited in the amount of space they have to store coin and bullion. The larger a brick and mortar location is, the more it costs, the more it costs, the more the dealer must charge in premiums to maintain a profit margin. Online gold and silver dealers do not have this problem. Because they have no physical space limitations or costs, they are able to often offer a significantly wider selection and do so at a lower cost.

 

Convenience

When buying precious metals online, one can browse various dealers and do their buying from the comfort of their own homes of offices. No salespeople, no buying pressure and unrivaled convenience. Comparison shopping for coin or bullion is extremely easy and can be done with the click of a mouse. One can compare dealer prices, shipping policies, buyback policies and more from home on their own time. The ability and ease of comparing online precious metals dealers will help ensure that you get a fair price for your coin or bullion.

 

Security Issues

Another issue worth consideration is security. If you go and buy thousands of dollars worth of coin or bullion from a local coin shop, you have to get that coin or bullion home or to your storage location safely. Needless to say, this does present a security issue. Although unlikely, there are numerous ways you could potentially lose your bullion while in transit. Something to think about….

 

When buying gold or silver from an online precious metals dealer you do not have this problem. Online dealers will ship and insure your parcel while en route. They ship coin and bullion in unmarked, discreet packaging that does not reveal the contents. Online dealers will ship your coin or bullion to your home or location of choice. Because your metals are insured until they arrive, this eliminates a number of potential security issues and adds peace of mind.

 

Buying gold, silver, platinum or palladium online has never been easier than it is today, and as you can see, it has numerous potential advantages. If you are looking for a convenient, cost effective and secure way to add to your precious metals holdings, online dealers are an excellent choice.

Bullion Coins versus Numismatics

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Bullion Coins versus Numismatics

Many people who are new to buying gold, silver and other precious metals fail to grasp the differences between bullion coins and numismatic coins. These two coin types are in fact very different, and may be used for different purposes. Here we will outline both bullion coins and numismatics, and discuss the differences between the two. Having a thorough understanding of these differences may help you buy the coins that are most suitable for your needs.

 

Bullion Coins

The term bullion coin refers to coins that are struck from precious metal bullion. While gold and silver bullion coins are the most common, some bullion coins are also struck from platinum and even palladium. Bullion coins are good legal tender, although they are not used in day to day commerce. The majority of a bullion coin’s value lies in its bullion content. For example, a one ounce American gold eagle coin carries a face value of $50. The coin is worth far more than that, however, as it contains one troy ounce of .9167 percent pure gold. Another example would be a Canadian silver maple leaf coin. This coin has a face value of $5 (CAD) and contains one troy ounce of .999 percent fine silver. Is the coin worth more than $5? You bet. The majority of value lies within the coin’s silver content. Bullion coins are purchased to reflect the value of the precious metal content. If gold prices go up, so does bullion coin values. If gold prices fall, so does bullion coin values. Some examples of bullion coins include:

 

  • American gold or silver eagles
  • Canadian gold or silver maple leafs
  • South African krugerrands
  • 90 percent junk silver coins
  • Chinese gold or silver pandas
  • Austrian Philharmonics

 

Bullion Coin Sizes

Some bullion coins are available in a single size while others are available in multiple sizes. For example, the American silver eagle bullion coin is only struck in the one ounce size. An American gold eagle, on the other hand, is struck in several sizes including:

 

  • 1/10 ounce
  • ¼ ounce
  • ½ ounce
  • One ounce

 

Smaller weights, otherwise referred to as fractional coins, make it easier for those on a limited budget to buy bullion coins. With a gold price of $1200 per ounce, for example, a 1/10 gold American eagle may cost only $130-$150 while a one ounce American gold eagle coin may cost from $1260-$1320.

 

It should be noted, however, that fractional coins will have differing face values as well. The 1/10 ounce American gold eagle has a face value of $5 while the one ounce gold eagle has a face value of $50.

 

Bullion Coin Premiums

Bullion coins will almost always carry significantly smaller premiums than numismatic coins. Premiums on bullion coins can range by coin type and metal content, and can be anywhere from a few dollars to $60 or more above the spot metal price. Bullion coins give precious metals investors a way to invest in physical precious metals that will closely track the prices of the precious metals. Unlike numismatic coins, these coins are not typically bought for collectability purposes.

 

Numismatic Coins

Numismatic coins are a completely different story. A numismatic coin may contain gold, silver or other precious metals which certainly add value. These coins, however, are usually bought for their scarcity or collectability. A buyer of numismatic coins may be far more interested in the collectability of a coin than its bullion content. In fact, buying of numismatic coins is usually best left to those who are familiar with numismatics and the nuances of coin collecting. Some examples of numismatic coins include:

 

  • Swiss 20 Francs
  • Peace silver dollars
  • British sovereigns
  • Pre-1933 $10 and $20 eagles

 

Numismatic coins are no longer produced, while bullion coins are produced every year.

 

Numismatic Coin Sizes

Like bullion coins, numismatic coins may come in varying sizes from one ounce to fractional. Like bullion coins, numismatic coins can also have a range of face values.

 

Numismatic Coin Premiums

Numismatic coins typically carry significantly higher premiums than bullion coins. In fact, the difference can be quite staggering. While a one ounce Canadian gold maple leaf bullion coin may have a premium of $50-$80 over the spot gold price, a one ounce gold numismatic coin could carry a premium of several hundred or even several thousand dollars over the spot gold price. Not only are these premiums much higher, but they can fluctuate wildly making the purchase of numismatic coins a riskier proposition for many. As an example, a $3 1887 gold piece PCGS graded MS63 is retailing for about $7431-far more than the coin’s gold bullion content. The extra premium is all in the relative scarcity and collectability of the coin.

 

The Bottom Line

There is one key difference that will help one separate the difference between bullion coins and numismatics. Bullion coins are an investment in the precious metal they are struck from, whole numismatics are an investment in the coin itself. For those looking to add physical precious metals to their portfolio, bullion coins are an excellent vehicle with their lower premiums, liquidity and ease of acquisition. Numismatics, on the other hand, are for those interested in collecting coins. Their goal may be to see coin premiums rise due to scarcity and difficulty of acquisition.

While anyone can purchase bullion coins, numismatic purchases are usually best left to coin experts who have a thorough understanding of the numismatic coin market.  

Buying Precious Metals in an IRA

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BUYING PRECIOUS METALS IN AN IRA

For U.S. customers, buying physical precious metals within an IRA account may be important. An IRA account provides investors with a way to acquire certain precious metals on a tax-deferred or after tax basis. If you are interested in purchasing precious metals for your IRA account, there are a number of rules and strict guidelines that must be adhered to. For any questions on IRA eligibility or tax related matters, please consult your tax professional. Here we will outline some of the basic guidelines, but nothing contained in this guide should be considered tax advice.

WHAT EXACTLY IS AN IRA?

An IRA is a type of U.S. retirement account that may be set up on a tax-deferred or after tax basis. To purchase and hold precious metals within an IRA, you will need to set up a self directed IRA. Unlike a standard IRA account, a self directed IRA allows the holder to make their own investment decisions. In addition to stocks and funds, one can invest in several alternative asset classes such as precious metals, real estate or futures.  One should consult their own tax professional to discuss which IRA account type may best their needs. IRA accounts may provide investors with a number of potential advantages.

WHAT PRECIOUS METALS CAN I PURCHASE IN AN IRA?

You cannot just go out and buy whatever you want in an IRA account. There are very strict guidelines as to what is permissible and what is not. We recommend you consult your tax professional before making any purchase. That being said, here are some of the products that may be purchased within an IRA.  While we believe this to be accurate, it is subject to change.

Gold:

-American eagle gold coins

-Australian kangaroo/ nugget coins

-Credit Suisse gold bars

-Canadian maple leaf gold coins

-Austrian Philharmonics

-PAMP Suisse gold bars

-American eagle proof coins

-American buffalo gold coins

-Various gold rounds and bars that are .995 percent pure

Silver:

–American silver eagle coins

-Australian silver kookaburras

 -Canadian silver maple leafs

 -1 ounce Sunshine Mint silver bars

-1 ounce Johnson Matthey silver bars

-Austrian silver Philharmonics

-Various silver rounds and bars that are .999 percent pure

Platinum:

–American platinum eagle coins

-Australian Koalas

-Canadian platinum maple leafs

-Isle of Man platinum nobles

-Various bars and rounds of minimum .9995 percent fineness

Palladium:

–Canadian palladium maple leaf coins

-Various bars and rounds of minimum .9995 percent fineness

Precious metals for purchase in an IRA account may also have additional requirements that need to be met including manufacturer, exact weight specifications and coins may not be certified, or “slabbed” coins.

 

HOW DO I BUY PRECIOUS METALS IN MY IRA?

It has never been easier than it is today to buy precious metals within an IRA account. One can buy from the dealer of their choice as well as utilize the services of the IRA custodian of their choosing.

While the process may seem complicated, it is really fairly simple.

  • Open a self-directed IRA account with the custodian of your choice
  • Add funds to your self-directed IRA account
  • Choose a depository for storage of your precious metals
  • Choose precious metals to purchase
  • Shop and compare various precious metals dealers
  • Complete  buy direction and depository election forms
  • Make purchase with dealer who will then invoice your IRA custodian
  • The IRA custodian pays the dealer directly out of IRA funds
  • Your precious metals are shipped directly from the dealer to your IRA account name at your chosen depository

WHAT IS A SELF-DIRECTED IRA CUSTODIAN?

An IRA custodian acts as a fiduciary. It is there job to make sure all necessary paperwork is completed properly. In addition, they are responsible for record keeping and the production of regular account statements. These companies must be a bank, federally insured credit union, savings and loan association or other entity that has been approved by the IRS.

I BOUGHT MY METALS-NOW WHAT?

Once you have completed a purchase agreement with a precious metals dealer, the dealer will directly invoice your IRA custodian. The custodian pays the dealer out of your IRA funds. Once payment is complete, the custodian and the dealer will arrange shipment of your precious metals to the chosen depository.

WHY HAVE A PRECIOUS METALS IRA?

A self directed precious metals IRA account may have some important advantages for the account holder. Some of these potential advantages may include:

-A vehicle for portfolio diversification. Precious metals such as gold and silver may exhibit little correlation to other asset classes such as stocks or bonds.

-Having your precious metals holdings stored in a secure depository.

-More investment choices

-The potential for tax-deferred growth

It has never been easier than it is today to build a precious metals portfolio. Using a self directed IRA account, one can reap the potential benefits of such an account as well as the potential benefits that come with precious metals ownership. For any tax related questions or concerns, consult your tax professional. No investment or tax related advice is being given or implied. 

Coins versus Rounds versus Bars

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Coins versus Rounds versus Bars

One has many different choices to make when buying precious metals. There are thousands of coin and bullion products to choose from, and these different products come in various forms such as coins, bullion bars and rounds. Here we will discuss each type, and discuss any pros or cons of each.

 

 Bullion Coins

Bullion coins are an extremely popular way to acquire precious metals. Bullion coins are made of several different precious metals including gold, silver, platinum and palladium. Bullion coins are often the first type of precious metals products purchased, and they have some advantages. Some of the advantages of bullion coins include:

 

  • Product selection
  • Different sizes available i.e. 1/10 oz, ¼ oz, ½ oz and one ounce
  • Bullion coins are generally very liquid
  • Bullion coins are considered good, legal tender
  • Coins are easy to store at home or in safe deposit boxes
  • Bullion coins have reasonable premiums

 

Bullion coins can be easily compared among online precious metals dealers. For example, a one ounce Canadian gold maple leaf coin year 2014 is the exact same coin whether you buy from dealer A or dealer B. This allows the coin to be easily compared from the standpoint of price, shipping and insurance, bulk discounts and more.

 

Some of the most liquid and popular bullion coins include:

 

  • Canadian gold maple leafs
  • Canadian silver maple leafs
  • American gold eagles
  • American silver eagles
  • Chinese gold pandas
  • Chinese silver pandas
  • South African gold krugerrands
  • Austrian gold Philharmonics

 

Many bullion coins may be purchased in weights smaller than one ounce, otherwise known as fractional. This makes it easy for those on a limited budget to begin acquiring precious metals. These bullion coins are produced by sovereign mints, and are known for their quality and backing.

 

Rounds

Rounds are also a great choice for those simply looking to build their precious metals holdings. Rounds are available in gold, silver, platinum and palladium with silver rounds being the most popular. Rounds are typically produced by private mints, and are known for low premiums and unique designs. Their advantages include:

 

  • Some of the lowest premiums among bullion products
  • Huge selection
  • Various sizes such as one ounce, five ounce and fractional
  • Unique designs and features
  • Great liquidity

 

With their low premiums, rounds may allow one to buy more gold, silver or other metal for their dollar. Premiums on silver rounds, for example, may be anywhere from under a dollar to $2.00 over the spot silver price. Rounds carry no face value, and therefore their value lies solely in their precious metal content.

 

Precious metal rounds, like coins, are easy to store at home, in a safe deposit box, or a depository.

 

Bullion Bars

Bullion bars are available made from gold, silver, platinum or palladium. Bars are produced by both government mints as well as private mints. Bullion bar designs can be plain and simple or detailed and elegant. Perhaps the biggest advantage of bullion bars is that one may acquire much larger amounts of precious metals. Bullion bars may be seen in many sizes such as:

 

  • One gram
  • Two gram
  • Five gram
  • 10 gram
  • 20 gram
  • 25 gram
  • 50 gram
  • 100 gram
  • One ounce
  • 10 ounce
  • 100 ounce
  • 400 ounce
  • One kilo

 

Certain gold and silver bullion bars are considered “Good delivery” by various metals exchanges, and are used for larger transactions of gold and silver. Governments and central banks are the biggest buyers and holders of bullion bars, and deal in the larger size 400 ounce bars of gold and 1000 ounce silver bars.

 

As far as premiums go, bars may be lower than coins, and generally speaking, the bigger the bar the lower the premium. This is why larger investors may choose to buy bigger bars, since they are getting more actual metal bullion for the dollar.

 

Bullion bars may also be produced by different methods. These may include cast as well as poured bars. The different production methods will give the bullion bar a different look and finish.

 

The biggest advantages to bullion bars are:

 

  • Ability to buy in bulk with higher weight sizes
  • Lower premiums for larger bars
  • Liquidity
  • Various sizes available for all types of buyers
  • Smaller bars may be stored at home, while larger bars may be stored in safe deposit boxes or in a depository

 

Many buyers of precious metals will diversify their holdings with various metals in various forms including coin, bar and round. Each has its own advantages, and only you can decide what product will best fit your needs. 

Common Gold Scams to Avoid

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Common Gold Scams to Avoid

There are many excellent precious metals retailers today that sell coin and bullion products to customers. As with any other type of business, however, there are some dealers that may not have their customer’s best interest at heart. Here we will discuss some common ways one may be taken advantage of when buying precious metals, and how to avoid them.

 

Scare Tactics

Scare tactics are often used by salespeople to solicit the sale of precious metals. Let’s look at an example: Because precious metals are dollar denominated commodities, the value of the dollar can and does impact prices of gold, silver and other precious metals. While understanding the precious metal/dollar relationship is important, the potential weakening of the dollar is often used to solicit sales of precious metals.

While a weaker dollar has the potential to drive precious metals prices considerably higher, the fact is that the dollar has been weakening for years. In fact, the value of the dollar has been strengthening in recent months, and looks poised to keep going higher-for the time being anyway. Is the dollar likely to collapse today, tomorrow, next week or next month? Not likely….

While over time this may prove to be important as competition over the world’s reserve currency increases, the fact is that right now the dollar does not appear to be in danger of losing its status. While a salesperson may attempt to use this scare tactic to get someone to “buy now,” one should not buy precious metals until they are comfortable doing so.

Telephone sales people will often use this and other scare tactics in order to solicit a sale now. Fear can be a very powerful emotion, but not should necessarily dictate one’s buying decision. If a salesperson or dealer says you must “do it now,” then they are likely more interested in making a sale than what is best for you.

 

The Sale of Numismatics

Another very common trap to avoid is being convinced that buying numismatic coins is in your best interest. Now, to be clear, some coin collectors and experienced investors may want to purchase numismatic coins, and there is nothing wrong with that. That being said, however, are numismatic coins the best fit for an investor looking to acquire gold, silver or other precious metals? The answer is usually no. Unscrupulous dealers may try to sell unknowing investors numismatic coins because these coins often carry significantly higher premiums than bullion coins. If you are simply looking to get as many ounces of gold or silver as you can and a dealer attempts to sell you numismatic or collectable coins, then that dealer is likely thinking of their own bottom line, not yours. They will even use tactics like telling someone that numismatics cannot be confiscated, or that they stand a better chance of making money on the investment. Whatever sales pitch you get, however, remember that if you want precious metals for portfolio diversification, as an inflation hedge, or for other standard reasons, then numismatics will not help you accomplish your goals. Always keep this in mind: Bullion coins are bought for their precious metals content, numismatics are bought for their scarcity and collectability. If you are an experienced coin collector and want to buy numismatic coins-great. If not, you are likely much better off buying bullion coins which give you exposure to gold or silver but do not carry the significant premiums of numismatics.

 

The Bait and Switch

An unscrupulous dealer may also employ classic bait and switch tactics. These dealers will reel unsuspecting investors in by offering low premium bullion coins or other products. They will then attempt to “up sell” the prospect into higher premium numismatic coins or other products that make more money for the dealer. Be mindful of such tactics, and stick to your guns. If you want exposure to precious metals, stick with the basics and do not allow yourself to be talked into buying anything else.

 

Leveraged Precious Metals Investments

Another common trap to avoid is buying precious metals using a leveraged product. Some dealers will attempt to get you to buy gold, silver or other precious metals using leverage. While leverage can magnify gains, it also equally magnifies losses. For the inexperienced investor, using leverage can potentially lead to devastating losses. In fact, losses can exceed one’s account value in which case more funds must be deposited. People have lost their homes and other assets by getting involved with such instruments and not knowing what they are doing. In addition, dealers may push these products because of the enormous fees involved. The dealer may charge fees for the account setup, transactions and interest on the margin balance. When you use leverage, you are effectively borrowing money-and that money must be repaid. The use of leveraged vehicles is best left to those who are highly experienced traders or investors and who truly understand the pros, cons and risks of such an investment-and are willing to assume that risk. For those looking to acquire precious metals and hold those metals, leveraged vehicles are almost always not appropriate.

While unfortunately the list of potential scams could go on and on, knowing what to look out for can help keep you clear from trouble. Look to work with dealers that act in your best interest, not their own. Do not be talked into buying products you do not understand, or that carry significantly high dealer premiums.

Are Gold Certificates the Same as Owning Gold?

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Are Gold Certificates the Same as Owning Gold?

 

When looking to invest in gold, silver or other precious metals, people face a variety of choices. You can buy gold or silver based ETFs, mining stocks, precious metals certificates, or coins, bars and rounds.

 

There seem to be a lot of misconceptions out there about what these investments actually mean. While many investors recognize the key differences between owning a gold bar and owning shares of GLD, for example; the lines between owning physical gold or silver and gold or silver certificates seem to be a bit more blurry for many. This quick guide will outline some of the key differences between the two types of investments.

 

Gold Certificates-What they are and are not

A gold certificate is a piece of paper representing ownership of a specified amount of gold. Gold certificates were formerly used as a paper currency in the United States, and now are used as a way to invest in physical gold without having to store that gold.

 

Gold certificates could be considered one of the world’s first paper bank notes. These paper certificates began being used in the seventeenth century, when London and Amsterdam-based goldsmiths began issuing them to customers who were depositing gold bullion with them for safe-keeping.

 

These gold certificates eventually began being exchanged, and since they were proof of gold ownership, the value of the certificate would exchange hands while the gold itself was never moved.

 

In the mid-19th century, the U.S. Government began issuing gold certificates which could be redeemed for gold from the treasury’s vaults. This form of paper money was utilized until 1933, when the U.S. banned private gold ownership.

 

Gold certificates are available to this day, and are issued by exchanges, banks and gold pool programs.

 

Gold certificates are:

  • Exchangeable
  • An ownership interest in a specified amount of gold coin or bullion
  • A way to own gold without having to store it

 

Gold certificates are not:

  • Gold coin or bullion in your physical possession
  • Gold that you control
  • Gold that can be used for exchange or bartering

 

One of the most appealing aspects of owning physical gold bullion is the sense of security that comes along with it. Gold that is in your control, in your physical possession, can be used for any purpose of your choosing.

 

Let’s look at a simple example to illustrate our point:

 

Suppose that there is a cyber attack on the global financial system. Farfetched, perhaps? Not these days…

 

Let’s further suppose that this cyber attack cripples the global monetary exchange apparatus.

 

Imagine, for a moment, going to your bank in a panic only to find out that capital controls have been put in place and you are unable to withdraw your money…

 

Now imagine the feeling of despair, of lack of control and worry that may consume you…

 

How will you feed your family?

 

How will you buy necessities such as fuel or clothing?

 

How would you be able to wait out such a scenario?

 

Needless to say, going down to the local bank branch is not going to help, and a gold certificate, dependent on the bank or exchange that issued it, is not going to do you any good either, as such certificates would likely not be redeemable in such a scenario.The only thing that may be exchangeable in such a situation would be physical precious metals. Gold coins or bars could be traded or exchanged for necessities. They could be used as a means of financial sustenance until the crises is resolved.

 

They could provide you with some peace of mind while the financial system is in chaos…

While this example may be unlikely (arguably) it is possible in today’s technology advanced world.

 

 

Dollar, Debt, and Politics

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Like a rock tumbling down hill, oil prices have broken 40 dollars per barrel and sustained their downward momentum. Bearish reports ranging from the outcome of the OPEC meeting in Vienna over a week ago to supply outlooks from the International Energy Agency continue to weigh on the global crude market and have further dampening effects on global financial markets. Particularly equity markets look troubled with the notion of a diminishing global growth picture, and the prospects of a global recession come 2016. Not just limited to the aforementioned reasons, but markets remain on a jittery footing heading into the Fed meeting this week. It is remarkable how much can change in one short week as market participants exhibit signs of discontent with what’s in the pipe for the year ahead.

The greater probability though is not so much a fear for how North American markets will react to Fed actions next week, but instead what will result in the world’s emerging markets. South Africa reminded us this week that there are greater fears for emerging market (EM) investors than simply the price of the US dollar and commodity markets. Simply put, the commodity markets slump has put downward pressure on some of the world’s EM’s as returns are depleted and pressure mounts on government revenues. A strong US dollar also inflates the burden of US dollar denominated debt many of the countries and residing corporations have issued to finance themselves. But with the pressure of inflated interest payments and depleted revenues comes political risk.

With South Africa as the example, the Treasury and the Central Bank have long been viewed as stable and independent institutions. The benefit of an independent treasury is that it is an added pressure to government to restrain their finances and keep government debt in check. This all changed for the Republic of South Africa this week when the President Jacob Zuma fired his finance minister and replaced him with an unknown party insider. The Economist Magazine actually cited a spike in Google searches of the man’s name as people were unfamiliar with who would be taking the helm of the country’s finances. As the fear is this was a politically motivated decision, the rand, South Africa’s currency, in a swift reaction sold off 5 per cent against the US dollar despite sitting on multi year lows.

This is a critical time for emerging market economies. Also, given the demand from EM’s for precious metals, it has direct implications for the gold market. At the beginning of December Fitch Rating Agency downgraded South Africa’s debt to one notch above junk status. This is as Debt-to-GDP rose from 2009 until present time from under 30 per cent to just above 45 per cent. Political risks, whether from South Africa or any other nation, become more prevalent for investors and can change the dynamic of global markets.

This will likely reinforce a theme for the beginning of 2016 that the dollar, if not for investment opportunity in US markets, will be attractive for its safe haven and even more so liquidity status. It’s a challenge for commodity markets to counter trend a strong US dollar and as long as the outlook for EM’s is bleak, a strong dollar may persist. The global economy will be challenged in 2016, and objectively, remains one of the bearish factors weighing on the gold market.