Gold Doesn’t Need To Be “Unique” To Be Valuable

This week, we’re reporting on one of the wackier gold scams that’s arisen amidst the recent gold buying frenzy: scammers in British Columbia have been trying to sell gold that was (allegedly) smuggled into the United States from Iraq, where it was (allegedly) first owned by Osama Bin Laden. These scammers operate in parking lots, using high-pressure sales tactics. They’ve succeeded in selling hundreds of dollars of fake gold to one customer, and outright stole gold off another man by switching his genuine gold chain with a fake one.

There’s so much wrong with this scenario. Right off the bat, you should be highly suspicious of any gold dealer who’s doing business in a parking lot or similarly non-professional environment. Approaching random people and asking them to buy gold is a sales strategy that reeks of desperation. It is not a strategy that any dealer who buys and sells in bulk would ever adopt. Rather, unprofessional settings are a huge red flag that the dealer is merely looking for a quick buck – and then a quick escape.

Furthermore, it’s unwise for gold investors to choose numismatics (e.g. collector’s coins), especially when they are only casual purchasers with little knowledge of the markets for such items. In this case, the scammers were peddling jewelry, which is similarly problematic. Only part of a piece of jewelry’s worth comes from the metals contained in it. Another part of its value is derived from the utility that the jewelry has as a wearable object.

However, remember that your goal as an investor is simple: to use precious metals for storing and protecting your wealth. Don’t let yourself be distracted by fancy “historical” coins, chains, and rings – when it comes to wealth protection, simple and highly liquid forms of gold, like American Eagles, Canadian Maple Leafs, and bars sold by weight, are best. You can sell these easily if you need to, without having to convince any purchaser of their special properties.

Because they are marked clearly and reliably by weight, you can also more easily tell what price is reasonable to pay for standard coins and bars. As we discussed last time here on the Gold Scams blog, 7% or less has been a reasonable markup to pay over spot for gold, but for silver that figure has recently increased to more like 20%. If you are buying mystery coins and jewelry from a shady dealer in a parking lot, it’s going to be difficult to tell offhand how much gold those items really contain and therefore how much would be reasonable to pay for them. Assuming that the items being offered contain any real gold at all, the chance of finding a fair markup in a parking lot is highly unlikely.

Last but certainly not least, don’t allow a dealer to push your emotional buttons with an attention-grabbing claim, like that the gold was previously owned by someone famous. The Osama Bin Laden claim was apparently the dealer’s last-ditch attempt to make prospective buyers feel like a really special, once-in-a-lifetime opportunity was at hand, and that they should jump on it immediately. But, unless you’re an expert on numismatics or historical jewelry, it just doesn’t matter that your gold be unique in its form or in its alleged history.

Stay focused on your goal: buying well-known, liquid forms of gold at as low of a markup as possible, for the purpose of storing and protecting wealth. Don’t let yourself be led astray by claims about special gold, with an interesting history or medium. The Bin Laden gold scammers may have had a particularly far-fetched story, but unwitting buyers are taken in by claims about special gold every day.

Thanks for reading and sharing. Join us again next week for another installment of our series on scams during the current precious metals buying frenzy.

A New Premium Landscape for Silver Products

One of the most important questions when buying precious metals can also be one of the most confusing: how much should you pay for gold and silver? Precious metals retail pricing is based on the spot price of the metal at the time of the sale plus the premium surcharge, which can vary drastically from dealer to dealer. In the past, we’ve suggested that a fair premium on gold and silver bullion products is no more than 7% over spot.

However, with the recent correction in the prices of gold and silver, our previous 7% premium suggestion has become a little outdated, especially for silver. Physical precious metals demand is breaking records around the world as investors hurry to buy at bargain rates. This demand is straining supplies, and consequently premiums are rising everywhere.

Although the mainstream news is focusing on gold sales worldwide, US premiums for the yellow metal haven’t fluctuated as much as those for silver. A competitive dealer should still offer gold for less than 7% over spot. Silver premiums are another story. Before the price correction, silver premiums had inched up to around 10% on average. After the correction, premiums have soared to as high as 20% over spot for the most popular 1-ounce silver coins!

Does this mean that dealers are suddenly hiking rates just to gouge more money from their customers? Actually, no. Prices are rising everywhere for both wholesale and retail customers. With supplies limited, dealers are paying more for their stock and naturally have to pass some of that cost onto their customers.

A new investor might baulk at a 20% premium and decide it is best to wait for that number to drop back down. While this hesitation is understandable, the investor risks missing out on a great opportunity. Personally, I would rather lock in these low prices than wait and run the risk of the price moving up rapidly. Plus, paying a 20% premium on today’s prices makes sense if you think silver will return to its previous highs.

For instance, do you think silver will shoot back up to $30/ounce by the end of the year? In that case, 20% over today’s spot price (May 16, 2013) of $22.50 would come out to about $27, still well short of $30. If you’re waiting for premiums to drop back down to 7-10%, there’s a chance you won’t be buying until the price of silver pops back up to the nieghborhood of $30/ounce. At that point, you will have missed out on the lowest silver prices in years.

Also keep in mind that premiums vary dramatically depending on the popularity of the bullion product, and so new investors have to consider the tradeoff. Do you want a more liquid product (i.e., easier to sell), or do you want to pay less? Expect to pay that 20% premium on the most popular coins, like American Eagles or Canadian Maple Leafs, and even more for fractional (less than 1-ounce) silver coins. These coins will be the easiest to sell for a competitive price down the road, but in the meantime you might be waiting as long as six weeks to receive shipment on them. That’s right – there’s so much demand for silver coins right now that customers are waiting more than a month for delivery!

If you simply cannot stomach paying 20% premiums for silver coins, or you don’t want to wait a month to get your silver, a good alternative is silver bullion bars. Premiums on silver bars have gone up maybe $0.50 – $1.00 per bar, which ends up being far less than 20%. While larger silver bars are less liquid, they might be a good option for investors who plan on holding their white metal for the long-term.

One last reminder: one of the most common mistakes new precious metals investors make is calculating prices based on the number of grams in an ounce. When you do your due diligence and are shopping around for the best price, remember that precious metals are measured in Troy ounces, which contain approximately 31.1 grams each.

Thank you for reading, and here’s wishing you the best of luck in shopping for precious metals. Tune in next week for a new post on some of the latest scams cropping up in this worldwide buying frenzy of gold and silver.

How To Buy Into The Gold Fire-Sale Without Getting Ripped Off

Last month, gold made headlines as its price took a turn for the worse. At the beginning of April, gold sold at $1583 per ounce, but it caved to $1380 before finishing out the month at $1469. The forced sale of Cyprus’ gold reserves in the wake of the nation’s bankrputcy seems to have caused triggered the selloff.

However, this temporary price volatility doesn’t reflect any real change in gold’s fundamentals. Cyprus’s gold stores are relatively small, and will be directly transferred to creditors instead of hitting the market at large. Even more importantly, it remains the case that developed nations hold gold but little capital, and still-developing nations are owed much debt that they will eventually call in. Then, gold will move from the West to the East, with fiat dollars being printed and debased all the while. The need for a real store of wealth will be greater than ever, and gold is of course a prime candidate for filling this role.

We know that Gold Scams readers will accurately see gold’s lowered price not as a threat, but as an opportunity. You’ve probably heard that physical bullion purchases around the world are booming, with mints running out of coins and premiums going through the roof. All of these physical buyers know that gold’s underlying value endures through these temporary market panics. Investors with less foresight and understanding may become nervous and sell at inappropriate times, but their loss is our gain.

However, with many new and less-experienced buyers on the market, learning to spot Gold Scams becomes more important than ever! Our goal here at Gold Scams continues to be helping as many buyers as possible to steer clear of shady deals and go right for the safe, smart choices in precious metals.

So we’re kicking off a series of posts designed to bring potential and current precious metals investors up to speed on gold-buying best practices. Some gold scams crop up over and over again, while new ones pop up all the time. Check back here each week for important tips on how to buy precious metals without getting ripped off.

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Buying gold should be a safe and pleasant experience – not a high-risk and high-pressure one – and we’re here to help. If you’d like to read more right now, please click here to download a complimentary Gold Scams report. We look forward to helping you become a savvier gold and silver buyer.