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with the recent correction in the prices of gold and silver, our previous 7% premium suggestion has become a little outdated, especially for silver.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.

“Like” us on Facebook to join our community of over 12,500 gold-loving readers. You will receive updates as new posts are published. And, if you hear about a gold scam (or have become the victim of one), please let us know! Your valuable knowledge can help others avoid the same fate.

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.

Buying Gold and Silver is Not Complicated

You’ve been reading the news and watching the economy. You know things are bad, and likely to get worse as central banks around the world continue to print money for irresponsible governments to squander. You know this means the purchasing power of the dollar is deteriorating, and that holding savings in dollar-denominated assets is probably a bad idea in the long term. So you’ve come to the logical conclusion that it’d be a really good idea to buy some gold and silver as part of your personal savings plan.

And yet you hesitate. There are so many people selling precious metals, and each vendor or broker or advisor you turn to seems to have their own opinion of how best to invest in gold and silver. Should you buy physically backed ETF’s, or perhaps shares in a mining company? Or maybe you worry about confiscation and start to consider numismatics. It can start to get overwhelming, and might paralyze you from buying anything at all.

For instance, I read an economic commentary this week that encourages you to buy gold and silver, but then immediately clouds the topic by bringing up the risks of confiscation and reporting to the IRS. The author goes on to explain which gold and silver coins are exempt from IRS reporting.

While this may be useful information, the author neglects to mention that it really doesn’t become pertinent until you need to sell large numbers of coins back to a certified broker who is required to report the transaction. The average investor just wants to buy some gold or silver coins right now, and hold on to them for the long term. And if the worst-case-scenario pans out, and people start to privately barter with their precious metals, who’s going to bother filling out IRS paperwork?

Of course, this is a fairly specific instance of complicating the issue. More often, scammers preying on newbie gold bugs use a more nebulous complexity.

My personal favorite is when so-called experts hint at secrets that allowed a handful of intelligent “inside” investors to profit from the financial crisis that followed the housing bubble several years ago. They mention the value of gold, but emphasize that you need to know what they know before you act, or you could make a big mistake! For a small fee, they’ll let you join their club and get advice from those savvy investors about how to prepare for the next crisis. Afraid you might be “missing something,” you join their club, wasting the money you could have spent on your first silver dollar.

Look, analyzing mining companies or foreign stocks for investment is complicated. Buying physical precious metals isn’t. Trust your instincts and stick to the basics before you start giving your money to fraudsters. Ultimately, these cons live off your fear. And while a little fear is a healthy thing nowadays, becoming paralyzed by it could be disastrous.

We’ve already debunked the myth of numismatics on this blog and Peter Schiff lays out the reality of many metals scams in his Special Report. Buying gold or silver boils down to three easy steps, and don’t let anyone tell you otherwise:

1. Choose the product that appeals to you the most. There are really just a handful of popular, easy-to-find, and internationally recognized coin and bullion products available at reasonable rates. (American Eagles, Austrian Philharmonics, Canadian Maple Leafs, South African Krugerrands, and Australian Kangaroos lead the pack)

2. Find a well-reputed dealer that offers you a low price over spot.

3. Place your order and rest easy knowing you’ve acquired some assets that no central banker can devalue.

Invest in Mining Cautiously

If you’ve been watching the headlines, you may have noticed a number of news stories in the last year about precious metals mining operations scamming millions out of unsuspecting investors. Sometimes these companies owned land but had no intention to mine it, sometimes they were mining but not as much as they claimed, and sometimes they didn’t exist at all. They all were making money off investors who hoped to strike it rich as the price of gold continues to rise.

This is one scam that almost makes sense. After all, the gold price has risen for 12 straight years, and experts predict that it will continue going up as central banks keep printing money. Mints and gold sellers all over the world have seen huge spikes in sales. All of this must mean that gold mining companies are raking the cash in hand over fist. Right?

Unfortunately, while there are certainly fortunes to be made in the mining industry, not every mining venture is a surefire success. Choosing the right mining company to invest in takes careful research and/or the help of an expert.

In the latest edition of the London Bullion Market Association’s quarterly newsletter, Jamie Sokalsky, the CEO of Barrick Gold Corporation – one of the largest metals miners in the world – lays out the current state of affairs in the mining industry. He shares a number of reasons why precious metals mining is not always as profitable as one might expect, in spite of gold’s ongoing bull run.

Among the various challenges faced by mining companies today, Sokalsky emphasizes the maturing nature of existing mines – especially in North America and Australia. These older mines simply don’t produce as much, or produce inferior grade ores. Meanwhile, new projects often have to look towards much more remote areas, which just makes development that much more expensive. Sokalsky writes:

“This industry is like a supertanker. It takes a long time to stop or change directions. You cannot turn on a dime. Most projects that are built right now, or are in advanced construction, will not be affected. However, the outlook for growth in supply in a few years looks more and more under threat. Thus, the supply of gold is likely to be lower going forward. We are not going to see huge growth, even if the gold price goes up considerably. That should then be supportive for the gold price and ultimately result in a healthier industry.”

As Sokalsky points out, the mining industry isn’t in dire straights. Rather, mining operations just have to be that much more careful about how they operate and invest their capital. Ultimately, the demand for gold isn’t going anywhere, and where there is demand, there are profits to be made.

If you are willing to expose yourself to the risks, and get advice from financial advisors or brokers with experience in mining companies, there are great opportunities to be had.

Personally, though, if someone comes to me with the opportunity to get in on a new gold mine at the ground floor, I’m going to pass. I don’t have the stomach or the money for those risks. I’d much rather stick with a more conservative, but simpler solution: buying physical gold. I know it’s a safe bet no matter which mining companies do well in the coming years.

To Read Sokalsky’s Full Piece, click here


Don’t Take Any Wooden, er, Platinum Nickels

Last week, the entire nation avoided the biggest metals scam in history when the Treasury Department announced that it would not mint a trillion-dollar platinum coin to reduce the government’s debt. The platinum price has been rising, and is expected to perform better than gold this year, but there still isn’t enough of the stuff above ground to mint a coin that is actually worth $1 trillion. If the Federal Reserve had accepted such a coin as payment, it would surely have been the greatest swindle in the history of modern economics.

Actually, on second thought, it wouldn’t have been much of a swindle at all. Printing a trillion-dollar coin would have simply been a more honest approach to what the government and the Fed have been doing for years: printing money that doesn’t exist and has no real value underlying it. Instead of minting coins or bills in outrageous denominations, the Fed simply “buys” government debt by typing a big number into a computer and – voila! Suddenly the Treasury has an extra $85 billion dollars to spend every month. Where did the money come from? The magic push of a button by some bureaucrat at the Fed.

The main difference between a trillion-dollar coin minted by the Treasury and the Fed’s  “quantitative easing” is that everyone understands the Treasury’s coin isn’t worth its face value, unlike the government bonds that are exchanged for Fed stimulus. Say what you want about Ben Bernanke, but you’d hope he’s smart enough to prevent the Fed from falling for the same scam he’s been managing for years.

The concept of minting a coin with a bogus value in a time of crisis is reminiscent of the 1930s. When banks were low on funds during the Depression, they would sometimes distribute wooden nickels with expiration dates, which allowed people to do business until the bank got more currency and the wooden coins could be exchanged for legitimate cash. The idea worked in theory unless you forgot – or were unable – to cash in the nickel before the due date. Hence the adage, “Don’t take any wooden nickels.”

We’re lucky we don’t have to worry about commercial banks trying to pawn off wood or platinum coins of trillion-dollar, or even million-dollar, denominations. But still, the whole concept makes you wonder, what is our cash actually worth? The average bank executive hasn’t the chutzpah of Washington criminals, but your bank’s cash is issued from the same place as mine.

Tim Geithner is now on his way out, with Jack Lew replacing him as Secretary of the Treasury. Who knows, maybe Tim will place a special order at the mint and take a little “souvenir” with him. Probably not, but small-time scammers might get some ideas from the master criminals in Washington, so I’m keeping a lookout for anyone trying to hock overvalued coins.

Just remember: never accept any platinum coins as payment for anything more than the value of the platinum itself. Unlike the Fed, your money supply is limited.

For a smart appraisal of the trillion-dollar coin scheme, check out Jim Grant’s interview on CNBC:

A New Blog from the Original Gold Scams Detective

Usually this blog draws your attention to gold scams and common issues to be aware of when purchasing precious metals. Of course, it’s also important to understand the reasons for investing in precious metals in the first place, as well as the day-to-day precious metals trends. Since this blog doesn’t offer much in the way of gold news, I thought it would be worthwhile to share with you Peter Schiff’s new “Official Gold Blog.”

There’s been a lot of hubbub in the media lately about the future of gold, especially since it closed out 2012 with a 12-year run of rising prices. However, just as it can be tricky to determine the trustworthiness of a metals dealer, it’s also hard to know which commentators and financial pundits are reliable. Is an “expert” bearish on precious metals because they’re simply playing the markets on a short-term basis? Or perhaps they’re bullish because they’re heavily invested in a certain ETF.

I’ve long written that Peter Schiff is a big inspiration to me. His Gold Scams report got me started on this blog, and he has been supportive of the effort all the way. Schiff’s long-term, big-picture approach to investing is famously consistent (annoyingly so, to some). Schiff has been encouraging people to protect their wealth with gold and silver long before his metals dealer, Euro Pacific Precious Metals, opened its doors – so it’s hard to argue his bullish stance is simply a pretense for selling more gold.

Instead, Schiff’s approach comes from a realistic analysis of global economics: Western money-printing, Eastern growth and need for secure savings, the downfall of the dollar, and no reforms on the horizon. Simply put, Schiff is a lone voice of sound economics in a mass media awash with government-funded professors and lobbyists with their own agenda. Even if you disagree with him, his opinions are worth noting if only as counterpoints to the conventional wisdom. Every investor – whether in gold, stocks, or otherwise – should learn to take in various points of view. And Schiff’s blog is also a great resource for the latest hard news from the metals markets.

Whether you’re skeptical of the long-term potential of gold, or you’re already an avid precious metals bull, I think Peter Schiff’s Official Gold Blog deserves a spot among your bookmarks.

Let us know what you think on our Facebook page, and stay tuned to Gold Scams Exposed for even more buying tips and scams to avoid in the coming year.



Avoiding Bait-and-Switch Metals Dealers

Gold dealers have developed a reputation akin to the stereotypical car salesmen: fast-talkers with a tendency to mislead through omission. Vetting a prospective precious metals broker can be a tedious process. You might find yourself becoming chummy with a gold broker over the course of weeks or months, only to find yourself duped when you’re actually ready to buy.

We’ve recently heard of just such a scenario. An enthusiastic gold investor had been exchanging emails and phone calls with a broker at a well-known, national metals dealer. They communicated so often, the buyer started to think of the broker as a personal friend. The buyer wanted to roll his IRA over into precious metals, and when he was ready to do this, the broker convinced him to also purchase some gold coins. It wasn’t until he received shipment that the buyer discovered he had bought half-ounce gold eagles for $400 over spot! A fast-talking broker had gained his trust and taken him for a ride. This bait-and-switch swindle is the sort of thing Goldline got in trouble for earlier this year.

The lesson? No matter how personable your salesperson is, practice cautious buying:

1. Always be wary of a salesperson trying to sell you something you didn’t come in to buy. In the bait-and-switch scenario described above, the buyer was originally interested in a gold IRA, but was talked into taking physical coins for delivery. Since he felt he was getting a good deal with the IRA, he made the mistake of trusting the salesman about a product he didn’t want or understand.

2. Get the price quoted in writing before purchasing. If they don’t list their prices on their website, a trustworthy precious metals dealer will send you an email with a firm price quote. Remember, the spot price of metals can change quickly, and they’ll likely remind you of this with a disclaimer. So while you will have a limited amount of time to act on specific price, at least you have a record of exactly what you’re buying. This was the mistake in the scenario described above: the buyer trusted the salesman so much he didn’t ask to see a written quote or description of the coins before placing the order.

3. Do some basic research before you buy. It is always a good idea to go into a purchasing situation with at least a basic knowledge of the product you want and the market rate for that product. With a car, this means checking the Kelly Blue Book value. With precious metals, it means checking prices on a site like eBay. While eBay likely won’t have the best prices for precious metals coins – especially for large purchases – it should at least provide a benchmark of the market price of the product you want.

It is smart to be cautious, but don’t let worry prevent you from protecting your savings through precious metals investing. There are gold dealers who recognize the value of a long-term client relationship and will treat you with the corresponding respect. Using the few simple practices we described, you can find a good broker who will help you for years to come.

When Accepting Free Gold Bars Can Cost You Money

Have you heard about the Nigerian prince who would like to send you his fortune for safekeeping if you’ll only give him enough money to execute the transfer? There are a lot of variations of this classic internet scam, and in all of them the victim ends up giving away lots of money only to find the so-called prince doesn’t exist. Apparently scammers are now using the rising price of gold to lure new victims with this old trick.

One of our readers was asked to “hold” some gold bars the scammer had supposedly found while serving in the military in Afghanistan. He told his would-be victim that he needed someone in the US to keep his gold safe until he returned from his tour of duty. All he asked for was a measly $1,000 to purchase a lock-box to safely ship the gold, and then he delivered legitimate account information for a bank in New Jersey where the funds could be deposited. Of course, he said he would be more than happy to pay her back with a generous bonus — as soon as he returned to the US and collected his “gold.”

Fortunately, our reader smelled a rat. The tricky part was that this wasn’t just an email exchange, but actually involved phone conversations. There is something reassuring about talking to a real person over the phone, rather than just getting anonymous emails. But our reader got suspicious when she discovered she was talking to someone on an Internet phone line and had no way of determining if the guy was really in Afghanistan.

On top of that, she recognized the most important red flag for ploys like this: if it’s too good to be true, it’s probably a scam. If someone does target you with a “once-in-a-lifetime opportunity,” your best bet is to just ignore them, and block their number or email from your account. Eventually they’ll get bored and try their scam on someone else.

There are few reliable ways to check if the offer is a scam. You can call the authorities, but chances are they won’t be interested. In the case above, even the New Jersey bank declined to shutter the account of this known fraudster when our reader contacted them. Our best advice? If you come across an offer than sounds too good to be true, contact us and we’ll investigate.

Are 1-Gram Gold Ingots Revolutionary or Over Priced Gold?

One of our readers recently asked about investing in gold through a new company they had come across on the Internet. The company sells 1-gram gold ingots (tiny bullion bars) encased in thin plastic, which are stamped with a serial number and hologram to prevent counterfeiting. They tout their product as a unique development that will change the way precious metals are used in the world – but the truth is that these types of products have been around for a quite some time.

Commonly known as “ingot cards,” they are offered by internationally respected precious metals manufacturers like the Swiss gold refinery PAMP (Produits Artistiques Metaux Precieux). They issue a wide variety of them, ranging from fractions of a gram to several grams. The picture below is an example of PAMP’s 1-gram card.

Ingot cards are promoted for their anti-counterfeiting benefits, since the hologram and serial numbers are, to a certain degree, a legitimate way of proving authenticity. The cards are also sold based on their convenience to investors who cannot afford to purchase gold by the ounce, or who maybe want smaller denominations of precious metals in case of barter situations.

However, the “perks” of ingot cards come with a cost: a significant markup over the spot price of gold. At the time of this writing, the “groundbreaking” gold card product our reader asked us about was being sold at a price of more than $2,400 per ounce. That’s 40% more than spot! PAMP products are not nearly as exorbitant, but they still carry a hefty cost ranging from 12% to 27% over spot, depending on the size of the ingot. It does take more time and resources to mint smaller ingots of gold and add the protective features, most serious investors look for low premiums above all. That usually means bullion coins or bars in the highest denomination you can afford.

There are also liquidity issues. Should you be forced to sell your ingot card before the price of gold increases enough to offset the premium you paid, it’s going to be difficult to convince a buyer to give you the same premium you paid. Meanwhile, a well-known gold coins can be sold to a legitimate dealer for not too much under spot.

Also, don’t forget that the serial numbers on those ingot card can compromise your financial privacy. The retailer records which serial numbers are shipped where, and that number remains a traceable ID to whomever you sell the ingot card. By contract, a widely recognized gold coin is more anonymous than cash.

Finally, if you’re really worried about counterfeiting, you’re going to want your precious metals tested through a variety of methods: holograms, ultrasound tests, magnets, acid… to name just a few. There are a lot of ways of checking for fake gold, so don’t just trust a serial number.

Ingot gold is right for some buyers, but even they should stick to reputable manufacturers and dealers – not pushy new online multi-level marketing schemes.

Don’t be fooled by offers that claim to be revolutionizing the gold industry. The websites selling these overpriced products will cite all the legitimate reasons for investing in gold but they won’t spend nearly as much time telling you about how their niche products compare to more liquid offerings from mainstream dealers. Buying precious metals is the most simple decision you can make to ensure your financial future… don’t overcomplicate it!

“Natural Gold” Unhealthy For Your Portfolio

While not nearly as common as overpriced numismatics, every now and then the precious metals investor will come across the opportunity to purchase natural gold nuggets. While they may be appealing at first glance, these opportunities are just another distraction from the real purpose of investing in precious metals: as a long-term, liquid store of wealth.

Often these natural nuggets are called “placer gold,” which are basically deposits of gold that have found their way to the Earth’s surface, either in the silt of a riverbed or the topsoil nearby. When you think of the classic image of a ’49er panning for gold, this is the metal he is looking for. The gold can range in size from the tiny flakes you might find floating in bottles in souvenir shops to substantial nuggets weighing several grams or more.

There are legitimate placer mining companies who still operate today around the world, though the profit margin is highly variable. Placer gold can be anywhere from 50-85% pure, with the remainder being a hodgepodge of other metals. To make money, these operations search not just for gold, but also precious gems and valuable minerals.

Clearly it takes more resources to further refine placer gold into a pure product. So when you see gold nugget sales at well over the spot price, red flags should go up. How can gold nuggets be that costly when they aren’t even pure?

The seller may make the point that placer gold finds its value as a collector’s item. They may emphasize the unique quality of the gold nugget as a natural phenomenon, like a gemstone, unprocessed by humans. They may assure you this unique beauty is appealing to jewelry makers who search out nuggets for use in custom craftwork. Keep in mind that these sellers are often just hobbyist collectors or amateur gold panners, and so there’s a chance they haven’t even verified the percentage of gold in their specimen. Profitable placer mining operations are refining their metals themselves or else selling their product to refineries, and aren’t going to waste their time trying to sell unrefined gold on the Internet one nugget at a time.

Gold has fascinated humanity since the beginning of time, and natural gold nuggets do hold a certain aesthetic appeal to the Midas in all of us. This is what nugget salesmen are betting on. Unless you have a lot of extra cash to throw around, and are looking for a collector’s item as a gimmick to share with your children and friends, you’d be wise to pass on these offers.

You can acquire a pure troy ounce gold coin or bar for significantly less than the same weight in impure gold nuggets. Not to mention, of course, the problem of an exit strategy. If the day comes when you need to sell your gold back to the market for whatever reason, a well-known coin from a reputable mint is going to be infinitely easier to sell than a handful of natural nuggets. All of the sudden, you may find yourself as the seller on eBay trying to convince buyers of the unique value of your overpriced “investment.”