EVERYTHING YOU WANTED TO KNOW ABOUT BUYING AND
SELLING PRECIOUS METALS AND THEN SOME!!!!!
BACKGROUND: This article was created by Art Arbutine based on his experiences buying, and selling coins and precious metals since 1960. Art is a retired USAF Master Sergeant 1953-73, and a 1971 graduate of the University of Tampa, with a Bachelor of Science degree, magna cum laude, in business, and economics. He is a life member of the ANA (American Numismatic Association) since 1963, and many other coin, watch and jewelry organizations. Upon retirement from the USAF in 1973 he and his wife Pat founded Belleair Coins Inc. Art has been a lifelong coin collector, specializing in world crowns, and Spanish Colonial.
BELLEAIR COINS INC: This is absolutely free, but as with many freebies, there are the mandatory commercial messages: We are located just north of Saint Petersburg Florida. Besides coins we actively deal in silverware, crystal and china as, The Silver Queen Inc. We are also strong buyers of all diamonds, pocket and wrist watches, estate jewelry, military items and other collectibles. We are #1 rated by The Jewelers Board of Trade with annual sales of about $85 million. The numismatic staff includes me, my three sons, and my brother. My wife supervises the administration of both corporations. My two nieces run our retail jewelry department. We have three in the shipping department; six more who take or process the silver flatware orders. My daughter in law is the accountant. My two grandsons both now work full time in the store. As a long time coin collector who had limited funds for buying my coins, I often encountered the typical old time, impatient coin dealer who wouldn’t give the time of day unless you spent $100 the first five minutes in his store. I vowed that if I ever started a coin shop I would be friendly, patient and understanding with everyone. In 1973 I adopted the motto, Honesty *** Integrity *** Reliability, which all of us try very hard to live up to. We are very active, long time members of two electronic trading networks, Coinnet for coin and bullion; Polygon for jewelry and diamonds. This makes us trading partners with about 5000 dealers throughout the world. We attend many coin, watch, and jewelry shows, and have had dealer tables, twice a year, the past 29 years at the Hong Kong International show. We are very competitive, and we know what we are doing, and can hold our own with anyone. Those who have dealt with us know we are reliable, honest and can be trusted. My oldest son runs our silverware pattern matching division, the Silver Queen Inc, the largest silver flatware pattern matching service in the world. If you want a price print-out of your silverware, crystal, or china pattern, and/or information on buying or selling silverware, call or email The Silver Queen numbers given at the end of this article.. If you have any questions about the information written here, or if you want to buy, or sell coins, jewelry, watches, etc., do the same with Belleair Coins. We also offer a free pamphlet, “When You Have Coins to Sell”, which lists the approximate prices we pay for US coins. If you want this free pamphlet call, write, or E-Mail. Actually, this same website now contains a price list of prices we pay, but it is not up to date for common silver coins due to recent fluctuations. End of commercial message..
RECOMMENDATIONS: We feel strongly that people should consider putting at least 5-10% of their portfolio in bullion coins or other forms of precious metals. This should be considered as a core holding as a hedge against inflation or “insurance” against some sort of financial disaster. Everyone has life insurance which is actually death insurance. Usually, no one collects unless someone dies. This is a very uncertain world. The chances of being hit by a tsunami or asteroid are remote, but not impossible. The nuclear threat has abated somewhat, but now there are terrorism concerns. Inflation is on the rise, the national debt is more than 17 trillion dollars. Conservative government estimates forecast a budget deficit of 1.7 trillion for 2011. This debt is not a myth. It is actual, real money owed by the federal government to American and foreign individuals, to insurance companies and other financial institutions, foreign governments, and others in the form of currency, T-Bills and Treasury Bonds. No one mentioned will forgive the government’s debt. They all expect to be paid. At no time in the history of mankind has such massive debt ever been repaid. The first minute that the public sees rampant inflation, they will start buying silver and gold and other hard assets as the buying power of the dollar starts to diminish.
HARD MONEY: This refers to gold, silver and other precious metals. Our present currency is now backed by Treasury Bonds or Treasury Bills. In other words it is paper backed by more paper, little more than an IOU. The dollars we spend today are not backed by the gold at Fort Knox or our strategic silver reserves at West Point which has long since been depleted. Some circulating paper dollars have a promise to pay the bearers on demand. Pay what? We use fiat money, which is defined as money unconvertible to coins or specie of equivalent value. Many feel that our dollar is near worthless and it’s just that no one has caught on to it yet. Hard money advocates think that the national deficit is so great, that the day will come when the government will have to repudiate the U.S. dollar, renounce the national debt, and start over again with money backed by silver and gold as it was in the US before the Federal Reserve banking system.
This is absolutely the first time in the history of mankind that NO paper money is backed by gold or silver. ALL currency circulating in the world today is fiat, backed by nothing! The basic hard money premise is that some day a person will go into a bakery with a silver dime in one hand, and with a $100 bill in the other. The baker will reject the $100 bill, as it is merely paper and sell the loaf of bread for that silver dime. This, of course, would happen only during a run away inflation, an event that has occurred at more than 100 times this century in different countries throughout the world. It could happen here. Many expect it. The first sign that the hard money people might be right would be escalating inflation.
INFLATION: The average person knows that inflation means high prices, but doesn’t really have a clue as to the reason. My definition of inflation is a rise in prices caused by an increase in money supply without a corresponding increase in the goods and services (The Gross National Product). Example: If you isolate a group of people and give each a dollar and an apple, what price would we expect for an apple? A dollar would be a likely answer. Give the same group an apple and two dollars. Then the price would probably be two dollars. Why? It’s because you have doubled the money supply, without a corresponding increase in goods (apples). For the last 50 years or so, our U.S. Federal Government has been spending more than they have been taking in (increasing the money supply), causing inflation, and the massive national debt. Inflation makes the dollar worth less and hard assets worth more (more in terms of inflated dollars). In the spring of 1923, the German mark was considered a stable currency. By winter of the same year it took a billion marks to buy a loaf of bread. People panic when they see their money deteriorating.
Inflation is actually just a hidden tax. If any politician mentions raising taxes, he/she has no chance of being reelected. If a government even contemplates raising any tax, there is a massive public outcry against it. So, when congress wants to spend money on some project, or a war, they don’t have to raise taxes, just call on the good old Federal Reserve for a loan. This inflates the money supply which raises the price on most all goods and services. There is not a peep from the “Sheeple” (public) who figure the government knows best and is looking out for them. This is how it works and has been going on for the longest time.
CONFISCATION: This is a bugaboo that seems to concern many gold buyers. By executive order of President Roosevelt in April 1933, “Persons are ordered to surrender all gold bullion and gold coins, except those of special value to collectors or rare and unusual coins”. Intent was to free money that was thought to be stagnating in gold. Some say this was to bail out the Federal Reserve as they had issued too much paper money not backed by enough gold, which caused the stock market crash of 1929 and the subsequent great depression. Turning in gold was supposedly to stimulate the economy and spur recovery. In those days the people lined up like sheep at the banks, getting less than the world gold price for their gold. At the time a $20 gold coin contained over $20.80 worth of gold, but the citizens got only a paper $20 bill. Many of the big banking institutions shipped those $20 gold coins to Switzerland and other European banks where they received the full amount. By another executive order seven months later (after all the gold was confiscated) the dollar was devalued in terms of gold making a $20 gold coin worth about $35 in paper dollars. The citizen who dutifully turned in a $20 gold coin had a $20 bill. Those who didn’t, now had a coin worth $35.00, which was a couple weeks pay for many. Do you trust our government more today? Some hard money people feel that if there is a runaway inflation, the congress might not take the responsibility for all that deficit spending, would blame gold hoarders, and demand government confiscation. Personally I feel that this is an unlikely scenario. For one thing the today’s citizens will never line up like sheep as they did in the 1930′s. There are rumblings now about the “underground economy”, and hoarders of metals might be supporting terrorism, might be money launderers, part of the reason our economy is tanking, etc. Be quiet about your metal stash and try to buy your gold and silver anonymously as you can.
CONFISCATABLE vs NON CONFISCATABLE: The word confiscate here is not totally accurate but it has a scary ring to it and strikes fear into many buyers. In 1933 citizens were paid about 4% below market value on the transaction when they turned in their gold coins. No gold was forcibly taken from anyone without compensation. Confiscation is a game telemarketers use to guide the gullible into buying something that has a high profit value for them. They will tell you that the coins that they recommend will not be confiscated if gold is recalled. No one knows what coins would be “confiscated.” This is a gimmick, a scare tactic. Don’t fall for it!
REPORTING LAWS: There are no ID requirements when purchasing gold or any bullion. You could buy a million dollars worth of gold bullion by personal check, and nothing is reported anywhere. The only time you would be required to show ID and social security number when buying metals here, would be if your purchases were $10,000 or more, and you paid by cash or travelers cheques or money orders. This would be reported to the government as a cash transaction or equivalent of $10,000 or more. There is a government term called “related transactions”. A large lump of cash cannot be deposited at one time, and used to spread purchases over a period of time to circumvent the cash reporting laws.
(REPORTABLE IF YOU SELL THESE AMOUNTS IN A SINGLE DAY) (NOT REPORTABLE)
$1000 face in US silver coins 32 ounces of .995 gold ingot (a kilo bar) US gold or silver eagle coins
25 South African Krugerrand’s 100 ounces of palladium bars US pre 1933 gold coins
25 Canadian gold Maple leafs 25 ounces of platinum bars Other foreign gold coins
25 Mexican gold Onzas 1000 troy ounces of silver ingots Numismatic gold
Note: Family members can’t split sales to circumvent reporting requirements. The government term, “related transactions” applies here too. The sale of coins or bars cannot be juggled around to circumvent the reporting requirements.
WEIGHTS AND MEASUREMENTS: As you read through the various described coins you will see the abbreviation AGW & ASW This means Actual Gold and Silver Weight. Any alloy is disregarded, and this is the amount of pure 24K gold or.999 silver contained within the coin. The AGW is expressed in troy ounces as all precious metals are bought and sold in troy ounces which weigh about 10% more than an avoirdupois ounce (an ounce of food, postal letter, etc).
31.1 grams = one troy ounce 480 grains = one troy oz. 1 American pound = 14.58 troy oz.
28.3 grams = one avoirdupois oz. 1000 grams = 32.15 troy oz. (a “kilo”) One “troy pound” = 12 troy oz.
CHOOSING A DEALER, Naturally, since we are in the business of buying and selling coins, we hope you will choose us. Americans were not allowed to own gold from April 1933 until Jan. 1975. The average buyer is a bit nervous and inexperienced when it comes to buying bullion. In most large urban areas there are at least several dealers. The coin business is always very competitive. Gold and silver are basically commodity items and as with all commodities, the dealers have to work close and be very competitive or they won’t get much business. Most people choose a local dealer that they feel they can trust, and with whom they feel comfortable. There are many good bullion dealers throughout the US who do a lot of business via the Internet, phone and mail, but the only problem is that one can’t just walk around the corner to make a fast transaction, or straighten out any problems face to face. People should shop around, ask around and deal where they feel it is to their best interests. The local dealer can be a great asset.
PROMOTING: When we say “promoting” we are referring to the practice of taking some common numismatic items, or creating a silver bar or such, and hyping it at very high prices via mail news print, phone or internet. Among the promoters, telemarketers are the absolute worst! Some offer coins or bullion at sky high prices. Others offer good deals but they abscond with your money. Most everyone has seen a full page newspaper ad promoting, “America’s First Coins”, or “a horde of recently discovered silver dollars”, or some ingot that looks like a $100 bill or large hockey puck sized pound or half pound “coins”. These have little to no collector value but are promoted at enormously inflated prices. Don’t bite! Note: December 2010, there is a new slick scam used by internet promoters and newspaper advertisers. They offer 1/10 gold eagles at cheap prices and then discourage your buying them, stating that common bullion coins are subject to confiscation, but the extremely overpriced coins that they recommend are not. They try to scare you into buying “non confiscatible” coins (where they have a huge profit), and there is no such thing as a confiscatible or non confiscatible coin.
S I L V E R C O I N S A N D I N G O T S
U.S. COMMON SILVER COINS: These are the coins we used for change 1964 and previous. This category has very little numismatic premium. Their value is the 90% silver content. A slang term for these coins is “junk silver”, but dealers usually refer to them simply as, “90%”. These are often traded among dealers by the “bags”, which refers to a $1000 face value in a bag which weighs approximately 55 regular pounds, and 720 troy ounces of pure silver. Dealers usually deduct a few ounces for wear on the coins, using 715 troy ounces when figuring the troy weight of a “bag of silver”. If silver is $30.00 an ounce, then multiply $30 X 715 to determine the metal (intrinsic) value of the silver in a bag of coins. During inflationary periods there is usually a great demand for silver coins; then bags are bought and sold at a premium over the actual value of the silver. When the demand diminishes, bags trade at or below the silver price and are often sent to the refinery and melted. Silver coin is an excellent way to buy silver. American 90% silver coins are widely recognized, extremely liquid, and can be broken down into small denominations, as small as a single silver dime. Dealers will always pay higher for bags or half bags, opposed to just a few silver coins at a time. The only drawback to the silver coins is that they are quite bulky.
40% SILVER-CLAD HALVES: These are 40% silver content half dollars dated 1965-70. After silver coins were eliminated in 1965, Congress decided, for some obscure reason, to continue a small amount of silver in the half dollar. These contain outer layers of 80% silver, bonded (clad) over a core of pure copper. The ASW (Actual Silver Weight) is .148 troy ounces in each coin. Most all these get melted. The big drawback is even greater bulk than in 90% silver coins. Dealers always buy these below melt. This is not the way to go.
U.S. SILVER DOLLARS: These are very popular coins. They contain .77 oz. ASW and when silver is low there is always a large premium over the metal content. When silver is high (Like $30 in 2011), the premium shrinks. When silver goes to $50 an ounce common circulated silver dollars will be just be silver just like common 90% coins. High grade uncirculated dollars MS65 and higher and rare dates tend to go up much faster than the silver price and are recommended but not the common circulated ones unless near the ASW.
100 OUNCE SILVER BARS: These are very popular with people who want to buy a lot of silver. The buy-sell spread difference is very small, and the size is very compact. A #10 safe deposit box will hold more bars than a person can lift. Buyers should purchase widely known, accepted brands such as Engelhard, Johnson Mathey, Sunshine Mining, etc. Odd brands and older bars that are not exactly 100 troy ounces will be discounted when they are sold to dealers. 1000 ounce bars are a bit cheaper than 100 ounce bars, but due to the massive size and weight (about 70 pounds) they are not recommended.
GENERIC ONE OUNCE SILVER ROUNDS OR BARS: The coin-like rounds are always .999 silver and weigh a troy ounce. Silver bars have been minted by various “private mints” and refiners since the middle 1960′s. Many ingots are from the 1965-75 era, and had some commemorative or special event theme and were called “art bars”. At one time these were collectable but all are now worth only their silver content. The one ounce bars and rounds are almost always accepted by dealers, and there have been extremely few problems about weights or fineness. These are especially popular because the premiums over silver are relatively small, a few percent over the spot silver price. These are a good buy, if the premium stays this low. We recommend these due to the low premium (Jan 2011: Eagles cost $4 over spot; rounds and bars just $1.25). Premiums vary as to market conditions.
ONE OUNCE SILVER EAGLE COINS: These are legal tender $1 coins, were first sold by the US Mint in 1986 at $1.30 over silver. Since then they have raised the premium to several dollars over spot. Coin shops usually add a dollar or so to that and it makes for a relatively high premium considering that you can buy one ounce rounds and rectangles for only about a dollar or so over spot. Our opinion: It’s nice to own American silver like the one ounce Eagle coins but if silver rises to $50 or more, dealers will likely not pay more for silver Eagles than generic rounds or ingots, so why pay a big premium now? However, the eagle is the most popular one ounce coin, and most Americans are willing to pay extra. Neither the public, nor local dealers can buy these directly from the mint.
CANADIAN SILVER COINS: These might be OK for Canadians, but the American dealers look at them as undesirable 80% scrap silver. A dollar’s worth of Canadian silver coins, including the silver dollars is .6 oz. ASW. The Canadian government also sells a one ounce bullion coin, the Silver Maple Leaf, with a $5 face value. This is recommended only if you can avoid the higher premiums charged by the Canada Mint.
MEXICAN SILVER COINS: This includes the government issued “Onzas”, 100 Pesos, and Libertads. The one ounce Libertad is one troy ounce of pure silver, and is usually sold around the price of common generic rounds. Other silver Mexican coins with no collector value are scrapped out by US dealers. Buy only the one ounce Libertads if at the same price as silver rounds and rectangles.
STERLING SILVER MEDALS AND BARS: These were issued by “private mints”, and some sets of these have interesting themes such as space, trains, planes, automobiles, guns, etc. A few actually have had a small collector value, at one time, usually very small. 99.9% are now shipped to refineries and melted. Sterling silver is 92.5% silver, 7.5% copper. When silver makes a fast move up, all the refineries become overloaded, and the prices dealers pay for sterling silver is greatly discounted. Not recommended
.999 S I L V E R F A C T S
.999 SILVER 1 TROY OUNCE COINS: These are issued by established governments and have some nominal value such as $1 for the US silver eagle; $5 for the Canadian silver Maple Leaf, etc. The nominal value is always a fraction of the silver value. It gives the coins legal tender status though no one would spend a coin for the face value when the silver content is many times that. These coins are more popular than silver rounds, and usually always initially cost more because the governments issuing them charge a higher minting fee. For example, the dozen or so distributors who buy the silver eagle coins directly from the US mint have to buy about a million dollars worth at a time, and have to pay the mint up front about $3 a coin over spot. Under normal circumstances the distributors sell these to coin and bullion dealers 500-1000 at a time for about $3 a coin over silver. During occasional mint stoppages, the distributors were selling the eagles way over the silver price due to the short supply and great demand.
.999 ONE TROY OUNCE SILVER ROUNDS: These are coin-like, made by silver mines (Sunshine Mining etc.), refineries (Engelhard Industries), and many other private mints. There has never been any scandal concerning these and generally all are accepted as one troy ounce of fine silver. These are almost always a dollar or two cheaper than the official .999 silver coins. Virtually none of these are collector items, but some buyers prefer the bigger name rounds like Engelhard and Sunshine. Among coin and bullion dealers, all are just silver rounds and there is rarely any price difference between them. These are all die, struck, just like coins, and have been bought and sold in the US since the early 1970’s.
.LARGER .999 SILVER RECTANGLES AND BARS: These are all made by refiners, mines and private mints, and commonly come in one, ten and 100 ounce size. All the one ounce size rectangles and newer bars are die struck. Most of the older 10 & 100 oz. bars were made from a casting process where the silver was poured into a mold and then the trademark and fineness and weight were later stamped. Modern bars are die struck or “extruded”, an Engelhard process where the metal is rolled (extruded) into thick sheets, trademark serial numbers and weights added in the same process. All 100 ounce bars have serial numbers. The larger size bars are popular because they are more compact, fit nicely into safe deposit boxes and easily hidden in homes.
1000 OUNCE COMEX DELIVERY BARS: COMEX uses 1000 ounce .999 silver bars to satisfy delivery contracts. These are rather ugly, like a long skinny loaf of bread, crudely poured and the stamps are usually crude. Some are exactly 1000 troy ounces, but many are a little lighter or heavier. The total weight is around 70 regular pounds. They are difficult to move and expensive to ship. The commodity exchange makes it very expensive (shipping charges, excessive fees) to add or remove from the COMEX warehouse. These are seldom bought or sold from the general public. In our store we see just a few per year. They can be sold to coin and bullion dealers for spot less a few percent, and are sold to buyers for spot plus a few percent.
G O L D C O I N S A N D I N G O T S
SOUTH AFRICAN KRUGERRAND: This 22K gold coin contains an ounce of pure gold and is alloyed with approximately 1/10 ounce of copper. Fewer are now produced, but there are still many millions in the U.S. Most all are in mint condition, and no dates are worth more. This coin is very popular, because it is universally known and sold at the smallest fraction over the gold price. If you can get them at a premium lower than the US eagle or other gold one ounce items, it is a good buy.
U.S.GOLD EAGLE: When the government created this $50 gold coin in 1986 it was meant to compete with the Krugerrand, so they made it the same physical size, same fineness. The only difference was to add a 3% silver alloy giving the coin a more golden look as opposed to the coppery-gold appearance of the Krugerrand. The government sells gold Eagles only to 12 big dealers (distributors) at about 3% premium over the gold price. Fractional Eagles are also available, but sold at a higher premium and are recommended only for gifts & jewelry. Eagles generally sell for about $10-15 higher than the Krugerrand, but some of that is usually recovered when sold back to dealers.
US 24K BUFFALO: This is was released in June 2006. It is the first ever US .999 pure gold coin. The premium is a little higher than for gold Eagles. They are absolutely beautiful coins about the same physical size as the old $20 gold coin, and each one comes packaged in soft mint plastic. Due to the higher premium they are not that popular among investors. We see no reason to pay the extra premium.
U.S. $20 GOLD COIN: This .900 fine gold coin contains .9675 AGW and was last made in 1933. The numismatic value varies greatly due to demand, availability, condition, and the price of gold. This is the same story as common silver dollars. When gold is cheap there is a large premium over spot. When gold rises like in 2011, the premium shrinks to practically nothing. We don’t recommend paying much over AGW for common date circulated $20 coins, however high grade uncirculated and rare dates are very valuable and tend to go up much faster than gold.
CANADIAN GOLD MAPLE LEAF: This 24K, $50 face value coin contains one ounce of pure gold. It sells for a little less than the US gold eagle and is very popular in Asia and places where people prefer fine gold. This, the Eagle, and Krugerrand are just about a toss up as to the best way to go. Buy whatever is the cheapest.
AUSTRIAN OR HUNGARIAN 100 CORONA AND PHILHARMONICS: The coronas are .900 fine gold, .98 oz AGW coins. Austrian or Hungarian coins have the exact same physical size and AGW. Both are official government restrikes, made many years since 1908 or 1915. There is nothing wrong with the coins but the odd weight, .98 oz, makes it hard to figure the gold value. Not recommended unless you can get them at or near their actual gold content. The Austrian government also makes an ounce Philharmonic .999 gold coin, popular in Europe but not many are sold in the US. Buy them if you can get them cheap..
CHINESE ONE OUNCE PANDA: This is a beautiful 24K one ounce gold coin, made since 1982. The Chinese change the designs of the Panda on the coins each year giving a few of the early dates have considerable numismatic value. They became very popular in the US, in fact, many Americans bought one every year to get each new design. The first issue, 1982, was selling for over $2000 and the premium for even the common Pandas was $50 or more. Then the June 1989 massacre of the dissident Chinese students in Tiananmen Square ended US popularity of the Panda gold coins, and now most trade just a little over the gold price. The 1982 date and few others still have some numismatic value. Pandas are a good deal if they can be found at a low premium.
MEXICAN 50 PESO: This .900 fine gold coin was legally bought & sold in the U.S. before 1975 when Americans were not allowed to own gold. The AGW is an oddball 1.205 troy ounce, thus most buyers will avoid this coin. No one likes the unusual weight. It is only recommended if available really dirt cheap.
OTHER GOLD COINS: There is no shortage of selections. You can buy any of the following gold coins: sovereigns, roubles, ducats, lire, francs, rands, marks, etc., etc. They have old dates and many are available in quantity in uncirculated condition. If you can get any world gold coins, at the AGW go for it. Professional coin dealers are able to spot counterfeit gold but, be cautious buying at the flea markets, auctions or from strangers.
GOLD BARS: Swiss Credit, PAMP, and some American refineries make die struck .999 gold bars that have certificates matching the number on the bars. Any serial numbered bars we sell will have a lifetime warranty that they are genuine and not tampered with. The premium on gold bars is generally a little less than the Krugerrands, Eagles or Maple Leafs. Stick with coins unless the bars are real cheap.
P L A T I N U M A N D P A L L A D I U M
PLATINUM COINS AND BARS: There are many one troy ounce coins to choose from: the new US $100 face platinum Liberty coin, the Canadian platinum Maple Leaf, Isle of Man Noble, the Australian Koala, and a couple others. They all contain an ounce of pure platinum. Several refineries make high quality, ounce platinum bars, die struck, serially numbered with certificates. if the premium is higher on the coins, we recommend the bars.
PALLADIUM: This is an industrial metal. Its main use is in automobile catalytic converters with a few applications in dental alloys, and in jewelry. However, some see it as an investment. There are a few palladium coins out there, mainly Russian. Most palladium is sold in the form of refinery one ounce bars. The US mint has been talking about creating palladium coins, mainly for collectors. We have no opinion about palladium.
SILVER vs GOLD
We often get asked, “Which is better, silver or gold?” In 1933 gold was confiscated; silver was not. The gold/silver ratio has fluctuated a lot in recent years. In 1967 it was 15-1; in 1997, 100 to one. The ratio today (Jan 2011) is 47-1 and falling. In earlier years it was thought to be correct at 16 – 1, which was based on the estimated physical ratio of silver to gold in the earth. Much of the gold produced is from deep mines. Most large silver deposits were very near the earth’s surface, and have long since been mined. About 80% of all silver produced today is a by-product of zinc, silver, copper and lead mining. Mines that exclusively produce silver are declining throughout the world. Any big rise in gold could mean more production but a large rise in silver would not. The biggest drawback to owning silver is the bulk.
Further considerations: 95% of all the gold that has ever been mined is still in existence in some form or the other. More than 50% of the silver that has ever been mined has been destroyed as it was used in small quantities that could not be recovered. Next to oil, silver is the most widely used commodity ever and has more than 10,000 uses: batteries, brazing, soldering, catalysts, clothing, coins, electronics, medical, mirrors, solar, purification etc etc. Central banks own tons of gold and no silver. The US once had a “Strategic stockpile of silver” but it was used up in the US Silver Eagle program. Silver is cheaper than gold and the average person can buy an ounce of silver without much thought. An ounce of gold is a serious investment for the average wage earner. For the past 64 years the world has consumed more silver than it has produced.
Silver in many applications is what economists call “inelastic”, meaning the same amount will be used regardless of the price. Minute amounts of silver are used in many industrial applications, and they add up. It is the best conductor of electricity and some computers use up to 1/10 ounce. No matter how high it goes up, high tech, high speed components must use silver. Silver is the the only metal that will work in solar energy. There is no substitute for its reflectivity, conductivity and heat transference. China is huge in solar energy and plans much more in the near future. Over 20 million tons of polyester sportswear are produced every year, and the textile industry consumes 1,200 tons of it to reduce odors caused by bacteria. Silver is irreplaceable in thousands of applications where very little of it is recovered. The list goes on and on.
The silver price is determined by trading on the COMEX, NY Commodity Exchange, frequently referred to as CRIMEX by many, because it is manipulated by NY Bankers (J P Morgan and others) who have a great interest in keeping the price of gold and silver as low as possible and fiat dollars as strong as possible. If you think this is a rumor, as of 29 March 2011 when this was written, J.P. Morgan Chase is being sued, in two different class actions, accused of being a racketeering and corrupt influenced organization (RICO). Both lawsuits claim that the bank is using allegedly immense silver short positions in various venues, including COMEX, to manipulate prices.
The NY bankers currently have most of the COMEX “short positions” in silver contracts causing lower prices. In fact the shorts are equivalent to six months worth of world silver production. The COMEX is one big game. When a contract is sold short, the seller much have the equivalent amount of physical available for delivery should the person who bought the contract want physical delivery. All of the shorts must be covered by silver in the COMEX warehouse, or be available somewhere in the world, but much of it is just a piece of paper that states, “This silver contract(s) is covered by a warehouse in London (or some other location)”. None of these pieces of paper are ever properly audited. If all the contracts were properly backed with actual 1000 ounce silver bars only a fraction would be available for delivery. If everyone demanded the physical silver; many would be caught holding the bag. Also, the COMEX makes it expensive and difficult to take delivery. In the COMEX warehouse there are only about 42 million ounces of silver categorized in the registered and deliverable category, which is less than $1.6 billion dollars worth of silver. This would be beer money for someone like Bill Gates. If one of the many, many multi billionaires made a run for silver, and took actual delivery like Warren Buffett did 20 years ago, the silver market would be pandemonium. So the world uses COMEX silver and gold prices but many feel that the real prices should be much higher. There is much less silver than gold so it is easier to manipulate.
In conclusion, we feel that gold and silver will both rise with inflation but silver has more uses and is undervalued and will increase at a greater rate and is a much better buy than gold.
W A Y S T O BUY G O L D A N D S I L V E R
GOLD AND SILVER MINING STOCKS: If you don’t want to bother with the problems associated with lifting and storing metals, gold and silver mining stocks might be right for you. They tend to do well in a rising metals market and could have either great or disappointing results. Many have CEO’s and executives that demand exorbitant salaries and stock options. The overhead for mining metals is great. The caliber of a company’s management and operations can have a huge impact on stock prices. If you want to go this way it would probably be a good idea to spread your investment among companies that have a good track record. Mining stocks may not rise in direct proportions to bullion prices as the profitability of a mine is determined over many years of production. In an extreme financial crisis you will still be holding a stock certificate and cannot expect gold or silver from the mining companies.
EXCHANGE TRADED FUNDS (ETF’S): This is a fund that trades (gambles) in leveraged commodity contracts. If the fund is honestly managed (many aren’t) and metals go way up, the fund will be extremely profitable. There could be serious problems in investing in ETF’s. The fine print in the prospectus might state that the ETF has no legal liability for defaults by sub-depositories that don’t have sufficient physical metal to meet their obligations. Further the ETF might lease its metal adding another risk of default. They might mix metals in their vaults that may be subject to superior claims of ownership by other parties. Many things could go wrong, especially in a volatile market. This is an extremely risky play.
COMMODITY CONTRACTS ON THE COMEX: This is not for a typical silver or gold investor. These are mostly traded by speculators who never intend to take physical delivery. Normally they offset their contract with another just before maturity. If metals go your way, you make a huge profit. If they go way down you get a “margin call”, meaning you have to match your initial investment or you lose the contract(s). An interesting aspect here is that many big brokerage houses and investment banks use computer generated algorithms that make automatic trades depending on data that is inputted. It is pretty hard to beat the big computers if you are an average player. As previously mentioned the COMEX is manipulated by big bankers and the system is flawed. Risky!
LONDON BULLION MARKET ASSOCIATION CONTRACTS: This is the largest gold and silver market in the world. These contracts are supposed to be for physical delivery and 100% backed by the physical metals. In reality the Commodity Futures Trading Commission discovered in March 2010 there was only 1% to 3% physical metal for outstanding contracts. You don’t want a piece of paper saying you own silver or gold in London.
CERTIFICATE PROGRAMS: Here you will get a piece of paper stating that you own X amount of metals stored at the Perth or Royal Canadian Mint. Recently the Royal Canadian Mint experienced a $17 million disappearance of gold bullion, still lost. You don’t want paper gold in a foreign land. Your stock broker might recommend these but most stock brokers discourage owning physical metals because once you buy, they lose you as a customer.
LOCAL COIN DEALER: That’s me, so this will reflect my bias, but believe me, the best and easiest way to own metals is to go to your local coin dealer and plunk down cash on the counter and walk out with your gold or silver. No record of your transaction goes to the Government, and you will be completely anonymous. It’s good to establish a relationship with a local dealer you can trust.
NATIONAL COIN AND BULLION DEALERS: If you buy physical metals from national metals brokers (these are the kind of guys who advertise on Glen Beck etc), you send them funds and about 30 days or more, you get your shipment. These companies are strictly independent of any regulation or audits. This kind of operation could lead to a Ponzi type scheme. The company could have started with good intentions, but didn’t back sales with actual purchases in a rising market and could be in financial trouble because metals went the wrong way for them. The recent money received could be purchasing the metals that were due a month back. For more than 30 days, your money is out there in no-man’s land. Many national metals brokers have either gone bankrupt or were completely fraudulent. Additionally, these interstate companies fill out a 1099 IRS form on people who buy. If the IRS or Government comes looking for metals buyers, here is a perfect, complete record.
STORING METALS: We don’t recommend bank safe deposit boxes. In 1933 during a monetary crisis the banks were closed for three weeks. This might be a time when you might really need your metals. In larger cities there are private safe deposit boxes and vaults. There are creative ways to hide your metals where you live. I recommend calling local safe companies and asking them to look out for a big, secure used safe, one that is so heavy that it can’t be easily hauled out of the house by burglars.
O T H E R F A C T O R S
POLITICAL CONSIDERATIONS: The “War on Terrorism” isn’t going to be cheap. Our role as policeman of the world has expanded. Where is the money coming from, to fight the war on crime, the war on drugs, the war on poverty, and other Federal projects? These are all budget drainers and sure to cause inflation, which means to protect yourself you should now seriously consider purchasing precious metals as a hedge. We are mired in the Iraq and Afganistan wars, which are costing more than a billion dollars a day (conservative Government estimates). President Johnson pulled the money from the Social Security reserve funds and spent them on the Vietnam War. There is no current “fund”. Medicare and Medicaid and the Social Security program will be bankrupt in less than 10-15 years; it currently takes 44% of the 2011 budget. The government has to borrow about $3-4 billion a day from the privately owned “Federal” Reserve banks just to pay the interest on the 14 trillion or so debt. The government solution for every problem is: Throw money at it. Congress routinely borrows trillions from the evil Federal Reserve Banks which means increasing the money supply, assuring added inflation.
THE CHINA FACTOR: More than half the people in the world live in China and India, and in they traditionally covet silver and gold. Silver was the only money in China for more than 10 centuries; it is ingrained in their psyche. I go to the Hong Kong coin show twice a year and old common Chinese silver dollar coins used to be available in huge numbers at 10% over the silver content. Now that they have some money there is a huge demand for gold and especially for silver. The common dollars now sell for more than 50-100% over the silver price and are in great demand. Eight years ago the Chinese legalized the possession of gold. Now they are encouraging people to buy both gold and silver. One gram (1/30th of an ounce) bars are sold at banks and even vending machines in China. Demand for precious metals will increase as the population becomes wealthier. The Chinese have over 1.5 trillion in US Treasury bonds. I look for them to quietly turn it into metals. If they did it in big chunks it would make the dollars that they still have worth less, and metals go much higher which would mean future purchases would cost more. There is a delicate balance there. The Chinese are extremely smart people and they would finesse the situation so that they could accumulate a lot of gold and silver and not lose too much of the value of their dollar reserve. However they did it, metals would have a considerable rise in terms of US dollars.
THE FEDERAL RESERVE BANKS: This sounds official US Government but it reality this is a private bank owned by US and international bankers. Many feel it is evil, corrupt and unconstitutional. This bank sets interest rates, creates our money and runs our economy more than the congress. Many readers who are not familiar with the Federal Reserve will be shocked at this section, especially in the way dollars are created. Here is a very simplified but accurate account of how the Fed creates money: Congress calls the Fed and asks for a $100 bill. The Fed never refuses, and then calls the BEP (Bureau of Engraving and Printing), just three blocks down the street and tells them they need a $100 bill. It is printed and Fed picks it up and pays the BEP 8c, the cost of printing a US banknote. Then the $100 is loaned to the US government and we are charged interest on $100. When the congress wants $100 billion they don’t bother with the paper, the Fed types on a computer keyboard and sends Congress the money and charges interest. Where did the Fed get the money? They created it out of thin air! Before typing on the keyboard the money did not exist and it is not backed by gold or silver or anything but the Fed gets interest on it.
As long as this system is in place there will be inflation. Congress has an unlimited credit card (The Fed) and they have few restraints. If there is a choice between “guns and butter”, the attitude is, no problem, we will have both.. The Fed is linked to many international banks and they loan money to other Central Banks and most transactions are secret. The Fed has never had a full audit and no one knows how much they loan or give to similar Central Banks throughout the world as they are all linked and many owned by the same bankers.
From 1800 to 1913 inflation in the US varied from +2% to -2%. From 1913 (Since the Fed was created) to date the spending power of the US dollar has declined by 98% of what it was in 1913. Congressman Ron Paul is strongly concerned and published a book, “End the Fed”. It is interesting reading. For the complete history of central banking and how the Federal Reserve banks were created, read, The Creature from Jekyll Island, by G.E. Griffin.
WORST CASE SCENARIO: I sell gold and silver daily to people who are worried about the economy. Many have heard or read scare stories that our economy is crumbling and that they should have some gold and silver as an insurance policy against the worst case scenario which is a massive hyper inflationary economy where paper money will become worthless or near worthless, people will revert to a barter system. They ask me, “What would I do with a silver round or silver coins or one ounce gold coins if the worst happened?” Publix won’t likely take them and the banks would likely be closed. Where would I get food?” My answer and opinion is that this is unlikely to happen here, but it did in post war WW1 Germany and in many banana republics. There could be a very short time where the banks are closed and people are so unsure about paper money that no one would take it at any price. If a crash happened suddenly, it might take time to print the new money and barter would come into play.
Remember this is my opinion, not my prediction. I’m not trying to scare anyone. People would revert to using old pre 1964 silver coins as temporary money. If you think we are headed down this road, it would be a very good idea to stock up on at least several weeks of food and medicine, just in case. Most every banana republic, Mexico, Brazil and many other S. American nations have faced runaway inflation and complete lack of confidence in the circulating paper money. In every case it has been the same: Go to the bank and turn in the old money (in the case of Mexico 3000 pesos to get one “New Peso”) and get a new currency with some government promise to be sensible and balance the budget and stop deficit spending.
No matter how bad the economy might become, we would still have a central government, and it is likely it would be the old-for-new before the dollar became completely worthless. Every American would go to the bank and turn in maybe thousands of our current Federal Reserve dollars for one new money unit which might, for example, be designated as a “Treasury dollar”. This could be done with an absolute promise to balance the budget or with some link to backing the new unit by gold and silver. It would take something like this to restore confidence in the new monetary unit. So, you might ask what would we do with our metals? Well, the government cannot inflate your physically owned gold or silver. It will keep its value. It is not likely you will be able to directly spend it on the economy but you can go to your local coin dealer (and maybe even banks) and cash it in for many dollars worth of the new currency. In 1980 the last “gold rush” was a false one because the Hunt Brothers cornered the commodity markets, owning more metals through COMEX leveraging, than existed at the time, and it did not last long. During that time, the banks got into the act and they were buying and selling bags of silver coins and dealing in gold coins competing with the coin dealers. If there is a turning-in new money for old, it is very possible you could redeem some of your gold and silver directly through the banks to get the new treasury notes.
How does gold and silver keep its value in cases of hyperinflation? Here is a hypothetical example: In the early 1970’s the exchange rate for a Mexican peso to the US dollar was about 4 – 1. It took four Mexican pesos to equal a US dollar. In 1970, let’s say Pablo owned a 50 peso gold coin which contains 1.2 ounces of pure gold and he stuck the coin under his mattress. Juan owned a 50 peso banknote. He also hid the note under his mattress. Both the banknote and the coin were close to the same value about 15 US dollars. In the 1980’s, about 15 years later, Juan turned in his 50 peso banknote at the bank (3000 old pesos for one new one) and got the equivalent of less than 2c in US dollars. Pablo owned the 50 peso coin, 1.2 ounces of gold which was worth hundreds of US dollars. In this example the gold held its value and the inflated paper money did not.
THE AMERO: There has also been talk about the US getting involved in a basket of currencies, doing away our Federal Reserve banknotes, and a adopting a new unit called the amero. Of course this would be completely against the constitution, but as of late our politicians pay little attention to the constitution. There have been very casual, preliminary talks between Mexico, Canada and the US, to start a new currency like the European euro, called the amero. It is very very unlikely anything like this would ever happen. Nothing is planned nor have there been serious discussions about it but rumors exist. One talk show host said that we have sent 300,000 brass ameros to China, which is ridiculous. He showed an actual amero coin on his show, with the Denver mint mark. If you look on ebay you will see all sorts of amero brass, copper and silver coins being offered. All of these are “fantasy coins”, something that never existed, that someone dreamed up to make a fast buck. They are privately minted and have no legal tender status and never will. In addition, no serious coin collectors pay any attention to them. There are no legal tender ameros paper or metal, and unlikely there will ever be..
CONCLUSIONS: If you are thinking of buying just bullion, consider the advice offered here; use common sense; then buy some widely recognized item with a very low (or the lowest) premium over the metal price. If you are thinking of buying numismatic coins buy something with real collector’s value. When I first wrote this article in 1998 I strongly advised against paying a premium for the more common numismatic coins that contained silver and gold, (based on my experiences during the “Gold Rush” of 1980). My advice has been correct. Common commemorative silver coins are almost all just bullion now, just tossed in with the 90% junk silver. Same with the common $20 gold coins; there is hardly any premium. If you or someone you know is interested in metals, ask our opinion. We will give you the straight scoop. If you follow the advice in this article, you will likely avoid many of the pitfalls of buying metals. The rise in metals in 1980 was a fluke due to the Hunt Brothers corner on the silver market, which went from $50, back down to under $5 a year later. This gold rush of 2011 is the real thing. The government will keep inflating and metals will keep rising.
Note: If you have any suggestions, criticism, corrections or comments regarding this article, call or Email Art.
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