Buyers trade up

There were some strange retail customer silver and gold bullion trading patterns at my store at the end of January and during the first three days of February. All week long it seemed like we were buying back U.S. gold American Eagles while other customers were purchasing large quantities of Canadian gold Maple Leaves. In silver, we purchased significant quantities of U.S. silver Eagles from the public, while buying demand was heavily skewed toward U.S. 90 percent silver coins.

I have a theory for these two different trends by the public. Over the past three decades I have observed that the savvier, longer term buyers of physical precious metals are more concerned with getting the most gold and silver for the money they are paying out. Therefore, they tend to acquire gold Maple Leaves or U.S. 90 percent silver coins because of their lower premiums. On the other side, newer and less knowledgeable buyers of physical precious metals are heavily influenced by current marketing campaigns and tend to acquire products that they see advertised – such as the gold and silver Eagles.

Looking back at the entire week, it appears that the more informed (strong hands) owners of precious metals tended to be buyers last week while those less familiar with gold and silver markets (weak hands) tended to be net sellers.
Most all gold and silver bullion-priced coins and bars are readily available, though there might be a 1-2 week delay for Johnson Matthey 100-ounce silver bars. Also, since Engelhard had not fabricated any silver bars since the 1980s, you might experience temporary unavailability or slower delivery of this particular brand name. Premiums are still reasonable, though 90 percent silver coin is selling at a higher premium than two months ago.

Generally, those with greater familiarity and understanding of the physical gold and silver markets are buyers right now. That speaks volumes about which direction prices are likely to go in the coming months.

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Be cautious when buying 1-ounce silver rounds and bars.

There are a number of fabricated 1- ounce silver rounds and ingots that do not identify either the fabricator or the company for whom they were manufactured. There are also a growing number of deceptive or outright counterfeit 1-ounce silver rounds or bars. Some of the deceptive pieces say something like 1 troy ounce 100 mills .999 silver which means that the gross weight is 1 troy ounce but that there is virtually no silver content. The 100 mills designation indicates the thickness of the silver plating on the piece, which is negligible.

There are also pieces that are of the size and weight and look of 1-ounce silver rounds and bars, but don’t contain any silver at all. We sometimes see pieces either as part of a larger group (usually from other dealers) or occasionally a customer has a handful of these counterfeits and nothing else. In just about every instance, the deceptive or counterfeit 1-ounce silver pieces do not identify the fabricator or the company for whom they were manufactured.

To help avoid being stuck with some of these low or non-silver issues, I recommend examining each piece you purchase for a brand name, and insisting that you will only accept silver rounds and bars with brand names. There are hundreds to thousands of different good quality brand names. You might be surprised how many of them actually contain a bit more than 1 ounce of silver.

Still, with all the variety of designs, it’s easy for a non-silver piece to sneak through a mixed batch. Keep in mind that most pieces without a brand name are good quality. The trouble is still relatively minor, but I expect the problem of deceptive and counterfeit 1-ounce silver rounds and bars to be worse in the future.

Look for opportunities in circulated U.S. gold coins.

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In other columns and newsletters, I have written about the decline in premiums for classic U.S. gold coins, which were issued before 1934. Premiums above gold value for many circulated and Mint State coins are now lower than at almost any time in the past 30 years. That may be about to change. In the past couple weeks, we have heard about some wholesalers starting to chase some coins (especially circulated $5 Indians) for marketing companies to run promotions in the near future.

The concept is easy to understand. You can now purchase extremely fine $5 Liberties, which have a gold content of .2419 ounce, for almost the same premium as a U.S. quarter ounce gold American Eagle bullion coin. If I had the opportunity to acquire classic U.S. gold coins at bullion-related prices, I would certainly be interested.

When there was a physical gold buying frenzy in late 2008, delivery times for gold bullion coins and ingots increased to a month or two. As a way to acquire coins that might be available for fast delivery, some purchasers started purchasing lower-premium circulated classic U.S. gold coins. This demand led to higher premiums for a time. If a gold buying frenzy occurs again, and I think there is a strong likelihood of it, these coins could rise in premium for that reason alone.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).