While old hands at physical precious metals might take it for granted, I have found a significant information gap for would-be buyers. Once they have done their own homework and decided that they should own some bullion-priced physical gold and silver as wealth insurance, there is relatively little information about what to do next or exactly what kind of coins or bars to purchase.
This dilemma is further compounded because, in my experience, there is no one-size-fits-all answer to the question of what to buy. It seems like there are pluses and minuses with any option.
Each person needs to identify which factors are most important for their own circumstances, but let me list some of what buyers need to consider.
1. What is your motive for purchasing precious metals? Wealth insurance, potential payment form to purchase goods and services if paper currencies fail, investment, gifts?
2. Does it matter whether you want to own U.S. versus non-U.S. products? American made coins or ingots may be somewhat more liquid in this country than foreign merchandise.
3. Do you prefer legal-tender coins or ingots, bars and medallions that are not legal tender? If there is a chance of crossing national boundaries, coins tend to be exempt from import duties while non-legal tender items almost certainly would be. Be aware also that, although most of the 34 states with rare coin and precious metals bullion sales tax exemptions cover both legal tender and non-legal tender items, there are a few states where purchases of one product or the other may be subject to sales taxes while the other products are exempt.
4. Are exact weights in troy ounces or in grams important to you or are you flexible? In the United States most prices are quoted in troy ounce weights while in the Far East almost all trade is in metric standards.
5. Would you prefer pure or alloyed precious metals? Pure gold has a drawback of being a very soft metal. A customer of mine once dropped a pure gold Canada Maple Leaf six inches onto a glass counter producing a dent on the coin’s edge. Almost all gold coins that circulated over history had some alloy to give the coin greater durability. For instance, U.S. gold coins from the late 1830s to 1933 were made of 90 percent gold and 10 percent copper. The current one-ounce gold American Eagle weighs 33.931 grams with gold purity of 91-2/3 percent (22 karat purity), silver 3 percent and copper 5-1/3 percent. If you do the math, the American Eagle contains one troy ounce of gold content. If, down the road, however, you get into a circumstance where gold and silver coins and bars are melted down and refined, the purest forms would be worth slightly more than alloyed pieces. If you are trading precious metals in the Far East, you just about have to have pure items.
6. How important is liquidity to you? In early American history, people became familiar with a wide variety of circulating money to know the relative value. That knowledge is almost completely absent today from people who do not own or trade gold and silver. If liquidity is highly important, that would tend to direct you to the higher volume options which state on their surfaces their precious metal content, and especially for pure merchandise, the purity.
7. Does it matter which metal you own? Gold has high value in a dense form. Decades ago, I carried several hundred ounces of gold in my pockets when going through airport security (the metal detectors back then were not as sensitive as they are today). An equivalent value in silver would have weighed more than a half ton and would have occupied about one hundred times the physical mass. I have customers for whom secure storage space is a premium, so they can only afford to own gold. Others have significant storage arrangements, so can own some of both metals or only silver.
8. How important is divisibility to you? This question is particularly important if you own precious metals against the possibility that the U.S. dollar and other currencies may someday fail and you need another readily accepted medium of exchange to make purchases. Gold has a disadvantage in this circumstance of having a relatively high value. It would not be practical to purchase a loaf of bread or a gallon of gas with a one-ounce gold coin. Silver, on the other hand, especially in one ounce or smaller coin or ingot form is highly divisible. Among the pre-1965 U.S. 90 percent silver coins, one dime contains about 1/14th of a troy ounce of silver. For purposes of potential spending money, I consider U.S. 90 percent silver coins to be the best form to own, with one-ounce size pure silver coins or ingots (including rounds) as the second-best option.
9. Don’t forget about the premium that you would pay to purchase physical precious metals, which is the amount above the metal value that the specific products cost. Premiums can and do fluctuate over time, especially with coins and ingots that are out of production. Also, the larger products such as one-ounce or larger gold and one kilogram (32.15 troy ounces) or larger silver products tend to have lower premiums than smaller options. Generally, once a particular issue has enough pieces on the market, there is enough supply being liquidated at any time to push down premiums. Once the retail price falls below what the Mint or manufacturer are charging for new pieces, production tends to cease. In gold issues, that has happened with the Austria 100 corona, Mexico 50 pesos, South Africa Krugerrands and 2 rands, U.S. American Arts Gold Medallions, British sovereigns, and others. You will usually be able to acquire these products at a lower cost per ounce of metal content than you would pay for other items in current production such as the American Eagles and Buffaloes, Canada Maple Leaves, Australia Kangaroos, Austria Philharmonics, China Pandas and the like. One thing to keep in mind, however, is that such products are traded on the basis of metal value. At the most extreme you might pay an extra five percent for one form versus another of comparable size. So, while relative cost is a factor, it isn’t necessarily the most important one.
10. Don’t forget about your own privacy. There are a handful of coins and bars that, when you sell them in large enough quantities, may force the dealer to send a Form 1099-B to the Internal Revenue Service with details of the transaction. In gold coins, for example, this would involve the sale of 25-piece lots or larger of the one-ounce (and only this size of coins) of South Africa Krugerrands, Canada Maple Leaves, or Mexico Onzas. Pure gold bars would also be subject to this government reporting if liquidating one kilogram (32.15 troy ounces) of more of them at one time. Government reporting regulations can and do change over time. Last November, the government of India started requiring jewelers to start reporting large gold transactions. As a consequence, buyers instantly switched from purchasing gold to buying silver, which was not subject to reporting.
You may find it very helpful to visit local coin dealers or go to coin shows to physically hold some of these products in your hands to help evaluate which ones best suit your purposes. Feel free to ask questions of the sellers. The answers you receive can help you decide which dealers offer better service, which can be just important as price in determining where you get the best value.
If your mind is starting to get numb with all the potential choices, I have prepared a table to compare the features of 11 popular options for owning physical gold.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service 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. Some of his radio commentaries titled “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).
This article was originally printed in Numismatic News. >> Subscribe today.
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