How to Buy Gold & Silver

Many readers who grace this site believe in precious metals but have yet to "try the water". Well come on in boys, the water's just fine!

If you regularly purchase gold and/or silver bullion then you probably should just close this article and go on to another. If you have been thinking of making a purchase, by all means - read on.

When to buy is the eternal question (followed by what to buy). You can talk to "experts" about when to buy but the final choice is yours. Chances are if someone is even talking to you - they do not know for sure. After all, if he knew, he would be investing his own money and would be too busy spending all his profits to advise anyone. Therefore, my best advise is the most difficult - do your own due diligence. Sorry about that but the sooner you take charge of your financial affairs the better and more well informed you will be. My advice (reread above) is to watch the charts and simply cost average in on the dips. Buy small amounts regularly, that way you will not make the mistake of buying it all right at a top.

What to buy is probably just as difficult. There are many different ways to purchase actual gold and silver such as: bullion coins (my favorite), bullion bars, legal tender coins and numismatics (collectibles). The key thing to remember here is value. I believe in getting as much gold or silver as possible for price.

All gold and silver are quoted in spot price as bid/ask. The price you will pay when purchasing is the spot ask price. On top of the spot price you will pay a premium plus a commission. Premiums vary from item to item. The spot gold and silver pricing can be found easily on the Internet. My website home page lists a link to spot pricing about halfway down the page.

Numismatic or collectible coins naturally have the highest premium and sometimes sell for many multiples of their bullion values. If you chose to get involved in numismatics make sure you understand them just as with any rare collectible art such as valuable paintings and antique cars. They can be a vehicle for great wealth, but remember the market is much smaller when dealing with numismatics - and as a result they are less liquid. If you do not understand them - stay away as an investment!

Bullion bars are interesting. Large bars such as the 1000 oz silver bars traded on the COMEX carry no premium at all. You simply buy a contract and take delivery. You do have a few hidden expenses with large bars. First there is the cost of the contract itself or the broker's commission, next is the cost of insured shipment to you if you take delivery, and do not forget the cost to assay the bar when you go to sell it later. Smaller bars of 100 oz or less are usually quoted including insured delivery and do not usually require an assay if they are stamped with a hallmark from a reputable refiner.

Bullion coins are just like small bars. They offer precious metal with very small premiums. Usually one-oz coins offer the best value. If you purchase fractional coins the premium will be more. Examples of bullion coins are gold South African Krugerrands, silver rounds by J-M, or other reputable refiners.

Legal tender coins are like bullion coins but have a difference (at least within the USA) in that they are legal tender and can be used in payment of all debts both public and private such as paying one's taxes. The US Silver Eagle for instance is a one oz silver coin with a legal tender value of $1.00. The market value for that coin is about $6.00. Likewise, a US one-oz gold eagle coin has a legal tender value of $50.00 with a market value of around $380. However, there are advantages to owning legal tender coins. For now, just remember that legal tender coins have a slightly higher premium than plain bullion coins or small bullion bars.

Junk bags of pre- 1964 US silver coins contain 715 oz of silver at $1,000 legal tender value. They are simply another form of legal tender coin that sells in bulk. These bulk bags normally sell for about $3,500. The premiums are usually in the range of silver rounds.

When purchasing gold and silver bullion for a long-term investment, ALWAYS TAKE DELIVERY. Many people claim that they are afraid to take delivery because of the risk of theft. These same people leave their $40,000 cars parked outside and have jewelry and other precious items in their home. This is no different, simply use good judgment.

Many people ask me if they should buy silver or gold. My first reaction is to check the gold/silver ratio. Anytime it is above 50 then I feel silver is better value. (check out my article "Silver or Gold" on my web site under "more articles" for a thorough explanation of the gold : silver ratio) Presently the ratio is at 79+, which is almost a record high. This is a screaming buy signal for silver over gold.

Here are a few examples of our most popular items:

1 oz silver round coin    spot price + premium ($.35) + commission (1.5%)

100 oz silver bar            spot price + premium ($.40) + commission (1.5%)

1 oz US silver eagle      spot price + premium ($1.40) + commission(1.5%)

1 oz gold Kruggerand    spot price + premium ($5.50) + commission(1.5%)

1 oz US gold Eagle        spot price + premium ($14.00)+commission(1.5%)

Please note that the spot prices & commissions may vary and the above pricing is strictly for illustrative purposes. Both premiums and commissions can vary with volume.

Be sure that the insured shipping to you is included in the premium and the price quoted does not have any hidden charges.

Also purchase at least $1,000 worth of bullion at a minimum. Otherwise sales tax must be charged. Sales over $1,000 are exempt.

Finally, just like with most things in life, shop around a little. You want to use a reputable dealer but always check pricing. Commissions and premiums vary somewhat. It is also a good idea to use more than one dealer when making regular purchases.

So now you are ready. Watch the spot price and when you feel it is time, call or email your broker. He will check the spot pricing, premiums and commission and quote you a price. You may then place the order at that price or call back later. (Remember if you call back much later the spot price can change.) If you decide to make the purchase, a trade number is issued and the deal is done, much like purchasing a stock on the phone with your broker. At this point you have obligated yourself and may not back out. (Neither can the broker.) Payment in the form of secured funds such as a money order or wire transfer is usually required within 24 hours. The bullion is usually in your hands within two weeks of the purchase.

Please note that I am no means a financial advisor and all investments should only be made after performing your own due diligence.