Precious Metals 101 Guide
Need a little direction in your precious metals purchase?
Whether you are looking at buying precious metals for the first time or just want a little help thinking carefully through the many options when investing in precious metals, you’ve come to the right place. This guide will help new and old investors make basic, informed decisions when buying gold and silver. Let’s begin.
There are several important decisions you have to make before choosing what to buy:
Bullion vs. Numismatics
“Bullion” is a term that refers to precious metals which are owned, bought, or sold for the value of its metal content, not a special historical, collectable or numismatic value. Numismatic, rare, or semi-rare coins on the other hand, are being bought and sold for higher price than the metal is actually worth because of some special value. While some bullion will carry a small premium over other forms of bullion (e.g. 1 oz coins versus 100 oz bars), the idea behind bullion remains the same – the coin or bar simply represents the weight and purity of precious metal which was stamped on the surface of the metal.
We believe bullion makes the most sense for most investors. For example, at the end of 2008, certain semi-rare gold coins were selling at 50-60%+ premium over the spot price. While the spot price saw a double-digit percentage increase over the following 6 months, the price on these semi-rare gold coins dropped over 20%. That’s right – the price of gold increased, but the price of these semi-rare coins dropped during the same period. In our opinion, inexperienced investors should be cautious of non-bullion precious metals.
Bars vs. Coins
As a rule, smaller, recognizable coins are better if you expect to be using coins as a barter or money item in a worst-case scenario. If you expect to be trading, bartering, and using your coins as money, consider 90% junk silver, American Silver eagles, 1 oz gold coins, fractional gold coins (less than 1 oz in size), and 1 oz generic silver coins. Be cautious of very large bars or numismatic gold pieces which have a higher premium that can be difficult for average investors to determine.
For a larger investment you expect to buy and sell in large amount, small coins can actually be difficult to count and transact when you sell. For a single $10,000 silver transaction, (50) 10 oz bars are far easier to count than 8,000 silver dimes.
American vs. Foreign coins
As a rule, American coins are more popular in America than most foreign-minted coins. Gold Eagles, Gold Buffalos, and Silver Eagles are favorites with many investors and coin collectors in America, giving them greater name recognition and demand than other coins. US minted bullion gold eagles, gold buffalos and silver eagles (though not the 90% silver coins) are also currently exempt from 1099 requirements if you decide to sell your precious metals.
For all investments, here’s our biggest recommendation. If you have trouble recognizing or understanding the value of a coin or bar, don’t buy it. If you don’t believe in the value, it’s unlikely you’ll do a good job convincing someone else of it. Buy what makes sense to you.
Gold has long been considered the granddaddy of all precious metals, but many investors feel that silver is an especially strategic investment in the current market, and we agree. However, each investor should carefully consider the following differences between gold and silver:
Portability vs. Tradability
Because of its higher value and denser composition, gold is obviously far easier than silver to conceal, transport and store. ($25,000 oz of gold takes roughly the same space as $350 in silver.) On the other side, silver is generally considered to be easier to trade, barter, buy, and sell. Because silver coins can be worth between $5-25, they are far superior for spending and bartering on an everyday basis, or buying and selling in smaller portions.
Lower Premium vs. Ease of Liquidation
As a rule, smaller coins are easier to sell to other investors and coin shops, or to use in a trade/barter situation. You will typically pay more over the spot price to buy these coins. On the other hand, larger, more expensive bullion items (e.g. 10 oz gold bars) can be purchased with much lower premiums over the spot price, but can present more of a challenge when you are looking to sell it. Before you buy, ask yourself, “Why am I buying precious metals, and how do I expect to be selling it?”
What about Counterfeiting?
Gold, because of its higher value, is generally more susceptible to counterfeiting. This creates a higher standard of care when buying and selling gold coins.
Between 2010-2016, the price of gold has averaged between 60-80 times the price of silver (60:1-80:1 ratio). Most analysts believe that historically the price of gold ought to be much closer to the price of silver, as low as 30:1 or even 20:1 or less. While there are many conditions which affect this price ratio, many analysts believe that this ratio will be decreased in the future.
Silver as an Industrial Commodity
Silver’s dual purpose as an industrial metal and a precious metal creates special pro’s and con’s. Because of silver’s use in manufacturing, the price of silver can be sensitive to the ups and downs of manufacturing. That fact, combined with silver’s smaller price per oz, can make the silver market can be more volatile than gold. Silver is often considered the double-edged investment since its industrial use gives it strength in times of economic prosperity, while its precious metal use gives it strength as a hedge against a failing US Dollar and weakening global economy.
What about Palladium and Platinum?
Because of their highly specialized industrial use, palladium and platinum are not common choices for new investors. Platinum and palladium can be strategic investments in many cases, but investors should carefully research the history and background of platinum or palladium before purchasing. Investors should also be aware that some of the traditional outlets for the retail of precious metals (pawn shops, coins shops, eBay, etc.) may not be as conducive to purchasing platinum or palladium as they would with gold or silver.
Buying from Cornerstone Bullion is simple. When you call in and place an order, that order is a legally binding agreement between you and Cornerstone Bullion. You have to pay us the purchase amount, and we have to ship you the purchased items. The order confirmation we issue on every order clearly spells out this agreement each and every time. Billions of dollars of precious metals have been bought and sold this way all across the country for decades.
We’ve never had a single unsatisfied customer. That’s the only way our company will stay in business and retain our “A” rating with the Better Business Bureau. And frankly, we know that when a business dishonors God by cheating from their customers and defaulting on their agreements, that business has bigger problems than just the Better Business Bureau and civil & criminal liability.
Once your payment clears and we ship your purchase, you can be assured that your shipment will come packaged in a non-descript package, fully insured. If you have more questions about buying from Cornerstone, visit our How it Works page.
As a general rule, you should store your precious metals in the place YOU feel most secure. Here are few tips you might find helpful when considering how to store your investment:
- Bank Safety Deposit Box. This can be a safe and easy option for many investors. The Cons? Fees, bank hours, and the fact that if emergency struck and you needed your precious metals in an instant, you may not have access to them right when you needed them most.
- Safes. We encourage our investors to be careful about putting precious metals in a conspicuous, yet ill-guarded safe. Light or accessible gun/jewelry safes can be a target for some thieves. Hiding your safe or buying a heavy duty jewelry safe (they can weigh up to 2,000-4,000 pounds empty) can mitigate these risks.
- Hiding. Loose tiles in bathroom, obscure coffee cans on the back of the pantry shelf . . . you get the picture. Unlike cash which can ignite, precious metals can be somewhat resistant to a total loss in the event of fire.
- Burying. This can be an excellent option for small or large amount of precious metals. You can buy specially made waterproof capsules for burying your stash in the far corner of your dirt crawlspace or 50 yards east of dead-man’s tree on the back 40! One homemade solution is to take a 4” diameter PVC pipe, cut it in 6-18” in length, and glue a PVC cap on one side. Place your metals into the bottom, stuff some paper towels or other stuffing to keep everything snug and tight, and glue a cap on the other end of the pipe. When opening, you will have to get a hack saw or similar tool to cut open the capsule.
- Depository. For investors with a significant amount of precious metals, there are storage and depository facilities that will store your metals for you. This is generally required for IRA investments. The con’s to this option are the same as bank safety deposit boxes. We recommend doing a due diligence when considering a deposit facility. How long have then been in business? Do they have independent audits of their inventory? What information are they tracking and reporting, and to whom?
COMMON DEPOSITORIES TO CONSIDER:
|Delaware Depository Services Company (DDSC)||Wilmington, DE|
|CNT Depository, Inc.||Boston, MA||(508) 807-4800|
|Brink’s Global Services USA Inc.||Springfield Gardens, NY|
|Los Angeles, CA|
|Salt Lake City, UT|
|Dakota Depository Company (DDC)||Fargo, ND|
|Idaho Armoured Vaults, LLC||Nampa, ID|
Interested in storing in Canada, the Cayman Islands, or Zurich? Contact us for more details.
There are 3 common ways to liquidate precious metals. Some forms of precious metals – 10 oz gold bars or 100 oz silver bars for example – can be considerably harder to sell in some circumstances than others like 1 oz American Silver Eagles. Before purchasing, you should briefly consider how and where you anticipate selling your precious metals (if you plan to sell at all).
- Sell to a Coin Shop or other retail location that buys/sells precious metals. Most large cities have at least several retail locations that will buy and sell gold or silver.
- Sell to a national precious metals dealer like Cornerstone Bullion. In most cases, this is your most economical option. Many retail locations require 2-3 times the commission for buying and selling metals, just to cover their costs and keep their doors open. Because we don’t have a retail store, Cornerstone Bullion has limited overhead and expenses, giving us very competitive pricing on the sale and purchase of precious metals.
- Sell/Trade/Barter to a friend, another investor, or the general public. Obviously, the better known your bar or coin is, the easier this process is.
There’s always risk in everything. In today’s markets, not investing in precious metals can be a huge risk. However, please remember that gold and silver prices can be volatile, so think through the following questions carefully:
- How much available cash do you have? Remember, buying and selling precious metals frequently can be more hassle than other electronic investments. Try to keep a reasonable supply of cash or available funds on hand to avoid selling your precious metals before you planned.
- What is your desired holding time for precious metals? If you are investing for less than a few years at a time, we recommend becoming very familiar with the history, trends, and movement of precious metal prices so you don’t get caught buying high and selling low.
- Will you have access to my precious metals when you are ready to sell? We recommend storing precious metals somewhere readily available. Be careful with depositories, and even bank safety deposit boxes. (Remember, IRA investments are required to be held by a 3rd party depository, so don’t expect to be able to store your IRA investment in precious metals under the corner of your mattress.)
Of course, our lawyers want us to remind you one more time that investing in gold in silver always involves risk, and Cornerstone is not a registered financial advisor, so you always need to do your own research before making any investment decision.